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Good morning, everyone, and welcome to the Docebo Inc. Q3 2022 Earnings Call. [Operator Instructions] I'd now like to turn the conference 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 related 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'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 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 and Founder, Claudio Erba.
Hello, everybody, and thank you for joining us for our third quarter earning call. With me today is Alessio Artuffo, our President and COO; and Sukaran Mehta, our CFO. Docebo continues to execute well in an environment that is increasingly impacted by macroeconomic headwinds. Even in the face of those challenges, we delivered strong revenue growth and free cash flow. We are especially pleased to report a positive adjusted EBITDA that was ahead of schedule and surpassed consensus estimates. Adjusted for foreign exchange, we delivered a year-over-year growth in ARR of 44%. Consistent with what we saw last quarter, deal cycle elongated in certain segments as global macroeconomic issues has weighted on decision-making. Grow remain a top priority for Docebo. What is also important for us is to continue to demonstrate operating leverage and high profitability as a mean of unlocking value for our shareholders. This is consistent with Docebo long-term journey, which is best characterized as one of balanced growth complemented by our strong balance sheet, world-class capital efficiency and a large underpenetrated total addressable market. While our competitors continue to offer legacy solution within efficient businesses that are now in consolidation mode, we have first mover advantage that is driving organic growth and redefining how customer choose to implement Docebo modern architecture. We see this as a time to push our strong competitive position in a disciplined fashion, and we're concentrating on a few key areas as follows. One, lead by innovation and showcase how our solutions address the need of the customer-specific use case to achieve this business outcome. We are doing this quite effectively in areas such as customer education, franchisee and quick service restaurants. Two, double down on our enterprise segment, where we continue to see large greenfield and external use case opportunities ahead. And finally, doing strategic and responsible hiring necessary to drive long-term growth objective in both R&D and sales and marketing. As some of you may have seen during our Inspire user conference last month, Chris Metcalfe joined Docebo's Fabio Pirovano, Chief Product Officer, as Senior Vice President. He brings with him a wealth of product design and strategy experience joining us from Workday, where he was part of the product leadership team for Workday flagship core HCM product. And with Nina Simosko and Ryan Brock, taking on senior leadership roles in sales and marketing, I'm delighted to announce that we've expanded Alessio's role as our President, Chief Operating Officer. He will work even more closely with me to drive the operational efficiency and revenue growth necessary for Docebo to achieve its ambitions. We also extend our thanks and appreciation to Rudy Valdez for his contribution and wish him well in his future prospects. In closing, I want to emphasize that we remain growth focused. Our commitment is to continue to deliver sustainable growth with steadily improving profitability. While the near-term outlook may become incrementally more challenging, our customer employees and shareholders can be assured that we will be proactively making the adjustment necessary to achieve those objectives. And now I'll hand the call over to Alessio.
Thank you, Claudio, and good morning, everyone. Before I begin, I want to thank my colleagues and Board members for entrusting me with the role and responsibilities of President and Chief Operating Officer. Sales and marketing will continue to report to me through the strong leaders we have put in place. Going forward, I'm working more directly to align Docebo's day-to-day operations with Claudio's strategic vision. Now on to the discussion about our third quarter results. Quarter 3 was another strong quarter for Docebo, reflecting our continued focus on innovation and execution. This is especially true with our larger customers that are tapping into our external and hybrid capabilities and then leveraging our internal U.K. solutions. This enables them to reduce complexity and reduce tech stacks and drive better returns on investments during this period of uncertainty. Q3 is generally a seasonally slower quarter, and much as we experienced in quarter 2, we saw deal cycles elongate. We are calibrating our execution to the ever evolving macroenvironment. And as we look forward, we take confidence in the quality of our growing pipeline and our win rates, which remain very, very strong. As we grow, we continue to strengthen our view on how to succeed in the longer term. Today, approximately 50% of our customer base is using us for 3 or more use cases. What we also see is that these customers drive best-in-class growth retention and net retention in excess of 120%. Many of these use cases position Docebo in strategically critical areas that customers are focusing on to enhance existing revenue streams, while opening up new ones. What these data points also highlight is that we have a vast land and expand cross-sell opportunity that we have now structured the organization to go after methodical. From a go-to-market perspective, we're concentrating investments in certain key areas. One, we're creating a tight correlation between use case needs and Docebo platform. This solution-based approach to use cases such as customer education, sales enablement, franchisee and partner training, packaged with Docebo Learning Suite as a solution that delivers business outcomes that our customers want. Second, we are integrating value engineering resources to working collaboratively with our sales teams to document and demonstrate ROI tied to business outcomes. And finally, we're building out a more sophisticated digital demand generation engine, combined with a comprehensive planned investment in brands. With new marketing leadership in place, we're now enhancing the systems and processes as necessary. During the quarter, we signed 139 net new customers, including 3 notable enterprise deals. First is Sonos, the world's leading sound experience company and