Docebo Inc. Q3 FY2021 Earnings Call

Good morning, everyone, and welcome to the Docebo, Inc. Third Quarter 2021 Earnings Call. Today’s conference is being recorded. All participants are currently in a listen-only mode. Following the presentation, we will open the line for a Q&A session for analysts. Instructions will be provided at that time for research analysts to ask questions. We ask that analysts please limit themselves to two questions and return to the queue for any follow up. I’d now like to turn the conference over to Docebo's Investor Relations, Dennis Fong. Please go ahead, Dennis.

Thank you, operator. Before we begin, Docebo would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties and assumptions relating to forward-looking statements please refer to Docebo's public filings, which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. Now I'd like to turn the call over to Docebo's CEO, Claudio Erba.

Good morning, everyone, and thank you for joining us on our third quarter 2021 earnings call. With me today is Alessio Artuffo, our President and CRO. And I’m happy to be welcoming Sukaran Mehta, our Acting CFO, for his first earnings call. Over the past year, we have seen the momentum in our business accelerate, and this carries through the third quarter as I'm excited to report another quarter of over 60% revenue and ARR growth. Despite the summer holiday in Europe, which generally is a headwind for us, we had record net ARR additions driven by record new logo sales and strong upsell and cross-sell performance. The environment that we have created in our customer experience and success team has helped us build and support a strong pipeline of enterprise customers that has driven substantial growth in average contract value. We added 151 net new customers in the third quarter. While our growth remains balanced and broad-based across customer verticals, the frequency of larger enterprise deals has increased as more leading organizations are turning to Docebo to solve their employees', customers', and partners' training needs. In the current labor environment, where there is a global talent shortage for skilled workers, LMS has become an important tool to improve employee retention. In the third quarter alone, we signed significantly more new deals with ARR greater than US$100,000 compared to the second quarter of 2021. In fact, nearly half of our new logo business this quarter came from contracts over $100,000 in ARR. Our success this quarter has not been tied to a handful of large contract wins, but as organizations adopt Docebo even at a departmental level, they generally have larger use cases. Consistent with our go-to-market strategy, we continue to help organizations solve both internal and external use cases, demonstrating that our use cases go above and beyond the industry standard concept of traditional LMS. Greater than half of our deals in Q3 were external hybrid use cases. One of my favorite examples in the third quarter is an agreement we signed with Zoom Video Communications. As an integral part of our day-to-day life, Zoom selected Docebo as a trusted learning provider to create a personalized learning experience with the ability to rapidly scale and service employee partners and customers under a single platform. Undoubtedly, this partnership will support the rapidly growing customer base and continue to create an impactful learning journey for their audiences. We are also seeing continued success in the retail industry, where there is a need to deliver consistent training experiences across a larger distributed workforce. In Q3, we were delighted to partner with Neiman Marcus, the American chain of luxury department stores, to help them provide the best-in-class learning solutions to accelerate their digital transformation projects. Another vertical that has been strong for us has been the biotech and healthcare sector. We added several new customers this quarter, including an agreement with Smiths Medical, a leading global manufacturer of specialty medical devices. Smiths Medical also invested in the wider Docebo Learning Suite with the selection of the Docebo Learning Impact. Upsell and cross-sell were also strong contributors to our growth in the third quarter. We expanded our partnership with Deliveroo to grow the number of learners with their programs. We also tapped into the wider Docebo Learning Suite by introducing a new way to develop content using Docebo Shape and to measure the effectiveness of the learning program while benchmarking against other companies using Docebo Learning Impact. The flexibility of our platform also allows us to expand to other departments within our organization. In the third quarter, we were pleased to be awarded an agreement with the new division of one of our largest e-commerce and cloud computing customers. This year, we launched Docebo Learning Suite of products and began selling Docebo Learning Impact in the first quarter and Shape and Learning Analytics in the third quarter. Although we are now successfully selling each of these new products, we are still in the early days of this journey. And I expect that the demand for our core Learn LMS platform will remain the primary driver of growth in the coming quarters. In early October, we were excited to re-launch and host our annual Inspire user conference. This time it was virtual, and we had more than 560 customers, partners, analysts, and sponsors join us for two days of live-streamed content and insights from learning and development experts around the world. During the conference, we unveiled two new innovative models that extend the capabilities of our core LMS: Docebo Connect and Docebo Flow. Docebo Connect is a powerful tool that allows any administrator, regardless of technical skill, to manage the data import-export process from their LMS across their enterprise tech stack, using more than 400 pre-built integrations through a local interface. Docebo Flow takes the power of the core Learn LMS and delivers learning in the workflow within the software environment learners are in, enabling them to receive the contextual knowledge they need, when and where they need it. Both products are great examples of how we innovate to help organizations connect to the core of their businesses, serving multiple audiences and use cases, such as customer education, sales enablement, frontline training, and compliance. We consider our learning software a building block to integrate with every other software in the enterprise tech stack. This philosophy and approach set us apart and have been a fundamental driver in our journey. The delivery of knowledge and training is a revenue enabler for many companies, and our OEM and partnership program are designed to enable this capability. Year-to-date, we have announced six new agreements and expanded the partnership we have with Bluewater and MHR that were signed in 2020. As we have consistently said in the past, working with our partners to develop and bring solutions to the market takes time. But we know from our experience with our first OEM partner that the returns can become meaningful. MHR that we added in 2020 is now in the process of ramping and becoming a more material contributor to our OEM partner business. We expect several more of our partners to launch commercial offerings starting in 2022. We believe this will be an exciting growth vector for us in the years to come, and we are increasing our investment to expand our partnership program further, as we share more details in the coming quarters. Lastly, when we spoke last quarter, I touched on some of our intentions around ESG. This is a journey that we are moving forward very positively. I'm honored that Docebo was recognized in the third quarter for its CSR efforts with the 2021 Tech Cares Award from TrustRadius for empowering women in technology with growth opportunities. Instilling a culture of caring is extremely important to our organization, and it is also an important factor in how we attract and retain the best talents. We have several internal initiatives underway, including Docebo Green Ambassadors, Docebo Pride, and the Docebo Women's Alliance for inclusion and diversity, as well as recognition of World Mental Health Day and the Day of Truth and Reconciliation among just a few. I'm proud of the team effort in bringing the environment, diversity, equality, and inclusion to the forefront of our efforts as a company. With that, I will now pass the call to Sukaran to discuss the financials.

