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Good morning, everyone, and welcome to the Docebo Inc. Second Quarter 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 the Docebo 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're 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 for 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.
Thanks, everybody, and thank you for joining us for our second quarter earning call. With me today is Alessio Artuffo, our President and CRO; and Sukaran Mehta, our CFO. If I look for June, we represented another quarter of consistent execution and solid overall performance for the company. Adjusted for the impact of foreign exchange, ARR and revenue for the quarter was in line with our expectation, and we are pleasured to report positive free cash flow generation better than our commitment to balance growth with profitability. We did experience some impact from certain enterprise deals that have been stretched out of the quarter. We continue to watch the evolving macro dynamics. Let's say that demand for our solution suite is solid, and our fundamental growth drivers are intact and healthy, anchored by our ability to support the complex external, internal and hybrid needs of our customers' learning journey. This provides us a long runway of organic growth that is supported by a total addressable market that enables our enterprise customers to deliver external learning that is core to their revenue-generating operation and continuous productivity enhancement. It is important to note that the total addressable market for our external training, where Docebo is best in class, is about twice as big as the internal use case.
In addition to the high-profile labor training and retention challenges being accelerated by the macroeconomic environment, there are several fundamental strategic drivers we will keep you focused on. Those include training to drive customer and partner success as well as revenue enablement. Our customers have growing reliance on training with their own partner ecosystem, and they require configurable offerings that are easy to deploy and cost-effective. Such drivers showcase that one-size-fits-all legacy centralized systems are unable to meet the needs of today and tomorrow, certifying greenfield upsell and displacement opportunities. Simply layering on an [ ASP ] capability cannot address the lack of feature of their ability to integrate into a complex, evolving software stack. It's here that an innovative disruptor like Docebo is easily positioned to gain mind and market share. When implementing our solution, customers are not weighted down by silos, but instead can leverage a federated ownership model, where a single LMS serve as a multi-department system with multiple owners addressing both external and internal use cases as well as displacement and greenfield opportunities. This federated ownership expand our horizontal platform reach across multiple buyer persona inside organization, each with their own unique voices and nuances. In addition to creating the stickier customer, this is also adding to the number of internal customer engaged in the sales process, including the CTO or CFO, whose focus is to streamline and consolidate their tech stacks. And while this makes for a longer sale cycle, it brings emphasis to the nature of the strategic partnership that those customers are looking for.
In short, our opportunities are many, and we are executing well against the growth strategy we have set in place to capitalize on them. We are doing this by gaining share in a large underpenetrated market where the core macro environment provides an opportunity to gain valuable mind share. Keeping our priority focus on growth and making the investment to drive that outcome without sacrificing profitability, maintaining a strong balance sheet now supported by positive free cash flow generation. Through our balanced investment, we have positioned ourselves extremely well for the upcoming cycle, and we are generally excited about how this environment will serve as a catalyst for further innovation and disruption to the legacy LMS status quo.
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. In my prepared remarks for you today, I want to lay out 3 points upfront. First, the business of customer education and revenue enablement are priority investments for our increasing base of enterprise customers. Second, external use cases are particularly strong in our analysis of the market, with a large greenfield opportunity to capitalize on and a TAM that is twice as large as the internal use case market. Third, customers that adopt more than one use case yield better unit economics and are exponentially more sticky.
During the quarter, we saw deal cycle lengthen in the enterprise segment with more decision-makers, specifically CTOs and CFOs, getting pulled in for approvals. We do expect to see this trend continue as a result of the wider macroeconomic pressure. That said, we're engaging more frequently with corporate executive teams to provide a learning platform that spans across the wider organization. The move to consolidate the technology stack in this economic environment plays really well to our strengths, as follows.
First, learning solutions must be flexible enough to integrate into and serve the needs of both internal employees and their customers' network, effectively handling multiple use cases on a global scale. Second, we are increasing productivity and efficiency both for our customers as they look to move away from unsustainable old-school legacy LMSs in favor of a more modern architecture. Finally, Docebo provides ease of deployment and delivers favorable ROI and a fast time to value. During the June quarter, we added 159 net new customers, with more than 50% of our deals coming from our mid-market and enterprise segments. Cross-sells and upsells both performed well as our sales team improved their effectiveness in how they position our expanded learning suite. While our go-to-market motion is improving, we know we have a tremendous opportunity for upside, especially as we focus on ramping our sellers and upskill our organization.