inventor of multi-room wireless home audio. It choose Docebo for multiple internal and external use cases that include compliance, sales enablement, customer and partner training. Next is Advance Auto Parts, a leading automotive aftermarket parts supplier. They selected Docebo for multiple internal use cases, including sales enablement, leadership training, onboarding and compliance. And the third is the leading European based sports authority. This customer selected Docebo to implement a unified digital learning solution for both external and internal stakeholders. Upsells continue to be very healthy for us as customers already using Docebo are finding additional benefits to be gained by implementing our platform across multiple use cases and expand the current product offering. This includes Deliveroo, an innovative on-demand food delivery company operating in 11 countries globally. Not too long ago, Deliveroo had multiple legacy and internally developed LMSs in place. Today, Docebo addresses their needs with a single LMS for internal and external stakeholders. We also saw a significant expansion into MHR, one of our OEM partners in the U.K., where we have been providing them with additional products and modules beyond their core LMS. Geographically, North America remains our largest market with external and multi-use case opportunities providing excellent greenfield opportunities. In EMEA and APAC, we're steadily expanding across the region in a measured fashion, consistent with our long-term balanced growth strategy. In particular, I'm very pleased with the strong process we're seeing in the Nordics as we increase our presence in the region with strategic partners such as TicTac. In conclusion, we see a demand environment where our fundamental growth drivers are stronger than near-term economic headwinds. Our focus is on controlling the same we can, thereby improving our position and execution. Our long-term balanced growth strategy is just beginning to show the results that we desire, and we will continue evolving Docebo to ensure we're prepared for the next leg of our journey. I would 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 9 months ended September 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. As reported, total revenue for the third quarter grew to $37 million, an increase of 37% from the prior year. Total revenue increased by 42% after adjusting the impact of foreign exchange. Subscription revenues were $34.3 million, representing 93% of total revenue for the quarter. Annual recurring revenue was $144.6 million, an increase of 44% after adjusting for foreign exchange impact from the strengthening of the U.S. dollar, which was about 4%. Our company-wide average contract value, or ACV, increased 17% after adjusting for the impact from foreign exchange. As reported, company-wide ACV was up 13% to approximately 45,000 from 39,000 at the end of the third quarter of 2021. New and cross-sell logos with ARR greater than $100,000, represented approximately 30% of the net new ARR in Q3 as the elongation of the enterprise sales cycle previously discussed extended through the quarter. Customers using Docebo for external or hybrid training increased to 65% of our total ARR. And what is important to note here is that these multi-use case customers drive best-in-class gross and net retention rates. Gross profit margin for the third quarter improved sequentially to 81% of revenue. This was in part driven by continued focus on optimizing hosting architecture and higher subscription revenue. Total operating expenses for the third quarter increased to $20.8 million from $19.9 million for the prior year period. Included in the $20.8 million of operating expenses is a foreign exchange gain of $10.2 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 $31 million, slightly higher than the $30.8 million in operating costs reported on a comparable basis in the second quarter of 2022. A full summary of operating expense lines are presented in our Investor Day. G&A as a percentage of revenue declined to 21.2% for the third quarter compared to 21.7% for the second quarter as we continue to drive incremental benefits from scale. This is an area that we will continue to manage to drive leverage going forward. Sales and marketing expense decreased slightly as a percentage of revenue to 42% from 42.6% for the second quarter, and we expect to naturally drive efficiency in this area as we scale. R&D investments in the third quarter were $6.1 million or 16.5% of revenue. R&D investments were flat on an absolute basis compared to the second quarter. As the U.S. dollar strengthened, we experienced a 2% point benefit as a percentage of our revenue due to the core R&D operations being based in Europe. We are extremely pleased to report a positive adjusted EBITDA of $0.6 million for the third quarter of 2022 compared to an adjusted EBITDA loss of $0.3 million for the second quarter. We reported a net income of $10.3 million for the third quarter of 2022 compared to $2.1 million net income for the second quarter. We generated positive free cash flow for the second consecutive quarter of $0.6 million. At the end of Q3, we held cash and cash equivalents of $213 million. Our strong capital structure gives us the flexibility to invest strategically and navigate through this challenging macroeconomic environment. Share-based compensation as a percentage of Q3 revenue was a very modest 2.7%. Before opening the line to questions, I want to close with these thoughts. We are committed to delivering steadily improving operating leverage and profitability as an essential part of our healthy rule-of-40 performance. Consistent execution and operational excellence has enabled us to achieve our positive adjusted EBITDA target a full quarter early. We are not only pleased to be adjusted EBITDA positive, but with our intense focus on shareholder return, we are also GAAP net income positive for the period that includes the impact of share-based compensation and even after excluding the foreign exchange gain. Finally, as we look forward in these uncertain times, if we see a marked slowdown in growth, we have the discipline to drive operational efficiency and profitability to remain rule-of-40. That said, Docebo remains a long-term growth story, and we will lean towards growth as being the primary contributor to the rule-of-40. That concludes my prepared remarks. I'd like to turn it over to the operator now take some questions from the analysts.
