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Good morning, everyone, and welcome to the Docebo Inc. First Quarter 2022 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Docebo's Vice President of Investor Relations, Mr. Mike McCarthy. Please go ahead, Mike.
Thank you, operator. Before we begin, Docebo would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties and assumptions 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 financial 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 over the call to Docebo's CEO, Claudio Erba.
Hello, everybody, and thank you for joining us for our first quarter earnings call. With me today is Alessio Artuffo our President and CRO; and Sukaran Mehta, our CFO. We are extremely pleased to report another strong quarter this morning, driven by continued strength in demand for our products and services across all market segments. We are particularly excited about the excellent momentum in enterprise segment that is enabling Docebo to lead the charge in a fast-growing market characterized by secular and macro tailwind and excelling business fundamentals allowing for rapid growth scale. ARR growth continued to benefit from the availability of our free suite of products and momentum in the enterprise segment. We saw well-distributed representation across industry verticals and continue to see more than 60% of our customers using our platform to enable external training and hybrid training use cases. These use cases are strategically important to the table as they reflect how our customers are using our solution to solve for mission-critical learning requirements. This adds to create a more intimate sticker relationship that leads to increased ACV and drives a higher lifetime value to our customer relationship. And consistent with prior quarter, almost half of our net ARR addition came from customers with ACV over $100,000. It is also worth noting that we have seen an 83% year-over-year increase in the number of customers generating ARR of more than $100,000. Finally, profitability continued to improve every scale. We remain on a trajectory to turn adjusted EBITDA positive as we exit the year. As a normative as we are maintaining capital efficiency and growth at the right cost remain in our DNA. Sukaran will discuss our financial performance in more detail momentarily. But let's take a moment to discuss why we are so excited about what the future holds for operating in a macro environment that is best characterized as one-off sustained demand for the enterprise. Organizations are being challenged with inflation, talent competition and skill gaps. All while operating in a changed environment, we're engaging with employees, customer and partner in a hybrid work environment is the new normal. As a result, they are focused on investing in technologies like Docebo to drive critical business outcome, whether it's improving the efficiency and the execution of the workforce or strengthening the customer and partner relationship. We see this trend cutting across industry vertical and geography. It is becoming clear that learning and training are deflationary investments. The redundant nature of Docebo platform supports the diversity of any learner. It eliminates the anarchy customers have been seeing when supporting multiple learning management system across multiple department and use cases. Partnering with Docebo, organization are implementing a federated learning model where a single LMS serve as a multi-department system with multiple owners. The adoption of learning technology is accelerating. In this year, phase of expansion, we believe we can grow from the $100 million plus ARR company we are today, to a $1 billion revenue company in the future. Now speaking about a few notable customer win this quarter. We signed a new customer agreement with Bridgestone Americas, a leader in tires and sustainable mobility solution. Bridgestone selected Docebo as the learning management partner for employees in the external channel partner training for its retail business to offer intuitive and personalized learning experiences to more than 20,000 retail employees. We continue to see retail business employee external trading as a key pillar of their customer growth and engagement strategy. Another new logo customer we would like to call out for you this morning, is a global leader in workflow automation software, specializing among others, in solution across both customer and employee experience. They choose Docebo and the full Docebo learning suite due to their needs for a superior end-user experience and the integrated capability to connect to other business enterprise software deployed across their ecosystem. Customer expansions were also strong contributors to the quarter. And we are seeing continued traction in our land and expand strategy. We believe that our goal to transform customers into raving fans will become critical to our long-term growth strategy. In case in point, we broadened our partnership with the leading North American based luxury retailer just 6 months after the initial agreement. This customer expanded their use of our learn LMS into their entire retail group for onboarding and upscaling of their store associates through a tailored mobile solution and grew the subscription value by 137%. Turning to contribution from product launched last year. We are happy to see continuous progression in attach rates. In particular, Docebo Shape, Connect and Content have exceeded our expectations out of the gate. For example, Docebo Connect is being deployed by one of the largest cryptocurrency exchange in the United States that we also signed this quarter. Our solution will enable automation of their learning processes that touch other application in their software stack while getting learning data where it needs to be, all at scale. Another example is [indiscernible] using Docebo Shape to create content quickly, consistently and give a faster time to value from their Docebo LMS. They are achieving this by leveraging artificial intelligence to create interactive learning experiences that facilitate such learning without burdening your content creation team. Alongside our product investment is the investment we are making in our people. This past quarter, we have made a significant process in expanding our senior and mid-level leadership organizations. [Indiscernible] come to us from industry and customer alike and bring the [indiscernible] total leadership, which is essential in executing our mission and strategy. This is also a great testament to our rising profile and reputation as an innovator and