A good example of the excellent progress we made this past quarter is Chipotle's decision to implement Docebo Learn to replace their existing LMS. Their goal is to offer immersive learning and development opportunities by upskilling their employees for future roles within the company. With this win, we're emerging as a leader in the quick service restaurant industry, where we've signed over 15 customers. In addition to Chipotle, other notable customers include Denny's, IHOP, Smoothie King and one of the largest burger fast food chains in the world, comprising of several well-known name brands.
Geographical expansion has always been one of our pillars of growth. A demonstration of our increased presence in the European markets is the fully loaded deal we signed with British United Provident Associations Limited, more widely known as Bupa. Bupa is an international healthcare service company, serving over 38 million customers worldwide, that chose Docebo's full-suite offering for its innovative design and easy-to-visualize analytics. We were extremely happy to displace a legacy competitor and win the onboarding use case of a large publicly traded U.S.-based mortgage services organization. We initially signed with this customer a year ago for an external solution for training their customers. In quarter 2, we expanded this relationship to support their internal onboarding, compliance and professional development use cases. It is a combination of our selling motion, product architecture and depth of functionality that enables us to displace a legacy incumbent like in this project. This is a great example of how we work to create a very sticky long-term relationship with large enterprise customers.
And lastly, a week ago, Amazon Web Services went live with the launch of AWS skills builder subscriptions, powered by Docebo. AWS introduces this premium paid subscription for individuals and teams looking to bolster their cloud computing skills. This launch demonstrates that the Docebo Learn platform is enabling the success of one of our most advanced customer environments and is a testament to the dedication of our product, engineering and professional services organization.
Turning to our product investments and strategy. The past 2 years have served as a tremendous learning cycle for our entire product management and development org. We're improving new module performance with direct customer feedback on the learner experience, and our road map is focused on both harmonization of capabilities within use cases and innovation, which is core to our DNA. We're also seeing new and existing enterprise customers choosing to include products like Docebo Connect, Docebo Content and Shape for their training programs right from the start, especially after having made a commitment to upgrade from their underfeatured legacy system.
Geographically, North America continues to be our strongest and best-developed market with the largest greenfield opportunity. Turning to Europe, traction in both the U.K. and Nordics market has been excellent. Both had strong quarters, characterized by some large enterprise deal wins. We will leverage the success as we look to other European markets, such as our recently formed [ DAC ] region. In the APAC region, we're seeing our modern architecture stand out incredibly well. The team we have built in Australia is particularly strong and works exceptionally well with a growing partner network across Australia, New Zealand and the wider APAC region.
OEM partners delivered a very solid quarter, adding that same quality to our pipeline as they expand our reach into the enterprise space. We're pleased that Aaron Pratt has joined Docebo to lead the OEM technology partnership practice. Aaron brings over 25 years of SaaS and software sales and partnership experience across many industries and technologies, from start-ups to mature companies such as SAP. Aaron will concentrate on increasing existing partner value, as well as bringing on board select new strategic partners.
Turning more directly into our sales team, we're pleased with the key people additions we've made and the traction they've delivered so far. The executive talent that we've been able to recruit will further mature go-to-market motion and customer experience. More recently, this has included investments in marketing, where Ryan Brock was named our new CMO. Ryan joins our team after serving in marketing leadership roles at companies like Dataminr and ADP. His immediate focus will be on driving demand generation and elevating our brand visibility, as well as partnering tightly with our Chief Sales Officer, Nina Simosko, to accelerate growth and enhance our go-to-market machine.
In conclusion, I want to summarize why we're so excited about the future of our company. Through the Docebo learning suite, we're uniquely positioned to support our customers' end-to-end learning needs. While others in the tech industry are slowing or even stopping investments and hirings, Docebo will continue to invest responsibly by managing performance very closely and hiring key talent to drive long-term growth.
I would now like to hand the call over to Sukaran for a review of our financial performance.
Thank you, Alessio, and Good morning, everyone. For those interested, a detailed breakdown of our financial results for the 3 and 6 months ended June 30, 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.