Thank you, Claudio, and good morning, everyone. For those interested, a detailed breakdown of our financial results for the three and nine months ended September 30, 2021, can be found in our press release, MD&A, and financial statements, which are now available on our website and also filed on SEDAR and EDGAR. The slide deck accompanying this earnings call was made available on our Investor Relations website this morning. For those who want to follow along, I'm starting my remarks on Slide 4. The strong momentum that we demonstrated in the first half of the year continued in the third quarter with total revenue for the period growing to $27.1 million, an increase of 68% from the prior year. Subscription revenue was $25.1 million, representing 93% of total revenue for the quarter and up 66% from the prior year same quarter. Professional services revenue in the third quarter was $2 million, an increase of 102% from the prior year period. As Claudio noted, the $10.2 million net ARR added in the third quarter was the highest ever for Docebo and continued the robust trend of quarterly net ARR additions, as shown in Slide 4. At the end of the third quarter, we had $103.5 million in ARR, an increase of 60% over the $64.6 million in ARR at the end of the third quarter of 2020. With 2,636 customers at the end of the third quarter of 2021, our company-wide average contract value, or ACV, increased to $39,000, up 23% from $32,000 at the end of the third quarter of 2020. This quarter, ACV from new customers grew to approximately $59,000 compared to approximately $46,000 in the second quarter, and nearly 80% of our new logo and cross-sell contracts were multi-year deals. One of the underlying trends that we were excited to see this quarter was the broad-based growth in enterprise deals. Almost half of the ARR generated from new logos this quarter came from deals over $100,000, and there were no deals over seven figures in value. To further emphasize the breadth of our enterprise wins, the quantity of deals signed valued over $100,000 in ARR were almost double when compared to the second quarter. Overall, we are very pleased with the direction that our KPIs are trending, reflecting the continued progress in executing our growth strategy. Moving on to Slide 5. The gross profit margin for the third quarter was 79% of revenue, compared to 80% for the second quarter. The slight reduction in gross profit margin is the result of the investments we've made this year in our customer success and professional services team to facilitate the rollout of our multi-product strategy and to further enhance customer support. To be clear, these costs primarily relate to staffing and we expect to gain leverage on these investments as our revenue scales. We expect to return to low 80% plus gross profit margin levels in the next several quarters. On Slide 6, you can see a summary of our operating expense line. Total operating expense for the third quarter increased to $19.9 million compared to $13.9 million for the prior year period. Included in the $19.9 million of operating expenses is a foreign exchange gain of $4.8 million related primarily to the cash on our balance sheet and is, therefore, for the most part unrealized. Operating costs, excluding this gain, were $24.7 million, slightly higher than the $23.6 million in operating costs reported on a comparable basis in the second quarter of 2021. G&A expense of $6.8 million declined as a percentage of revenue from 27% for the second quarter to 25.2% for the third quarter, as we realized some further efficiencies from increased scale. Compared to the second quarter, the sales and marketing expense increased slightly as a percentage of revenue to 41.2% from 40.8%. R&D expense as a percentage of revenue remained unchanged at 20.2% compared to 20.4% for the second quarter. Heading into 2022, we will continue to invest in sales and marketing but with a long-term expectation of maintaining expenses as a percentage of total revenue in the range of 35% to 40%. We have always been efficient in the level of capital we deploy to generate organic growth. This will continue to be our approach. Leading with innovation remains core to our strategy, and R&D expenses should remain near our expectations of 20% of revenue. We reported an adjusted EBITDA loss of $2 million for the third quarter of 2021 compared to income of $0.6 million in the prior year period. We reported a net profit of $0.7 million for the third quarter of 2021 compared to a $1.2 million net loss for the prior year period. As already noted, the net profits of the third quarter reflect an unrealized foreign exchange gain of $4.8 million. Finally, free cash flow was negative $1 million in the third quarter. And we continue to have a very healthy balance sheet with net cash and cash equivalents of $216 million. Last quarter, we noted that we were finally at the point where we expect to begin to realize greater benefits from scale, and I think we saw this starting with the G&A line in Q3. We believe we will continue to see operating leverage in G&A next year. But as we finalize our 2022 budget, our focus is to continue investing to organically grow revenue as fast as we responsibly can. Our sales pipeline remains very strong, and we believe this is the best use of investment capital, given our low customer acquisition costs, which we believe is among the best-in-class in the SaaS industry. With that, I'll turn it over to the operator now to take some questions from the analysts.