disruptor. One of these new additions to the team is Nina Simosko, who has joined as our Chief Sales Officer. Nina is a large-scale builder. She has an impressive track record at companies like SAP, Nike and Oracle. And will be responsible in scaling our direct and indirect sales organization to meet the growth objectives ahead of us. Also joining our team in Nicole Williams, SVP of Revenue Strategy and Operations. Nicole brings to Docebo many year of experience in our industry at Cornerstone OnDemand and will lead our revenue strategy, enablement and operational functions. We are happy to report that Docebo is finalizing our very first ESG report, which should be published before our shareholder meeting in June. I am proud to say that every Doceboian take our responsibility as corporate citizen to heart in everything we say and do. The impact that learning has on organization is not purely economic. We are proud to have our platform utilized by many of our customers to an advanced learning objective that achieve ESG and related goals. We look forward to sharing some more of those examples with you when we publish this report. I will now pass the call to Sukaran to speak to the financials.
Thank you, Claudio, and good morning, everyone. For those interested, a detailed breakdown of our financial results for the 3 months ended March 31, 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. The slide deck accompanying this earnings call was made available on our Investor Relations website this morning. Q1 was a great demonstration of the continued momentum in our business after a record Q4. This is a great time to be an innovative and disruptive force in the learning industry. Enterprises are investing in learning technology to help them create favorable business outcomes across all their organizations. These customers are at the core of the long-term secular growth opportunity that we are well positioned to capitalize on. Regardless of the economic environment, given the tremendous value we provide to our customers and our current market penetration, we continue to be excited about our future. Now to the results. Despite FX headwinds, total revenue for the first quarter grew to $32.1 million, an increase of 47% from the prior year. Subscription revenues were $29.1 million, representing 91% of total revenue for the quarter. Professional services in the first quarter were $2.9 million, an increase of 49% from the prior period. We added $11.6 million in net new ARR during the first quarter to bring our total ARR to $129.3 million, an increase of 55% year-over-year. We are especially pleased with this performance as Q1 is coming off our seasonally strongest quarter. New and cross-sell logos with ARR greater than $100,000, represented approximately 50% of the net new ARR, underscoring continued momentum with larger commercial and enterprise customers, and we take confidence in the fact that our pipeline continues to be strong. Total customers at the end of the first quarter of 2022 are 2,947. Our company-wide average contract value or ACV increased to approximately $44,000, up 23% from the $36,000 at the end of the first quarter of 2021. ACV for new customers in the quarter was approximately $60,000, driven by our continued shift in mix to enterprise-size deals and adding incremental products. And as we add more enterprise customers, the quality of our ARR base continues to strengthen. We believe the lifetime value of these customers reflects positively on the growth of our business, including expansion opportunities within our current customer base. Gross profit margin for the first quarter was 80% of revenue, which compares to 80% for the first quarter and 82% for the prior year period. We expect to maintain gross margins in the low 80% range over time as we continue to invest in best-in-class enterprise support, customer success and implementation services. Total operating expenses for the first quarter increased to $32.4 million compared to $23.5 million for the prior year period. Included in the $32.4 million of operating expenses is a foreign exchange loss of $3.4 million that relates primarily to the cash on our balance sheet and is, therefore, for the most part, unrealized. Operating costs, excluding this loss, were $29 million, slightly higher than the $26.6 million in operating costs reported on a comparable basis in the fourth quarter of 2021. A full summary of operating expense lines are presented in our Investor Day. G&A has continued to decline as a percentage of revenue to 23% for the first quarter compared to 24.4% sequentially. This is an area where we continue to deliver operating leverage, and as previously noted, expect to see ongoing leverage as we scale. Sales and marketing expense increased slightly as a percentage of revenue to 42.9% from 42.4% for the first quarter. We expect our unit economics to remain efficient as we continue to invest in our sales engine. This includes hiring seniority, quota carrying executives as well as adding depth in our account management team to drive expansion and higher net dollar retention. We also added a number of sales and marketing personnel as part of our Skillslive acquisition that will drive future growth in the APAC region. R&D investments in the first quarter were $6.2 million or 19.3% of revenue compared to 18.5% in the fourth quarter. In the fourth quarter of 2021, we recognized a onetime year-end benefit from R&D tax credits of approximately $800,000. Adjusted EBITDA came in at a loss of $1.3 million for the first quarter of 2021 compared to a loss of $2.5 million in the prior year period. We reported a net loss of $7 million for the first quarter of 2022 compared to $5.6 million net loss for the prior year period. Our strong capital structure is a function of our very healthy balance sheet, which shows net cash and cash equivalents of $212 million at the end of the quarter. Free cash flow was negative $2.3 million in the first quarter. In closing, I want to emphasize that we believe we are extremely well positioned to capitalize on what Claudio called a macro trend that is creating a prolonged demand environment for Docebo. We will continue to invest responsibly in a way that maximizes high-quality growth while at the same time, ensuring our ability to maintain our best-in-class unit economics and sales efficiency. This will be matched with continued operating leverage that will naturally lead us to turn EBITDA and free cash to positive as we exit the year. That concludes my prepared remarks, and I'd like to turn it over to the operator now to take some questions from the analysts.