We were pleased with results for the quarter, with revenue growth and profitability reflecting the balanced approach to the way we invest and manage our business. The weight of the macroeconomic factors aside, there is one thing our new and existing customers are making very clear. Technology investments -- more specifically, software investments that increase productivity, enhance sales enablement and drive revenue generation -- are the investments that they are committing to their organization. With this secular trend as a tailwind, we remain confident about our long-term growth prospects.
Now to the results. Total revenue increased by 47% after adjusting the impact of foreign exchange and excluding a one-time cumulative catch-up of $1.1 million that was previously disclosed in our Q2 2021 filings. As reported, total revenue for the first quarter grew to $34.9 million, an increase of 36% from the prior year. Subscription revenues were $31.9 million, representing 91% of our total revenue for the quarter. Annual recurring revenue for the quarter was $138.2 million, an increase of 51% after adjusting for the negative impact of approximately 3 percentage points given the significant strengthening of the U.S. dollar relative to foreign currencies.
Our company-wide average contract value, or ACV, increased 21% after adjusting for the impact of foreign exchange. As reported, company-wide ACV was up 18% to approximately 45,000 from 38,000 at the end of the second quarter of 2021. ACV for new customers in the quarter was approximately $45,000. New and cross-sell logos with ARR greater than $100,000 represented approximately 30% of the net new ARR. ACV from new customers declined sequentially as a result of the lower contribution from deals valued over $100,000. This is a direct result of the elongation of the enterprise sales cycle we previously discussed. Although this percentage may fluctuate from quarter to quarter, the sales pipeline in the enterprise segment remains healthy, and our win rates are strong, particularly when external and hybrid use cases are involved. For a bit of additional context, more than 80% of our ARR comes from customers with multiple use cases, with 61% of our total book of business coming from external hybrid use cases. These in effect reflect the stickiness in our platform and strategic role we play with our customers. Gross profit margin for the second quarter improved sequentially to 80% of revenue, which is consistent with the prior year period. Total operating expenses for the second quarter decreased to $25.9 million from $26.8 million for the prior year period. Included in the $25.9 million of operating expenses is a foreign exchange gain of $4.9 million that relates primarily to the cash on our balance sheet and is therefore, for the most part, unrealized. Operating costs, excluding this gain, were $30.8 million, slightly higher than the $29 million in operating costs reported on a comparable basis in the first quarter of 2022. G&A as a percentage of revenue declined to 21.7% for the second quarter compared to 23% for the first quarter. Sales and marketing expense decreased slightly as a percentage of revenue to 42.6% from 42.9% for the first quarter. R&D investments in the second quarter were $6.1 million or 17.5% of revenue compared to 19.3% in the first quarter of the current year. With the bulk of our R&D team residing in Europe and the strengthening of the U.S. dollar, we experienced a 2-percentage-point benefit in our R&D organization.
Adjusted EBITDA came in at a loss of $0.3 million for the second quarter of 2022 compared to the adjusted EBITDA loss of $1.3 million for the first quarter. We reported a net income of $2.1 million for the second quarter of 2022 compared to $7 million net loss for the first quarter. We ended the quarter with a healthy cash position, with net cash and cash equivalents of $212 million. While the cash continues to generate positive interest income in this rate cycle, our strong capital structure gives us the flexibility to invest strategically. I'm also pleased to report positive free cash flow of $0.9 million in the second quarter, which was ahead of plan. The natural growth in our business has allowed us to achieve the level of scale that is beginning to deliver operating leverage.
Before opening the line to questions, I want to close with some thoughts on 3 items. First, share-based compensation, a question that has been coming up more frequently since we reported Q1 results back in May as investors evaluate some of the embedded costs high-growth companies have had to bear to attract and retain top talent. Our share-based comp as a percentage of revenue was approximately 4% in the second quarter, a relatively modest number when compared to peers with similar high-growth rates to Docebo. To ensure interests are aligned, we will always balance the use of equity compensation to drive performance with the goal of maximizing value for our shareholders.
The second point I want to leave you with is that, as the U.S. dollar continued to strengthen into the second half of the year, our as-reported revenues and expenses will be impacted. With rates at current levels, revenue growth will see similar headwinds, while R&D investments will see some benefit as these roles are mostly located in Europe.