Thank you. We will take the first question from Stephanie Price from CIBC.

Hi. Good morning.

Good morning, Stephanie.

Good morning. It sounds like the average ACV new deals in the quarter was obviously much higher than the total ACV. It sounds like enterprise is driving that growth. Just hoping you could break that down a little bit more for us in terms of what you're seeing from enterprise this quarter versus prior quarters?

Stephanie, good morning. Alessio speaking. You are correct. We continue to see strength in our enterprise segment as a result of investments, but also recognition that our product is mature, scalable, and stronger, satisfying the needs of large organizations. There is one primary contributing factor, Stephanie, and that is our product is proven to be able to solve multiple use cases altogether. We refer to that in our language and in the script as hybrid use cases. But when it comes down to realizing why it is producing higher ARR and revenue, it's simply that we're addressing different user populations in organizations. We're helping organizations retain their people. We're helping organizations keep their customer experience high and the customers educated. When you're able to do that on a frequent basis, the end users on the average contract are higher, resulting in higher ACV. That is the biggest trend we're seeing. There is certainly positive momentum from the very early still adoption of new products, and despite it being early days for most of these products, we're very satisfied with the initial market response.

Great. And maybe on that learning suite, maybe you could talk a little bit about the sales approach for the full suite and whether you're leading with the learning suite or the core modules? And any color on growth of customers that are signing up for more than one product would be appreciated?

100%. There are several ways to look at the customer journey, and the simplest way that encompasses it all is looking at the first iteration of let's say the new logo posture of the company and then at the continued expansion of our customers. We've been clear that our approach to driving the efforts of the learning suite is not to sell the suite at all costs at this stage, meaning to a new logo. We would much rather win the trust of our customers and then continue to the next job; produce, solve problems for them rather than squeezing as much as we can upfront. Having said that, the capability of selling the suite and the way we approach it is still very Learn-driven. We believe our flagship product Learn is the strongest in the market to satisfy enterprise needs of hybrids, and it becomes very natural to then open up the conversation to other products. On the upsell front, as long as we do an excellent job at creating intimacy and coverage at the field level of our customers, which we're extremely focused on, we have an opportunity to not only upsell but also cross-sell across the entire customer 360 environment. I hope that answers, Stephanie.