[Operator Instructions] Your first question comes from Rob Young with Canaccord.
You already noted the elongation sales of cycles because that's continued impact, but I have thought you just talk a little bit about the pipeline. Are you still seeing the same emphasis on external LMS sales enablement to higher ROI use cases? And do you see opportunities to close larger deals in the pipeline?
Rob, this is Mike. Can you repeat that question for us, please?
Sure. So you already noted the change in customer behavior around deal closing times and slowest times. And so I'm just curious about what that means relative to the pipeline? Are you still seeing the same strength of pipeline? Is it still emphasis on external LMS use cases, higher use cases? And are you seeing opportunity for close deals in the pipeline still?
Hey, Rob, Alessio here. Thank you for repeating. We had the audio issue that we've resolved since. Rob, our pipeline remains very good. It is a pipeline, that as we explained in the past, we have a good grasp on -- over the next 1 to 2 quarters ahead of us. The mix across segment remains very healthy. And the combination of use cases across the pipeline is consistent with what we've seen all along. In terms of -- is there an opportunity to continue to win large deals? There is. And historically, I think this is a fair to say it's a trend. Quarter 3 is less of an enterprise quarter and quarter 4 and quarter 1 tend to be. We're truly looking forward to delivering the great news about incredible outcomes in the near future. But that said, we remain very optimistic and satisfied with both the quality and the quantity of our pipeline.
Alessio on top of that, is it fair to say that we loved multi-department deals, especially when they blend internal and external. But a dynamic that we are seeing is also that on the top of the pyramid, I mean, the very big, big deals we are seeing a shift from other vendors to us due to the consolidation that is happening between legacy players that are now creating a single entity. And there are customers that are not happy about that and they are shifting, and we are seeing an inflow of those kind of reckless sort of migration.
100%.
Next question for me would just be around the cost of acquisition in the quarter. The sales and marketing relative to the incremental ARR that you brought in, in the quarter, very high level of spend for each incremental dollar of ARR. So I'm curious, as we look into Q4, I mean, you noted that the seasonality is intact. How do we think about this cost of acquisition going forward?
Rob, it's Sukaran here. I'll start this, and then I'll let Alessio come in. Firstly, I think when you look at CAC, I would say, CAC is relative. You want to probably focus it on rather than quality more on an annual basis because you have seasonality between quarters. As you kind of think about we moving forward, you've seen this in the results. We'll continue to show discipline. We've made some investments at the start of the year in sales and marketing. And we -- as we've kind of gone through the latter part of this year, we've shown the discipline across other areas, but you should see that some of the fruits of those investments come through as we move into next year. Alessio, I don't know if you want to comment anything else.
Not a lot to add other than, we're extremely focused on spending a lot of time in tuning both our sales and marketing machine to reap the benefits of the investments we've already made and to truly focus our investments on the areas that matter. I.e., personally I'm spending a lot of time with our new CMO, Ryan Brock, on this optimization and calibration of the machine. And again, consistent with the pipeline comment, we believe we are setting up the engine for long-term growth.
Your next question comes from Stephanie Price with CIBC.
Your prepared remarks mentioned the MHR relationship and that they've added some Docebo solution. Hope that you could maybe expand on that and talk a little bit about that relationship here.