And lastly, we expect to deliver modest improvements in EBITDA and free cash flow as we move forward through the second half of this year. Our focus remains on making investments that will drive long-term growth while maintaining optimal unit economics. That concludes my prepared remarks. 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 Daniel Chan with TD Securities.
So you commented on the macro uncertainty lengthening the deal sales cycle. Can you comment on the pipeline, however? Are you seeing a change in the composition of your pipeline in terms of enterprise mix?
Actually, the pipeline is growing. We were focusing on analyzing the pipeline in the past few days, because we wanted to understand if the macro environment has impacted the demand or only extended the sales cycle where -- especially in large enterprise deals, which we see as deals about $100,000. Usually, CTO and CFO step in to negotiate better the deal and the contract. So if we see an extension on the -- in the procurement phase, we do not see any decrease in the pipeline in terms of growth. And this ties to the fact that the total addressable market, especially the external use case, is mostly greenfield. So there is demand for the product. There are only buyers that are a little bit more careful because they don't know where inflection is heading or where macroeconomic situation will shape in the next few quarters.
Ales, do you want to chime in and expand on that?
Yes. 100% on top of what Claudio shared, I'd like to add that not only we're seeing pipeline remain strong, we're also recognizing that we have margins for improvement and upside. We have instilled a new CMO and are bolstering both our demand gen and business development teams, investing in these teams to really continue to focus on pipeline creation. So, net-net, this pipeline continues to grow. We have margin for upside, and we're working very hard on it.
Yes. And, Ales, sorry, one point. You chime in here. You said a good point, which is, yes, the pipeline is growing, but do we have the opportunity to make a bigger pipeline if we work better internally with the coordination between sales, marketing, demand generation, et cetera, et cetera? Yes, internally, we do have room to improve, and the hiring we made with Ryan, with Nina and Alessio, which is still hands-on and not sleeping for 2 times on Europe and Italy, are the efforts that we are putting in place to increase the pipeline. Because, I mean, it's still a greenfield market, especially for the external use case, and the total addressable market is so big that we have all the leverage we need to improve internal operations and create a bigger pipeline. That said, the size of the pipeline today compared to the past year is impressive, and we are happy about that.
That's very helpful. You also mentioned that the OEM channel was very strong. Can you just give us an update on how meaningful Ceridian is to your sales? They continued to perform very well last quarter, with a large proportion of their customers taking on their full suite, which I believe includes your solutions, so just wondering if they're still a large contributor as they had been in the past.
On the OEM side, really strong performance across the board from the Ceridian you mentioned and MHR. They both scale well. We had a pretty good quarter with Ceridian. And I don't -- generally I've given you an insight. They're -- by a factor, they're one of the bigger contributors to the ARR story, and they stay consistent in that way, so we're very pleased with their performance this quarter.
Your next question comes from Martin Toner with ATB Capital Markets.
Guys, we've had this question so many times in meetings in the past, it's great to see you guys give some detail on size of external enterprise. Can you kind of unpack that TAM a little bit for us and give us some further details?
Sukaran, can I say something, or we are moving this to the investor relation?
Oh no, Claudio, we can see -- say some of this stuff now. Go ahead.
Martin, you make me happy, because thinking -- speaking about the macroeconomics and so on and so on is depressing. Total addressable market is exciting. So what we see is -- first of all, you have to know that 61% of our revenues and 80% of our use cases -- Sukaran, correct me if I'm wrong with the numbers - are hybrid. That means that we are covering at least one external use case. So 2 departments, one internal, one external, is hybrid for us. External use case only in United States is 2 times bigger than the internal one. So if we see as a total addressable market in learning, United -- sorry, North America only -- U.S. and Canada, mainly -- as $8 billion, 2/3 of this is external. But the exciting data is not only that alpha is external, and we are very good on those use cases, but 70% is greenfield. I was speaking with the BBR team yesterday in Toronto, and they say, "Every time a customer call me for an internal use case and I'm pitching them also for external training, they are shocked because they never think that there is an external training opportunity." And so for us, it's a great segue to increase the ACV during our sales pitch - the ACV potential during the sales pitch. So, just to recap, $8 billion North America, 2/3 external. Of these 2/3, 70% is greenfield market. That means customer that are not yet using LMS to train their partner, customer or other audiences. I mean, AWS Training, the scripting - the repayment service that they launched recently is not targeting only customer or partner, but also people that want to become cloud engineers. So the audience is incredibly big.