[Operator Instructions] Your first question comes from Josh Baer with Morgan Stanley.
Congrats on a nice quarter. I wanted to start high level. You mentioned the ability to reach $1 billion in ARR, thinking bigger picture and longer term. Just wanted to get some context really for, at a high level, what it would take to get there when thinking about product segments and geographies, customers? And just any more kind of color on what it would take to get to $1 billion, obviously, over time?
Yes, Josh, first of all, welcome in the Docebo world. I know you are -- this is your first earnings call. This is Claudio. So we continue to execute organically. So I will focus my answer only in -- from the organic perspective. So not considering any transformative event. The industry is hyper fragmented. And the total addressable market is being reconsidered not only from the internal training, but also the external training is now part of our total addressable market. So in terms of the size of the market, we are in really unlimited big, big market. What are the actions we needed to take -- we are taking and we can take to get to $1 billion? First of all is product. Continue to innovate both the core products, which are the LMS and all the new products that we have built. But also imagining that training is not only delivery of multimedia content, but coaching is still part of the informal training concept like informal content sharing like we have addressed, the Docebo Coach & Share. So there are way more possibility, way more channels to train the people that can be transformed into product, into software. Then there are other verticals where we really are not there. And then thinking about government, I mean, government sector is usually a legacy industry that needs to be disrupted by innovation. And we think that we are innovative enough to give food for thought to big government entities and provide them some fresh and new way to train their people. Geographic expansion, I mean, the more you go east, the more the world is getting ready to approach sophisticated and modern way to train their people. We are still focused to Europe. And we still -- we are as soul and origins European, but most of our revenues are coming from North America. So if you put together all of these elements, which are all organic, new products, new verticals and new geographies. We do have a lot of buffer to increase the size and getting to the $1 billion, which if you think the total addressable market, which is way bigger to the $1 billion, $1 billion is still a minor fraction of the total market size.
And then follow-up sort of unrelated, but more near-term focus. I wanted to just ask if we should expect changes to the go-to-market following some of the recent leadership additions on the sales side.
So first of all, me and others, I consider -- I met Ales only 10 years ago. And I consider Ales founder of the company. And we are learners, but I really need close to me, Ales, for a broader scope because very often Ales is only recognized as a revenue leader. But for me, he has capabilities like looking at part of the organization, having product ideas. And I want him to oversee the revenue team because Nina will cover only sales, will not cover marketing, will not cover professional services and all of them still reported to Ales, the Chief Revenue Officer. But I want to leverage my friend, colleague and partner also on other duties, which I need help. So I want to leverage him not only as a revenue leader, but also as President. Now in the organization he's considered revenue and President, but for me, he's more President and revenue. Ales, do you want to add something on that?