Sure. Stephanie, we are absolutely thankful for the partnership with MHR. And like we said in the past, what we like about partners like MHR is that they operate in an environment and with the type of buyer persona, that does not, if you will, a raise any so-called channel conflict. MHR is a leader in their market, in their space, in the region. And we very naturally complement their offering with something that wasn't native to their technology. With that said, additional color on MHR per se is we maintain a great connection with the leadership team, and we continue to nurture the relationship like we do with every strategic partner and with every strategic customer. Yes, that's as much as I can share about MHR.
Yes, Alessio. On top of the relationship with MHR, MHR operate in a segment, which for us is not familiar, which is government. They sell a lot to government. And they are sending signal that government spending in learning is very interesting as a segment, as an industry. And we are looking and studying this segment to invest in the future in these areas, which are almost -- nothing greenfield, but…
Quite untouched.
Yes are untouched or managed or served by very legacy player -- unexpected legacy player, by the way.
That's good color. And then you mentioned several customer wins where they use Docebo for both internal and external use cases. Hoping you can touch a bit more on this opportunity? Is it vendor consolidation you're seeing from clients? And what's the cross-sell opportunity there for internal use cases?
Sure. The trend of consolidation -- sorry, the trend of multi-use cases not only continues but becomes an element of strength in an environment, Stephanie, in which companies, particularly enterprises are looking to extract more value and rationalize. What that means is CEOs, but also CFOs are looking for economies of scale. And when they look at the learning Tic Tac, they try and understand if the expenditure they have is manageable to where they can extract more value from single vendor that may be doing more and remove duplicates. It is in that context that our ability to solve more than one problem, whether it's internal or external combined, we solve for 8 and 9 key use case across the entire learning deliver life cycle, that quality that is embedded in our DNA becomes our best or one of the best hedging strategies in a recessive environment because, once again, where a vendor that can solve the problem, solves only that problem and it's challenged us solving other problems that they have not built for, we can flex around the various problems to solve, and that is winning our business.
And Stephanie, just to add to that, that is why one of the numbers that, I think, Alessio Artuffo spoke about was we went from 61% to 65% in terms of our total book of business, which is external hybrid use case. What also we were trying to make sure is understood is that the more you do that multi-department external internal use case, that is what drives best-in-class gross retention and net retention.
Your next question comes from Richard Tse with National Bank Financial.
With respect to the strategy to kind of move up marketing on larger enterprises, you've obviously had quite a bit of progress there. How does that sort of change your go-to-market model? I recognize that you are spending a bit more. But like tactically, it seems like it's a little bit different from what you were doing years ago. But if you can maybe sort of elaborate a little bit on that, that would be helpful.
Richard, thank you. Tactically, we are implementing -- I believe the script mentioned that we're calibrating our approach and execution to conform also to the ever-evolving changes in the market recently. And I would characterize that some of the changes that I'm about to list more related to the current environment than a shift in our strategy from the past. We have continued to execute upmarket for the past several years. And our move into enterprise is only very natural, and it's a reflection of our brand affirmation and strengthening in the market. It's not a forceful push in any direction. With that said, there are some things we're doing to getting more efficient, smarter and more productive. Number one, we are spending more time and being more intentional in how we get to do the C-suite and very senior leadership sooner and better. This is something that maybe because of our mid-market SMB past, we were not as used to do on a methodic basis. Number two, we are training our people to get into core differentiation sooner, meaning being able to speak to why we are different in the current environment and what the benefits that we provide sooner than later in the cycle and separating us from, if you will, the back or the legacy vendors. Number three, we mentioned this with value engineering. We are working already very hard, and we'll get better and better over the next few months at outlining quantifiable value, return, savings and optimization opportunities with numbers on the table so that at the time that the CIO and CFO asks why, there is a very clear number-driven answer as opposed to a qualitative learning answer, and we believe we can do a lot in this area. And finally, in general, we're simplifying the field sales motion. We want to empower our sellers with a story that is simpler in a way. And just to give an example, operating on pricing complexity and making sure that we are more -- that's easier for sellers to execute. And finally, this is last going, but probably strategically would be the first point. Strategically, we are working very, very, very hard and surrounding ourselves with an environment of strategic partners that we are doing incredible business with. I'm talking not only strategic OEMs, which continue to be a huge effort for us, and we're loving what we're seeing in the pipeline. But I'm talking about the industry-leading strategic system integrators that do live inside the Fortune 1000 and that now we're friendly with and we go and do business with. So these are some of the things that we execute on every day. There's more, but I hope that helps.