And, Martin, I'll just say we'll leave some of the finer details for our Investor Day, which will happen in the later part of this year, and there's some more details we'll unpack at that point.
That's great. I'll give a follow-up, too. The technology vertical is quite significant for you guys, and I believe it skews to less mature companies. Those companies are, I think, sharpening their pencil more than most. Can you talk a little bit about the strength or if you're seeing any weakness in that vertical?
Look, when we talk about our ability to manage multiple use cases, we also oftentimes refer to the concept of hybrid use case. We use that terminology internally to refer to the ability of an organization to effectively consolidate multiple needs, whether it's various internal use cases, such as onboarding, enablement, professional education, compliance, to name a few, or external use cases, customer add, partner add and others, to name a few, into an all-in-one solution. We've referred in the past to this all-in-one also federated solution, meaning a platform that effectively manages multiple cost centers' learning needs in one platform. That in itself is a recession-proof approach to the market because it allows an organization that may have, in fact, a different point solution to reducing complexity and working with one quality vendor with one quality platform to deliver effectively the same goals. So our, let's say, recession-proof response is to navigate those customers that are having challenges or concerns, and actually transforming that concern in an opportunity for us.
Your next question comes from Stephanie Price with CIBC.
Congrats on the Chipotle win. The press release mentioned that it was a replacement. Can you talk a little bit about why Chipotle chose Docebo? And maybe, as a follow-up, can you talk a bit about the percentage of wins that are full LMS systems versus the more targeted use cases that I think you typically provide?
Stephanie, I will answer the last part of the question, and Alessio will go directly on the use case.
I see the market in this way. We don't like -- I mean, it's a business that for us is legacy, the centralized project, which you define pure LMS. We are excited on department. That means customers that are buying Docebo to train on hard skills. We are ultra-excited about external training. So what -- if you define LMS in general as a global project, this is not our sweet spot.
Ales, are you going to take the Chipotle one?
Sure. Stephanie, we're also super proud of winning the business of Chipotle. And whilst you can appreciate I can't say which vendor we have displaced, I can also tell you it is one of the more frequent enterprise-based vendors that we deal with. I'd say the theme around displacement is also very coherent and consistent with others that we see, particularly in the enterprise space. The -- and those themes are the ones that Claudio partially mentioned: our ability to flex architecture; to provide a distributed environment; to be, generally speaking, more agile in both the deployment and in the capabilities of the system. I could oversimplify it by saying a modern system versus an old-school legacy system that's more rigid. More interestingly, perhaps, from a QSR standpoint -- and so kind of double-clicking on the specifics of Chipotle -- is QSRs have certain needs in the area of reporting and in the area of analytics management that are quite specific to how they run their business, manage the franchisees and have to run analysis of productivity of their people on a location basis, for example. And so Docebo provides a certain type of management in our organization chart grouping that's fairly hard to do that positions us, from a capability standpoint, in a very unique place. And there is no -- it's not a surprise that, as we quoted in the script, we've won a lot of business in QSR, and we believe that space continues to be really hot for us, and we're making intentional marketing effort to win more and more of it.
Your next question comes from Richard Tse with National Bank Financial.
So it looks like you are still fairly motivated in terms of spending to sort of harvest the opportunity. What are your thoughts here on LTV to CAC as you sort of move up? Can you maybe share some trends that you've seen internally, and perhaps what you're sort of targeting for as we look ahead?
I think in general we will provide some more information about our LTV to CAC when we report Investor Day, but I think that some data points that will help you think about it -- and I'll come back to a question overall about growth versus profitability you're getting to. So from a -- without getting to the CAC, which we haven't disclosed publicly yet, but I think one general data point that will help you is that, as we think about how we're tracking from a net dollar retention perspective, we're tracking consistent or slightly higher above what we had reported last year. Of course, we disclose that once a year. But that gives you a flavor of that. We continue to see strength on the expansion side of the business, as well as -- what is important to note, and one of the data points I gave in addition this quarter, was that 80% of our customers use us for multiple use cases, with 61% of that customer using us for external and hybrid use case. And so when you think about that, that also drives that net retention ratio strong for us. Effectively, gross retention is extremely strong for us, and that's important to note. When we think about the overall phase of investments that we will continue to make, I think the cornerstone of our long-term strategy has always been to manage Docebo as a rule-of-40 company, and we'll continue to do so. When you heard Claudio talk about the fundamental growth drivers being healthy and they're intact, where we see the external use case being twice the size of the internal use case, I think it's fair to assume that Docebo will remain a rule-of-40 business, with growth being the bigger contributor and the focus from our perspective, with us driving some incremental leverage, operating leverage and profitability into that rule of 40.