Hello, Josh, thank you for asking that. Look, as we continue to grow and we continue to prepare ourselves to the next -- journey of the next, call it 3 to 5 years, the road to a $1 billion is made of all the things that Claudio spoke to before, which is execution, right, getting better products, better attach rates, better G expansion, all of that is execution. But then you get a layer on top of that organizational innovation and organizational scale. And when we think about the next 5 years, what we really believe is that human capital is critical. So people like Nina, people like Nicole, that have led them, scale organization. They know what it takes to go from $100 million to $500 million, $500 million to $1 billion will be invaluable assets to get there. Look, of all the, I would say, here are the improvement that we may have at management, we remain humble. We got to $100 million in revenue, not having done it before. We're very clear on what it takes to get to a $1 billion. And we know that the sum of all cards is stronger than each and every one us. And so if we surround ourselves with really great people, we're going to get there better and faster.
Your next question comes from Suthan Sukumar with Stifel.
Congrats on another print this quarter. I want to touch on the stronger level of net new ARR you guys had this quarter. It looks to be quite stronger than what you posted last year and what looks to be a seasonally slower period. I'm curious what you guys are seeing in the demand environment that keeps you really excited on the outlook with respect to kind of buyer profile, behavior and spending trends. And should we be expecting seasonal strength to kind of pick up over the year, similar to prior years?
So Suthan, I will take the outlook part in terms of spending and macroeconomic environment and then Alessio will jump on detailing the revenue and the ARR. So in terms of outlook, we think that companies are now worried on a couple of points. One is spending, recession, downturn and others. But probably there is another factor that is more worrisome for them, which is talent and people. And not only from the inflationary raise of salary, but because of the shortage of talent. And so they need to adopt and to increase the adoption of an online learning system like Docebo is a defense strategy to mitigate the talent, great resignation, remote work trend, which is continuing to happen despite the macroeconomic downturn. But don't forget that Docebo is also an external training tool, which historically has been used to establish deeper relationship with their customer and partner base. And then you have to look at these tools also as a defensive strategy to reduce, to stay closer to the customer, to better work with the partner and stuff like that. That said, we see Docebo well positioned. I have been in the company in 2008, in 2012, in many economic downturns. And I have always seen people -- companies investing on people during these periods. Ales, do you want to add something about the revenue?
Yes. So look, Suthan, you said it right. Just as a recap, we printed 11.6 million. Last year, if I -- unless I'm mistaken, we printed same time period 9.4. And for that same time period, we recorded and shared that 9.4 included a second figure contract with a large chain, food restaurant chain provider. So we are beyond pleased with the results. We're thrilled about it. We think it's an exceptional outcome. And when I think about why it happened and why we expect for it to continue and to actually get better. I'll just refer to what we shared on customer use cases like Bridgestone, but also [indiscernible]. Those same customers, had we signed those even a year ago, we wouldn't have been able to satisfy their gains for a broader scope solution. These are organizations that are going to be leveraging connect. They are going to be leveraging flow. They're going to be leveraging capabilities that extend well beyond the learning LMS as you guys used to know us of. Now our tickets are going up. Quarter-over-quarter, we see those charts and the constitution of our net new deals going up and our expansion capabilities going up. So all in all, we're not only pleased, we're ecstatic about the growth rate. We believe it's going to continue. And the way it's happening, it's according to plan. Our hypothesis is validated by the results.
As a follow-up, could you provide an update on sort of the demand side in terms of what you're seeing in the indirect channel, especially with the OEM partners? I'm curious to see if there's been any changes in the trends that you've been seeing in prior quarters.
So we, first of all, have continued to grow year-over-year our OEM book of business in a percentage makes us extremely happy. It means that our partners not only continue to be satisfied with our existing services, but they're adding on capabilities. In fact it was a 70% growth year-over-year for that book of business. Now on the demand side, we're extremely, extremely focused on partnering with the right organization that will yield material results in the future. These relationships are very deep in the organization and we're very, very confident and excited in our pipeline and are executing around that. Now just as a reminder, when we think about adding people like Nina, some months ago and beyond, we're thinking about that also in the context of their expertise, their background, their capabilities, their network in bringing to the table, not only names, but the capability of executing and design the organization properly. So as a recap, we're staffing ourselves to execute in that world better and better. We like the demand and our existing partners are performing great.
Your next question comes from Rob Young with Canaccord Genuity.
Maybe first question for me, just a mechanical one. I was hoping you could give some insight into the divergence in the growth rate of ARR and revenue. It's a little different than I've seen in the past quarters. Is that just the timing of enterprise skewing towards the end of the quarter? Is there a Q1 dynamic there? So if you could explain maybe that and how you expect things to develop over the near term plan?