And Nina is bring a lot in this journey. I mean she brings a lot of knowledge, and we are learning a lot from her, and we are trying to implement at the speed of light, all the changes that will improve Docebo upmarket strategy.
That's what said, Claudio...
That's Nina...
Yes. Yes, Nina Simosko, our CSO, she's bringing that expertise from the likes of the SAPs and other great companies. She's operated at, and we're really relying on our expertise to execute a lot of what I just said.
My second question is a little bit tied to that one. When it comes to the new wins, I'm guessing most of them are competitive displacements. I'm wondering you could sort of give us a sense of who you may be displacing the most. That might be a sort of a difficult question to answer, but just kind of...
No, it's a very good and not difficult question because there are 2 -- there are 3 things that we beat in this environment. We beat complacency and non-decision, which, for sure, in any environment in which, once again, CFOs or the new CLOs, and I say this with a smile, non-decision can be a factor, entropy. And so how do you do that? You do that with the likes of showing value and showing optimization, as I mentioned previously. We beat and defeat single-point solutions who may have a very good depth in solving one specific problem. But when looking at that solution on a 2, 3, 4-year horizon, it appears clearly that their benefits may fall short as opposed to the strategy of the company, and we really focus on that. And finally, we beat legacy vendors on the basis of the fact that, look, I don't personally love to talk about legacy vendors because everybody runs their business in the way they deem appropriate. We're not financially focused in terms of building a company that's financially engineered. We're focused on building great products that are incredibly well integrated, that flow very well in the market that are not in other lab. We focus on product management efforts on one technology, and we feel very good about that. And we sell that concept very hard and our customers herein.
Your next question comes from Suthan Sukumar with Stifel.
I wanted to touch on the strong expansion activity you guys described in the opening remarks. Can you touch on what use cases are seeing more traction now with the new broader product suite? And how is net new customer behavior evolving? I mean ACV growth was fairly healthy on a constant currency basis. Just wondering, is there more interest in some of these additional use cases right out of the gate with an initial sale?
So Suthan, we are excited to get logos from every opportunity. There are areas that strategically in the future will be more important than others. And I want to reiterate what we have highlighted in the past earning call about the total addressable market. I mean, multi-department and external training is where the real value is, because training people from department or from external is providing a direct ROI to the business. I mean training your customer, training your sales organization is giving a direct return of the training investment. And that's what we love because it's measurable. On top of that, external total addressable market is bigger, training your customer and your partner is a thing of the future. And the greenfield there is great as they already cover a part of the market, we choose our in build in-house technologies or a very basic solution. And especially in a downturn moment, but not only training your customer and keep your partner close is way more important. So what strategically speaking, external training is an area of interest we love, but external training blended with other departments, doesn't matter if internal or external, is the real final goal because the more departments we train inside the organization, the more our business KPI goes up.
Claudio, in addition, one element that would help -- the question is Suthan, is also that learning monetization, you were looking for specific use cases. Learning monetization becomes within the external real, we're seeing more of a pattern. Companies are learning how to monetize from learning. They may do that with the stay alone or integrate with external monetization solution and e-commerce solutions. We're seeing that trend continuing and that trend continuing has response in our plans and road maps to strengthen our position and the capability.
Yes. And then optically, I was speaking with someone that has a job does monetization. And they say that monetization is not the first step when you start training your customer externally. You start training them for free. You have your experience and you understand that you can get value from customers or partners. And it's an interesting segment.
I wanted to touch on the partner channel next. Could you provide an update on the partner ecosystem, particularly the OEM channel in terms of what was the impact contribution this past quarter? How has that channel been progressing? And how is the pipeline of new potential partners have been evolving over time?