Sukaran, may I add one point? You mention multiple use cases. There is a direct correlation to the number of use cases we cover and KPI performance -- every KPI performance. That means the more use cases we cover, the more all the positive KPIs goes to them -- I mean, from conversion, [ NTV ], ACV, retention and everything. So there is this direct correlation, and this is why I'm happy that Docebo not only cover multiple use cases, but internal plus external.
And then my sort of follow-up question is sort of tied to that. If I sort of look at the name, let's say, 4, 5 years ago, when we started looking at it, it seems like you've made some, I think, meaningful changes as you get bigger in terms of the go-to-market. Can you maybe talk about how that's evolved over time, and then what we should expect here going forward over the next 12 to 24 months?
Well, actually, there is a dual correlation from product capabilities and the market you can cover. Docebo is a very -- and I say this in a positive way -- sophisticated solution. The more you are sophisticated, the more you cover the need of sophisticated buyers. Small business, 30-people company, don't need Docebo. Complex business that requires scalabilities and multi use cases -- you know that we start stressing the market with the world of - with the concept of federated learning. That means one technology that cover multiple use cases and that, from the internal user standpoint -- the admin -- is perceived as its own technology because it's so tied to this use case that the admin perceive Docebo as its own technology - doesn't -- and we don't hide that another peer in another department is using the same technology with a different solution or use case. So the more we evolve, the more we go upmarket. The next challenge is not only going upmarket, but the more we evolve, the more we want to cover multiple use cases in the organization. If I have to say what is the biggest duty of Docebo in the next 3 years is expand use cases across customer organization. So not only expanding the market in terms of sites, but expanding use cases in all the organizations we have.
Your next question comes from Josh Baer with Morgan Stanley.
It's Matt Wilson, on for Josh Baer. Back to the elongating sales cycle. It sounds like it's mostly impacting larger customers at this point, and you talked about expectations for longer sales cycles to persist throughout the year. Do you think this trend could move down market and impact kind of like your smaller customers? And maybe just a little bit more details about the nature of the deals that are kind of getting pushed back. Is there certain customer verticals or geographies where you're seeing these elongating sales cycles more frequently?
Elongated sales cycles have been a theme in this environment. You're absolutely right. The reason why we're seeing that happen in deals -- generally speaking, deals above $100,000 and/or you can associate that with our more enterprise-type customer is we're seeing companies changing or making the buying process more complex within their own environment. And among those changes is the inclusion or introduction of C-suite that wasn't prior necessarily involved in certain spend thresholds at all levels. And this is causing more authority matrix involvement that do affect the way the sellers bring a deal over the finish line. We believe this type of behavior, this matrix of approvals, is more typical of larger companies than smaller companies. And we attribute the fact that we haven't quite seen that issue in the smaller market, again, for the same reason I just mentioned. I can't predict the future, and I don't know that anybody really can, and I can't say whether this is going to change also in the small market and mid-market or not. As of right now, we haven't seen that signal, but if we do, we will certainly report that.
With regards to what we're doing about it, right, is we're getting earlier in the cycle to try and understand exactly what the process in the company is. And we're not just checking but we're double-checking and triple-checking and checking multiple times what the road to signature is. What we're finding interesting is sometimes buyers in this environment don't even quite know themselves, because things are changing on their end without, frankly, a clear communication inside these companies. And so the elongated cycles are also a byproduct of the confusion that governs inside these companies where, 3 months ago, you used to buy in one way and now it's different. But we remain optimistic, because we believe it's a timing factor, and we will control everything that we can.