Sukaran here, I'll take that one. So if you think about -- I can give you simplify it into kind of 2 or 3 things that will have some of this divergence. Firstly, as you move up the chain into the enterprise segment of the market, you're going to see customers that will negotiate the contracts that have become, I will say the customer is becoming smarter and enterprise customers procurement teams tend to more negotiate the contracts towards the end of the quarter. So some of that benefit that you would see historically would have been more -- that mix would have been coming in at the start of the quarter. So you -- some of that revenue doesn't come through until the following quarter per se. And the other thing I would say is as we've matured into selling at the enterprise segment of the market, this is a bit of a rev rec, -- for your benefit, I'll spend 2 minutes on it, is that -- not 2 minutes, 20 seconds on it is that when you do enterprise segment deals, you also have the concept of ramp deals. So an example here would be a QSR chain that signs up for 3-year deals. They're locked in for the 3 years, but it's a ramp deal in terms of monthly active users, so they have to build it in year 1 and then they scale up to year 2 and they scale up beyond that in year 3. And they're locked in for each of those tiers for 3 years. So the ARR in that concept, we take it as a straight average, whereas the revenue recognition is on -- if it's first year is $10,000, second year is $20,000, third year is $30,000, it's $10,000 in year 1 revenue and $20,000 year 2 and $30,000 year 3. So that's where you see a bit of a differentiation on the ARR versus rev rec. But I think if you think about it in the next few quarters, you'll -- we will pretty much get to a closer -- slightly closer to ARR versus rev rec conversion ratio.
I've got 2 more, if you allow it, but I was hoping that you could give us some insight into your thoughts on the EdCast acquisition by Cornerstone. I know you had a relationship that was relatively new. In the press release, you highlighted that you had one customer that chose Docebo for LMS, LXP, LRS functions. And so I'm just curious how that EdCast acquisition changes your relationship there or maybe if there's any change in the market? That would be helpful.
Yes, sure. Rob, thank you. First off, we congratulate our friends at EdCast for their new journey with Cornerstone OnDemand. With regards to us, I would say one word, immaterial. Why? For one, the nature of our relationship was such that, again, it doesn't make a difference to our business. For 2, the capabilities that we have in our platform, we believe, are second to no one in the space, second to no one, I repeat. And when it comes to what others do, we're very focused on our roadmap. We're very focused on our plans. We're very focused on our win rates. And when we look at our win rates and our -- and for the future, we're excited for what's ahead. So again, very, very happy for our headcount trends, but it's not something that we -- that makes any change for us.
Yes. And I would add, from a product standpoint, one consideration. I mean, usually, LMS vendors are not looking for LXP vendors because, usually, the new next generation from talent of the LMS is already fresh and provide most of the LXP capabilities. Reverse, LXP don't have a strong backend to manage the complexity of the admin of their customer. And then they are looking to partner with a solid LMS because they need a backend that allows to organize a group of users, power users, skill mapping or artificial intelligence that create skill mapping inside the learning object. So you have to imagine that Docebo is so powerful in the backend which cover probably 80% of our development effort that the LXP are looking for this kind of capabilities. Because basic LMS cannot satisfy their customer, which is important to 1,000 company.
Just last quick one for Sukaran. You had noted that you expect EBITDA to go positive as of this year consistent with last quarter. But given wage inflation and some of the cost inflation, are you building in some consideration for that? And then when you say exit the year, do you mean Q4 will be EBITDA positive or is it something we'll be just thinking about in Q1 and I'll pass the line?
Yes, Rob, I can -- we have considered wage inflation, et cetera, as we've thought about the structure this year. And maybe I will simplify, yes, we are indicating Q4 will be the -- Q4 we will exit as EBITDA positive, yes. And it will happen naturally, as I said, that's the point I want to reiterate here is that we are -- the business was always -- we operate in a very efficient manner, you know that. And we've always managed our growth in maintaining those unit economics. And this is a natural transition that's happening. And I'm sure if you do some of your math in your modeling, you'll get there yourselves, too.
Your next question comes from Stephanie Price with CIBC.
I had a few questions on the sales side. The first is, as you move to the enterprise, just curious if you're seeing a difference in how customers are coming on to the platform. I think at IPO, almost were coming in through the website. Just wondering if that's still the case or if the sales process is changing as you add these larger clients?