Yes, Suthan. First of all, I take the opportunity to say that this is also an area in which our CSO, Nina, myself as well as our leadership in partnership with Sukaran and Erin and Aaron are very, very focused on. We look at the partner world, really in a few different buckets. Not one is more important than another. In fact, one taps into one another, and we see it very realistically. Historically, in the earnings call, we receive more questions and more focus on the OEM business. That is now owned entirely in strategy and execution by our leader Aaron Pratt. What they're seeing in that world is a renewed interest and a strengthening of our pipeline with companies across the sectors like HCM and rewards and others that are in need of finding ways to adding top line with minimum cost and high CAC metrics, another hedging strategy for Docebo. So we're really loving the pipeline in that regard and working very actively on what I think -- I don't want to use the word material, but I would say, opportunities that we are very proud about that. Like I said, the partnerships are not only about OEM, we worked on developing, growing, funding partners in regions like in EMEA and the Nordics. We have mentioned our deep appreciation of businesses like TikTok, I can mention also Omniplex, Bluewater in -- across the world, and these partnerships are only growing, increasing, and we're investing in it and they're yielding a lot of results. Finally, the one area in which Nina and the leadership team are very focused on is, like I mentioned before, to a question from Stephanie is really getting deeper in the business of system integrators. We believe that there is a tremendous amount of opportunity. And we are very focused on getting pretty strategic partnerships going with such companies. We believe you will appreciate the outcomes of those relationships in the quarters to come.
Ale it is TicTac not TikTok.
It's funny because we are in the building where TikTok's offices are. So I think I missed that. Our dear friends and partners that is Tic Tac not TikTok.
Your next question comes from Joshua Baer with Morgan Stanley.
That you're continuing to add an impressive number of customers quarter-over-quarter. I was hoping you could provide a little context there. What are you seeing as far as churn versus gross adds? And where are these new customers coming from just from a geographical or a use case perspective? Any color would be appreciated.
Josh, Sukaran here. I'll take on the part about retaining and retention, and then Alessio will give you colors on net new adds. We talked about the fact that the company -- what we solve from a customer perspective is multiple use cases. And if you think about it, the more you are solving for mission-critical operations and you are in multiple departments of an organization put into their various ecosystems that drive their productivity in terms of retaining customers, increasing revenue, et cetera. You can imagine that, that has a direct correlation on driving best-in-class gross retention, which is what we're seeing, and that is driving net retention, which is consistent with what we would see last year as an example. So if you think about that, hopefully, it gives you a sense that we are integral to our customer base in this environment, and that has a direct impact on maintaining those gross retention, net retention numbers. Alessio, I'm sure you want to touch on that new logos.
We believe in the concept of net dollar retention. And so our ability to continue to grow our base in a healthy way, Josh. That we're always very critical of ourselves and in the sense that we believe we want to always do more and better. We should acknowledge that our retention and the NDRR metrics remain very, very strong. We're very happy with it. From a strategic standpoint, Josh, you're right. We had an impressive amount of logos. And to be clear, as you very well know, we cannot even share most of the times some of the names that we're partnering with. And some of these names that were not even in a position to share are very large companies, companies that we can grow into. So then the question becomes, how are we going to address that? What we are going to do a little bit differently in the future, it's just an evolution. We're going to be focusing our teams to really methodically account plan and expand these companies. And standard energy is more on the farming side in terms of growth with a supporting element behind them of customer success. We have, for the past quarters focused more on a blended approach where account managers undertook also a lot of customer success management efforts. We believe that by focusing account management in what they do best, which is develop relationship, mark the account 360 view and really get deep across departments, subsidiaries, parent and the various companies held, we will accelerate NDRR in the quarters and years to come. And that is an objective, and we're very focused on that outcome.
Your next question comes from Daniel Chan with TD Securities.
Maybe related to the NDRR, ACV continued to grow nicely year-over-year, but was steady quarter-over-quarter after many quarters of sequential expansion. So how do we reconcile the quarter-over-quarter ACV coming in flat against comments of upsell doing well as well as your focus on NDRR?
So Dan, I guess the question -- just to understand the question, you're saying is the add on ACV quarter-over-quarter was flat. And what does that have -- how does that work into net retention?
No, how does that work -- you guys talking about upsell doing well. Usually, we see that get represented in the ACV value. And if we look back since you've been public, ACV has been growing sequentially pretty much every quarter. So I just wonder if there's anything to read through into that.
Yes. And I think, Dan, the way you want to think about ACV is if you look at the enterprise segment, the more that contributes to a quarter, that will also drive that higher. In Q3, there was that segment was the one that was slightly weaker and slower. And so as you move into the cycle, it can fluctuate the ACV because of what contribution you have from a certain segment. In terms of what you don't see in the ACV number, but what you will see in net retention is the upsell part and of course, that includes down the churn in it. So there is -- that kind of number can be -- you'll see that number as we printed in Q4 and the ACV also has an impact from a current headwind perspective, which you may not be factoring in as well.