And I think the only point I'd add to that is that, in this cycle, this is -- from our perspective, it gives us a position of strength as we think about Docebo as a federated element where we can consolidate various platforms. What is also happening is that we see CTOs and CFOs stepping in and asking the question of why Docebo can't solve all their needs and why they need to have multiple platforms, and especially where our platform solves for revenue-generating operations of their businesses. This, from our perspective -- the consolidation of the LMS space -- will also help us as we move through this kind of cycle of more C-suite stepping into the approval process.
We saw the Chief Marketing Officer announcement yesterday, and congrats on announcing that, and you hired a Chief Sales Officer earlier this year. Can you kind of talk about the strategic priorities going forward for the go-to-market? Where are the incremental, like, areas of investment?
Ales, do you want to take it? I mean, for us in this market closure perspective -- sorry, closure perspective is we needed -- I mean, we need seniority in the organization. We need a lot of energy. We need people that, when join the organization, look at our reality from a different angle. Don't forget that Claudio is here since 17 years and Ales 10. And Sukaran not that much, but, I mean, 3 years of Sukaran looks like 15 years. So we needed his help, and yesterday Nina stopped me in to the desk of the office in Toronto, and she started say, "Clau, we have this opportunity, that opportunity, that opportunity that, when you are drained by all the activities and you look at Docebo as you have always looked at from the day 1, you don't see and you don't perceive." So for us, it's a great help, and we want this kind of super-energetic culture fit executors, doers, people in the organization. Ales, sorry, go on ahead. Take it, please.
Thank you, Clau. Great question, really appreciate it. First off, I just want to reiterate how proud we are to have those folks having joined us -- Ryan, Nina and other senior management leaders. The goals you asked, and what are the priorities. At a very high level, we're preparing the organization for the next phase of growth. We've stated in the past we're $100-plus million in ARR, what do we need to get the $500 million stage and beyond? So that's point number one. For 2, of course, Claudio's point is also equally paramount, right? The general need of seniority. Point number 2 is preparing the company to continue in what is needed to execute at scale and continue to go upmarket. Creating a true enterprise motion implies a lot of work on many fronts, not only sales. We need to revise over time and evolve how we show up, and we need to work hard on continuing to affirm our brand globally, which is a lot of work and requires people that know how to do it and build the teams around that. Definitely, continuing to scale demand is a hard job, and the balance between demand and sellers in seat is a job that requires a deep alignment between CMO, CSO, and we believe that with Ryan and Nina we have the right people to execute on that. I'd say Nina brings the experience of working in very large organizations like SAP, like NTT. And when you work with these leaders, you understand very quickly that they see immediately the opportunities of scale. And so, all in all, it's -- there's many opportunities focusing on verticals, focusing and approaching certain markets, like government, that - where we just need to execute with the leaders that have been there, that have done it, and to go faster.
[Operator Instructions] Your next question comes from Christian Sgro with Capital.
I just wanted to ask on the competitive landscape there. Maybe you could frame that in the context of how many bidders you're seeing at the table for work or win rates? Just are you seeing any changes in the competitive landscape for your product?
So we see competitors that are becoming more and more aggressive and more good -- means that they are learning how to compete against us, which is a great thing because, I mean, the competition puts pressure also to us to improve ourselves. Just to better give you a picture use case by use case, legacy LMS global use case is a consolidation game. Cornerstone has eaten all the legacy - you know I've always used the word dinosaurs or legacy competitor -- so some total are now part of this organization. And there is only another player, which is SAP SuccessFactor. But this is a game that we play, but we play it in another strategy, which is OEMing with HCM vendor, which is a strategy that pays back very well. Departmental use case, we see strong competition in one vertical segment specifically, which is sales enablement. There, it's a big fragmented market with many players, and it's not only [indiscernible]. I mean, sales enablement is a set of tools, from coaching to content to others, that, when you have a great storytelling that speaks only one language, which is the language of the sales enablement training department, we sometimes suffer against those competitors. This said, when there is a consolidation or a multi-department purchase, those players cannot extend horizontal inside the organization. Also, customer community as external use case require vertical features and specific knowledge. This is a competitive landscape in a competitive area. That said, I think that the feature gap compared to sales enablement is little. We think that we are already, especially with the social learning, Docebo coaching share is very well positioned for this. But if I have to imagine competitive landscape, I will say that the biggest pressure is sales enablement and customer academy. That said, Ales, do you want to go more in detail about that?