Stephanie, just to make sure that I fully captured your question, it's about the makeup of our customers as we move more and more in the enterprise space.
Yes, it's the…
Lead generation, okay. Sorry, you didn't -- the line cut through the question. Okay. From a lead gen standpoint, our strategy continues to be an execution that is multi-play across our inbound marketing and our outbound marketing. Now for sure, generating demand on the upper end of the market, the Fortune 1,000 requires a certain level of tactics that are, is a little bit more sophisticated as opposed to the more natural inbound marketing flow that the majority within marketing flow, this is not a surprise in any software industry, belongs more to the sub 1,000 employees company. However, some of the biggest brands that over the past 3 quarters, we have mentioned, at times have actually originated through inbound. So that equation where large enterprise equals outbound, are reach costly long funnel. It's kind of a false myth. Having said that, 2 areas we're investing on and getting better and better, and I think we will execute even more in the future. One is, like we said many times, specializing with enterprise sellers and enterprise SDRs. No doubt about it. Those deals are different. There's different buyer personas, the buying committee is larger. It requires a different skill set, for sure. The second thing is we spent our most ad hoc account-based marketing resources on those accounts. What that means is we implement strategies to look and feel and show up and have landing pages that speak very -- they're very tailored to the story of that customer. And we do that in a rather sophisticated way without sharing too much of the magic sauce because I can expect some competitors wanting to steal the art of the possible here. But I would say without going too deep, that intense data leverage used in the right time and the right way of the customer journey is very powerful. And then when you combine ABM with a strong branding messaging with good product marketing collateral, with good alignment between field and BDR, that's kind of the magic sauce. And by the way, we're not perfect, but we believe, we're very happy with what we're seeing and just doubling and doubling on enterprise because it's giving us a lot of confidence for the future and great results, right? Like the Bridgestones of the world that buy the entire suite of our products for us is just -- we're very proud of it, very proud.
Your next question comes from Martin Toner with ATB Capital Markets.
Congrats on another strong quarter. Gross margin declined a little bit year-over-year. Can you just talk to the driver there?
Yes, Martin, I would -- I think the way I would think about gross margin is just sequentially, as we talked about it, last year was -- I believe that was 82% or so last year. But we've continued to talk about the fact that I think we were pretty much flat sequentially to the quarter. I think we'll see some operating leverage in the gross margin, some leverage in the gross margin side as we move up a bit. But I'm pretty happy with how I guided as we think about going forward. We are happy with our gross margins being in the low 80% and they're getting there, and they'll get there in the next few quarters. Investments we are making deliberately as we move up the chain in the enterprise segment to make sure that we implement our customers right. We are supporting them through their journey to the happy customers, it's all around happy expansion and benefits us from a product suite perspective.
You've referred to winning sort of whales versus mini whales with the mini ones being the greater than $100,000 level. Can you talk to how those types of customers contributed to AR in the quarter?
I can speak to some numbers and let -- if you want any more flavor, Ales can jump in. But pretty similar story, actually slightly better. So in the quarter, new logo ACV, new and cross-sell logo ACV was slightly higher at $60,000. And then if you think about the composition of that, half of that net ARR add in the quarter was from logos above $100,000, but under $1 million, no 7-figure deals again. So consistency is the theme that we've spoken about in the past quarters. There are no big home runs here. But I do want to highlight one thing that people should understand it, the story of that customer doesn't stop at the outset, whilst you guys will factor that in or we look at the fact that we've landed a customer in that $100 million to $1 million sweet spot, that story is just the start of the journey.
And we continue to see -- if you look at one of the, well, one of the luxury retail chains that we would have named in the 6 months or so ago, they came back to us within 6 months and they wanted our platform to be implemented to their sister chain. And that's the kind of sweet spot we sit in, and that's where ACV doesn't stop at the outset.
And finally, anything you can share on the progress that you are making with some of your new products and selling as a product suite?
So yes, product, I mean, we are learning how to sell multiple products across our customer base and with new logos. There are some products we are extremely excited and are already proving progression in the attachment rate. And I can name Shape, Connect and Content. Others are probably beyond this stage of maturity and adoption, but we are continuously investing and learning on how to leverage, also learning analytics and learning impact. Connect, if I have to name probably the one that is exciting me the most is providing a gateway to integrate all the enterprise software stack, Docebo insight and enterprise software stack providing 2 things. Stickiness because the more you are integrated in the enterprise software stack, the more it's difficult to remove, so deeply [indiscernible] and integrated software from a company. And second, feeding the company with additional datas, I think single standalone skills and many other data that support the platform to perform better because, I mean, the more we give data to our AI, the more our AI can automate more processes inside the LMS itself.