And sorry, from an execution standpoint in the field, then when we think upsell deals, we think of deals that we -- for lack of better word, we go in a company where we're already in, and we're growing and expanding that business. The ACV of that transaction doesn't necessarily mean that we are selling a massive deal. Again, we're continuing to add modules our capabilities. And so the impact of that sales motion of upsell wouldn't necessarily correlate to an high increase in ACV, whereas it would contribute to an improvement in our NDRR metrics.
Okay. That's helpful. I was just wondering if there was anything to read into that as it relates to whether your customers or your sales team is descoping some deals to get them over the line, whether it's macro related and budgets are coming down, anything like that?
No, none of that. As we kind of think about that moving forward, the simple way to think about this is, as we move into Q3 into Q4, you should see that as long as the enterprise segment will contribute you should see that pick up that's it, nothing else...
Your next question comes from Christian Sgro with Eight Capital.
I'll continue on the topic of seasonality for my first question. Maybe a 2-parter. First, I'm wondering, the Q3 quarter can be light in the summer. I'm wondering if any deals slipped or if there's anything to call out either way? And then I think earlier, you mentioned that Q4 and Q1 can both be strong on the enterprise side. And I thought that was a case for Q4, but it sounds like Q1 as well. So maybe those 2 questions to start.
Christian, I appreciate the attention that you have in listening to prior responses. And jokes aside, the answer is the answer to everything you just said. For sure, when we say the deal cycles elongate, we're also implying that in some instances, deals slipped on to other quarters. Now in our experience in data tracking, this is not uncommon in quarter 3 because the seasonality of holidays, the post-COVID era, people seem to have gotten a little bit more time off than in the prior years and they finally got out of the house. I would say, yes, we've had some flex and -- but with regards to your reference to quarter 4 and quarter 1, while we certainly don't disclose numbers. We work very hard to deliver good numbers. And we like the type of deals that we have in the pipeline for those. I don't know if Sukaran wants to add any color there.
Yes, Chris, I think the -- as we said, generally, we've said in the past, we have a couple of quarter view on where the pipe is, Q4 is seasonally strong quarter. Some of the comments that Alessio is making is in light of what we see for the next 2 quarters ahead of us. And I think as you said, Q3, just a quick point. Yes, we explore. But from a win rate and pipe perspective, we still see strength in our win rates and our price is still strong as far as we can see in the next couple of quarters.
And one follow-on, Alessio, you made reference earlier to investments in the company's brand and marketing strategy. I know it sounds like it's evolving. But wondering if there's any early thoughts you can share on how you might think about positioning Docebo. I don't know if maybe part of that is rebranding to focus more on enterprise, is that's part of the focus? Any color you could share that would be awesome.
Sure thing. A couple of thoughts on this. Also a project that will preceding phases, but 2 things that are -- that we are very sure about is we want to evolve the way we show up from a branding standpoint in 2 ways, primarily one.
Today, if you look at the way we show publicly the messaging is very much lead with products, features and capabilities. This is very evident even in our website, and I would say generally in comps. We believe our natural evolution is to move and transition to focus more on solving real business problems for customers and being eloquent in the way we do that, thanks to technical capabilities. And it's a little bit -- branding is not a black and white size. They are varying colors. And the way we're going to execute that is to strike a good balance between innovation of the company as in its DNA but maintaining a focus on the buyers and what problems we solve for them and how. We believe there's a lot of work to do there, and we're already on it now as we speak and we have been for months. Number two, a more overhaul of our posture towards the enterprises. We should be showing up more in places where the CIOs of the Fortune 500 meet and debate. We have a lot of opportunity to strengthen our brand in the decision-making tables of the best companies in the world because we do business with them. They look at us, and we are just having a missed link of showing up according to the category and we are effectively already in. It's only a matter of execution, and we're executing.
Your next question comes from Kevin Krishnaratne with Scotiabank.
I'm not sure if this was disclosed, but could you remind us what the ACV from new customers was in the quarter?
I'm going to double check that, Kevin. I think not top of my head, let me come back to you on that.