I'd just like to add, Claudio, just incrementally, that from a changes in win rate, Christian, we remain really, really happy about our win rate. We're well above industry standards and continue to watch it and monitor it, but we're very positive. Despite the dynamics that Claudio mentioned, win rates are still really good.
I'll ask one follow-on, maybe more for Sukaran. Just on the gross margin profile of the business, maybe in the near term, to help us think about the model, where gross margins can land? And I imagine that would be balancing scale with support work, or where do you think it could trend from this quarter?
Yes. I think, Christian -- we generally don't give guide, but I think in general, I've been consistent, and we stay consistent in our messaging. We're very comfortable in where the gross margin is, low 80%s. We'll see some operating leverage as we move into the future, not in the immediate future, but I think, where we landed this quarter, we're very happy with it, and we're more than happy to leave it there and continue to help our customers from investing in professional services. As we help them from a customer success perspective, that actually yields long-term opportunities to make sure that we are happy customers. We help them through their learning journey and expand them over time, so more than happy to give our gross margin in low 80%s.
Your next question comes from Suthan Sukumar with Stifel.
I want to touch on EBITDA and cash flow for a second here. I think you said in the opening remarks that you guys do expect to see modest improvements in EBITDA and free cash flow in the quarters ahead, which I believe is obviously ahead of schedule. I'm just wondering if there's -- has there been any change or timing -- change in kind of pace or timing of investments, or is this really just a reflection of the operating leverage that's building in the business?
Good question, Suthan. I think the general answer from our perspective is we -- as you think about us -- the operating leverage that's come in the system -- we of course work pretty hard to continue to optimize those unit economics. Majority of the leverage that you're seeing come through, as you can see in the numbers, is G&A, right, and some from R&D as well. And so, as you think about the future quarters as well, I think that the general operating leverage will continue to come from G&A and small bits from R&D and COGS. I think from a free cash flow perspective, that's -- I like to look at it from an annualized basis. You would have seen in the first quarter, we had some prepayments, et cetera, that go out, and so it's lumpy. But I think, from a directional perspective, free cash flow and EBITDA will incrementally or modestly improve as we move forward.
That's helpful. And also you guys touched on some metrics with respect to cross-sell. Can you talk a little bit about some of the traction you're seeing on the expansion front, especially with the new product suite? And I'm curious to know what sort of products and modules you guys are seeing the stronger attach rates with.
When it comes to expansion, as I think you correctly sort of implied that, we view that world in upsells, meaning the ability to grow an existing customer in cross-sells or develop relations and net new contracts that stem from an existing entity. On both fronts, things are going really well. The second one is a slightly different sales motion, right? It is a lot closer to what one would call a net new logo, in the sense that we're having conversations with buyers that aren't effectively using the platform yet. If not, one of their sister companies or affiliated entities are using us. So we leverage that, and we get better and better at doing that on a scale basis. We've introduced technologies and methods for proper account planning. That's a tactic that's kind of a prerequisite to scaling true and proper cross-selling, and we're pleased with the initial results of that effort. On the upsell front, you're correct that new products and new modules are a big driver of it. It's not the only one, because we monitor and manage adoption of our software, and we like to report that many of our upsells are actually users' planned increases, which is a testament to the fact that our customers not only buy our software, they use it, they adopt it, they exceed their usage plan and they come back in for more usage. Where we'd like to improve in the future -- where we believe we have an opportunity in product strategy and go-to-market motion improvement -- is to really tie better our ability for increased use cases and, let's say, jobs to be done, in other words, with capabilities that yield incremental value and incremental monetization. So that's a little bit how we're thinking about it. But today, products like Connect, products like Docebo Content -- really, really fantastic outcomes. Shape, that started as a rather green product but continues to evolve and capture market share. Those are the ones that we're seeing, across the newer ones, succeeding the most. And then we have our existing products in our product mix, like Extended Enterprise and Coach & Share and [ seltzers.com ] that are -- continue to do really well. So that's the recaps on both upsells and cross-sells.
Mr. Erba, there are no further questions at this time. Please proceed.
First of all, thank you for attending the earnings call. Second, we have got many questions, so you kept at very busy today, which is good because this is good. And thank you so much for attending this earnings call. Let's meet next quarter. Thank you so much.
Thanks, everyone. Thank you.
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.