Congrats on the result and congrats on adding new team members.
Your next question comes from Richard Tse with National Bank Financial.
This is Mihir calling in for Richard. So I guess, first off, I just kind of wanted to ask you, moving through the pandemic, we're kind of getting towards a tailwind. Are you seeing more of your wins coming from displacements versus white space? If you guys could just talk about any trends that you're seeing there.
Sure. It's a fairly simple distribution. We see more than 80% displacement in the mid-market and enterprise with, say, 50-50 displacement and net new field in the small business segment. Enterprise space, we track, it's kind of a little bit easier to execute because the amount of players in that space is smaller. And so we get a lot more laser focused in our competitive strategies and our competitive capabilities and differentiation elements. No doubt that our commercial space or the so-called our SMB space, it's more crowded. It is -- there are more players. And I would say we approach that market with the intent of always lending the type of organizations of customers that are the right fit for us. Because there are organizations, for example, that have a small employee base. Think about associations. But their business model yields really large amounts of end users, and we certainly do really well there. Whereas as opposed to an organization of about 100 employees that is looking for the first time LMS and they're very cost conscious. At that stage, we may not be the #1 choice. And we don't actually aim to be. We're positioned to satisfy better high-growth companies and, again, more focused on the mid-market and enterprise and large enterprise space. That's at a high level.
And for my follow-up, I just wanted to ask and it kind of touches on the goal you guys have for reaching $1 billion in the ARR market. But with valuations coming down across the tech space, like, how are you guys thinking about your build versus buy strategy? Like are you seeing more opportunity to just acquire some smaller companies and kind of kick start some of your newer product modules that way?
So first of all, the more the multiple drop, the more you find me interested on go outside and hunting. That said, as of today, the multiples are dropped in the public market. This has not yet happened in the private market where the smaller targets are. Let's say, I mean, we are looking carefully, both public and private market because now probably we can find great deals. There is a caveat here. I mean, a great deal does not only have great low multiples, but need also to have a great product, great team and great economics. I mean Docebo always had the culture of capital efficiency. And so you will not probably find Docebo buying a company, which is not capital efficient. So we need to find the perfect match between product fit, team fit and cautiousness on economic and economic fundamentals. That said, I mean, these situations are incredibly exciting because, I mean, when the world is falling apart, only the braves will win.
[Operator Instructions] Your next question comes from Daniel Chan with TD.
Sukaran, I just wanted a clarification on the response you gave to Rob's question earlier. Is all the ARR from some of these enterprise deals in the current metrics? So you're saying that the enterprise deals could take 3 years before you get to full recognition as you ramp up over that time. But is the final ARR in the current metric?
Yes. So let me just give you an example to make sure everyone understands it. So let's say a deal -- a ramp-up deal is what I was talking about is where a customer would sign for, an example will be 10,000 monthly active users in year 1, 27,000 monthly actives users in year 2 and 30,000 monthly active users in year 3. We -- from an ARR reporting perspective, that is the minimum floor for each of the years the customer has been locked in for. They cannot downgrade below that and that's a minimum floor. So when we calculate the ARR, it's a straight average of that -- of the subscription TCV of that contract divided by 3. But when you'd recognize revenue on it, under IFRS 15, you take the revenue for the first 10,000 monthly active users in year 1 and then -- and subsequently year 2 for the 20,000 and subsequently year 3, 30,000. So you'll see a differentiation in terms of ARR versus revenue recognition if that makes sense.
Switching gears a bit. There are reports that SAP may be selling Litmos. Just wondering whether you have a view on whether that changes the competitive dynamics if it's sold to, say, a private equity firm?
On my side, from the market standpoint, I leave Claudio any consideration. From an M&A standpoint, first of all, we want to say that we remember when Litmos was a New Zealand company well before being sold to Callidus and then CallidusCloud wrapped it in a deal with SAP. So we remember the entire journey. And we remember that up until, say, year 2017-2018, they were a serious competitor, particularly in the SMB and mid-market space. I don't think it's a secret for any of us that for the past years, we have not had a chance to really compete much according to our data. And therefore we don't have a strong opinion about that. With that said, we understand the process undergoing. And Ales will probably make further comments.