Okay. I guess where I'm going with this, as we think about going forward, we should -- should we expect to see that go up quarter-over-quarter given that the mix of adds will likely skew better to enterprise in Q4, number one. And then number two, the 139 that you added in Q3 seasonally late quarter, reasonable to assume that, that goes up. I'm just trying to understand for modeling purposes as we get kind of the double positive there as we you think about Q4.
Yes. So Kevin, sorry, it took me a second to just double check it. So the number this quarter, new ACV was 42%, okay. And you're right. So when you think about the mix there generally can shift if you think about large enterprise deals can move that up or down. And as you move into Q4 and you see a larger subset coming from enterprise segment, you will see that number move up. And so as we think about moving into the next quarter 2, you should expect that to go up.
Yes. Just so the 42% -- it is one of the weaker net new ACV numbers, I think pre your disclosure you were in the 50% range, 45% range last quarter, and that was mainly due to the skewing down to SMB and mid-market and the related ARPU there, right?
Yes. So the strength in the commercial mid-market segment is basically what you're seeing that number driving that in Q3. But as you move into Q4 and enterprise chips in more as a total proportion of your ARR, that number will tick up.
Got it. And I'm wondering just on the commentary, just to be very clear here on the sales cycle being elongated. Is it relative to Q2 and Q3? Is it -- did you see it getting even longer? And how do you think about that going into Q4? And is that popping up in both the net adds being pushed out and/or perhaps the starting point of ACV at a new win being a little bit slower with expansion opportunities to come down the road?
Kevin, Alessio speaking. It's primarily where a new -- more material spend for the company we made there is more scrutiny, there are new processes. Buyers themselves don't even know most times what processes in place and with the approver, we go and chase down various individuals because processes are in flux at companies and the resulting effects in many companies is slippage because the buyers themselves have a difficult time pinning down within their own organization when they can [ cut the hose ]. that Is what we're seeing.
Your next question comes from Nick Agostino with Laurentian Bank.
So just you talked earlier about increasing spend on the sales and marketing side earlier this year. And I think on prior calls, you put a greater emphasis on outbound sales. Can you just talk about where you are today as far as the size of the team and maybe the contributions that you saw in the quarter from your outbound activity and maybe what you need to do further on the outbound side to improve that side of the business to where you want it to be.
Sure. Nick, thank you for the question. With regard to outbound, it is part of my commentary on our sales and marketing expenditures and focus. Outbound continues to perform on average about -- depending on segments, and so the math becomes very segment-based anywhere between 20% to 30% of our pipeline contribution. We believe that by getting outbound closer to the sales machine, we can reap even more benefits in the future. We believe that by strengthening our acquisition and brand, we are going to have an even stronger story to tell. And so the comments that I've made before around our positioning, around our demand generation efforts are part of a holistic picture in which outbound is one piece of a much bigger demand gen puzzle. Remains an area of focus, remains an area of investment and we like it because, frankly, it allows us to yield the larger-sized deals. Sukaran?
Nick, and also, just to give you a general context, when you think about our contribution, you've got inbound, outbound, self-source and partners. And if you think about outbound, you also have to layer on how a lot of our enterprise sellers and work some other great companies is self-sourcing deals as well as working with great partners, some that Alessio mentioned in his remarks earlier, that will also bring us deals on the enterprise segment.
And just one follow-up. With regards to the MHR expansion partnership, can you just remind us where is that OEM in context, like how far along are you with that OEM -- when you compare that against Ceridian at the same point in time? In other words, are you guys getting more and more traction with MHR at the same point in time on par with where you would have been with the Ceridian at the same point in time. Just a relative just to understand how quickly you're bringing up all these other OEMs for future growth.
Yes. Look, I think the way to think about it, Nick, is that we -- obviously, Ceridian was our first. And as we've learned through this journey, MHR has grown at a faster rate. They're still -- in terms of relative size, it's smaller. So there's a long way to go with them and an opportunity to penetrate more. The other interesting thing is that the integrations that we build as we move forward also is enabling us to layer on more products that we have built into our ecosystem with MHR and with Ceridian in the future. And so that also helps expand that not only to new customer base within MHR but within the current customer base of MHR. As well as there is certainly, as Claudio alluded to earlier, there is certainly -- as you know, MHR has almost 40% market share in the U.K. and serves a lot of the public sector. It also is seeing some increased demand from a public sector perspective.
I would now like to turn the call back to Mr. Erba for any closing comments.
Yes. Thanks for attending this earning call. Let's meet in one quarter. Thanks, everyone, and thanks, team.
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.