Well, no, I second, Ales. I mean, we think that Litmos is mostly focused on the small business. And sometimes, they do have enterprise customers. Let's say, I'm always happy when a competitor is taken over by a private equity firm because usually they are very defocused for 1 or 2 years on reorganizing themselves. So from the competitive standpoint, I'm very happy that a great competitor like that, a great company like them, very efficient will be the focus for a couple of years doing the private equity game or the private equity, assuming that they are buying -- they are acquired by a private equity.
But not [indiscernible] they go, right? Like it's immaterial for us.
Yes.
Your next question comes from Christian Sgro with Eight Capital.
You had mentioned previously that many geographies are behind North America in terms of their maturity with corporate LMS. So my question is, which geographies you'd call out as being most behind? And maybe how the company is positioned to attack those regions in the next, say, 3 to 5 years?
Well, actually, the philosophy is the more you go east, the more you find first-time adopters. Let say Australia is another word because in part, Australia, probably 1999, [ Moodle ] was created. So Australia is a very friendly to learning as New Zealand as well. That said, my focus now is on creating solid foundation in Germany, in France because this is where we have offices. If I have just to make a theoretical speculation, during this geopolitical shift, I think that Middleeast will become the new frontier, the new bridge between East and West. And I do think that sooner or later, we have to take a look there. But as of today, guys, we do have a lot on our plate in Germany, U.K., Middleeast is including Israel as well. So in U.K. and as a company, we usually don't want to be distracted on many activities in parallel because, I mean, the more you are distracted or not focused, the less you will perform. So one step at a time.
Yes. And Christian, I mean, like just as a good segue to Claudio's concept of focus and prioritization, no doubt that North America going to lead the chart. But I would say that there's tremendous power in branding recommendation as well, right? And entering in the territory, what we've learned over time is it's not only about hiring field force and hiring folks. It's also about breaking through the geographical brand perception. And that all in all, regardless of all you go about it, agency, not agency, direct, takes time.
So I'd say, even with our latest move in APAC with our office in Melbourne, following the Skillslive acquisition, we understand the model out, that growth needs to go through a market recognition and branding affirmation; that is hard work. And so you can't do that. I guess my point is, you can't do that at the same time, many places, we got to kind of build the franchise model where you go and execute according to formula and the formula has to be repeatable. And that formula has the timeline and then we check against that timeline and that formula and we'll lock investments progressively. That's the way we look at it.
And Christian, I'll just end it to say that always never forget that North America grew at 70% last year. There's a lot of momentum there still.
Yes.
Yes. Good traction all over. And Ales, you're getting at my follow-on here. Just curious on Skillslive. It sounds like that acquisition made a lot of sense, a couple of months now. And sort of stood up a team in Australia overnight. So just wondering, I guess, one is, how that's all coming along? How the integration is coming along? And then maybe as a follow-on, if that's the type of acquisition you might be looking out for in the future?
Yes. So yes, yes, yes. Yes, to -- for the future to enter new territories, it is a vehicle to enter territories and that accelerate execution, no doubt. There needs to be, again, fit, right, of people, of timing, of geography, of market analysis for the territory and all of that, no doubt. Then with regard to Skillslive in itself, not only we stood up a group of capable folks that have deep expertise in the industry, that understand Docebo really well. But we're already actively selling Docebo, the new OT implement and support Docebo, those things that can take anywhere between 12 to 18 months to master, and we were able to accomplish that pretty quickly. With that said, we are already actively creating pipeline. We're live as we speak or maybe it was yesterday, I can't remember, in HR Tech Asia, and we're collecting a good amount of leads and our team is just really excited about it. And we added also an industry leader that comes from competition to lead our field sales team in addition to the management that existed at Skillslive. We really wanted to build a stellar team. Mr. Warren joined us recently and he, I mean, he is a master in the APJ region and scale teams there significantly. So we love it. We think it's going to be a great success and we're going to go head down and execute.
Go Australia, go.
Mr. Erba, there are no further questions at this time. Please proceed.
Thank you, everyone, to listen to us also today. Have a nice day, stay safe and speak in August probably. Bye-bye.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.