It does. Thanks so much.

Thank you.

We'll now take the next question from Daniel Chan from TD Securities.

Hi. Good morning. Just wondering if you can give us more color on the cross-sell agreement with that e-commerce and cloud computing customer, what will they be doing for you? And what's the agreement structure? In other words, is it like a revenue share model? Any color would be appreciated.

Hi, Dan. I'm sure you understand that we are not public about actual logo names, and there are certain restrictions that we were subject to as to what we can share. So I appreciate the question. In conjunction with what Stephanie just asked, that success and that agreement reflect entirely our strategy. When we sign an organization, particularly one of a very large magnitude and geography, one of our jobs is dedicating strategic account management to map and understand the opportunity we have across the organization. This success with this organization is a reflection of that. We have a good understanding and deep understanding of our customers’ potential. In this case, with this e-commerce and cloud provider, we were granted the opportunity to serve in other business areas to address their needs. But once again, I would love to give you all the color in the world. However, there are certain terms that we’re bound to. And I hope you understand. Thank you.

Yes. Dan, it’s Claudio speaking. The way we expand through cross-selling is common across every industry in America. In this case, it is a common vendor, but you can imagine another industry group that has companies across the world or divisions across the world, and they buy multiple Docebo instances for every parent or sister company. This is a common use case expanding not only vertically to have more users or buying more products from the same entity, or the same department but also expands horizontally by buying multiple LMSs or expanding through the extended enterprise, leveraging more use cases through a single LMS, but across multiple departments, divisions, or companies. It's very common for us.

Thanks for that. It's very helpful. And then your customer wins continue to be really good. Just wondering whether you're still displacing incumbents or whether these are mostly greenfield opportunities? Thank you.

So displacement is the pattern in all the enterprise segment, there's no doubt. However, when we talk about addressing the needs of hybrid, customer workforce, and improving the experience of the customers of our customers, we find that in many instances, even larger organizations are not addressing that problem yet. There is a, if you will, greenfield opportunity within an environment where there are already vendors. The vendors that are more legacy perhaps, and that were used for compliance for internal training, aren't addressing the full scope of the digital learning experience—again, internal and external. On the smaller market, we're fortunate to operate horizontally across multiple industries. We're adopted by companies of different sizes; mid-sized and enterprise both. In the smaller size of our customer base, we find still that organizations are not always equipped to be the best-in-class LMS or that they have a first iteration that they outgrow. When they do outgrow it, it is our time to step in. Because with our scale and architecture, experience, and recognition in the market, we help them get one step ahead.

Great. Thank you.

We will take the next question from Gavin Fairweather from Cormark.

Hi. Good morning.

Good morning.

Just on the enterprise deals, I'm curious what's driving the pickup? Are you seeing more deals entering your funnel or a greater win rate, or both?

Win rates remain fantastic. We were very pleased with them. We believe that this reflects many factors. For sure, part of the element is recognition in the market. When you have a funnel consistently consisting of enterprises, your brand also gets recognized as the leader. We believe that has been the case. Additionally, we have been investing in the enterprise segment as we continue to mature our capabilities to satisfy the needs of enterprises. We were more conservative, if you will, in that segment years ago. But as we continue to win very large organizations, our strategy has been to drive more enterprise success. Finally, our customers grow with us. That's the beauty of our business. We may have customers that have entered our sales funnel and become a part of our family as mid-market customers. Over time, due to their growth and expansion, they enter our enterprise book of business because of their size and growth. Overall, our posture towards enterprises is very intentional. We’re staffing the organization to be really good at it, but we remain a resourceful company that serves multiple industries and sizes of enterprises.

Thank you for that. That's very helpful. And just secondly for me, I’ve been hearing from some other sales companies that it was a bit slower than normal summer with elevated vacations and the like. Obviously, you didn't see any slowdown in your sales production. But I'm curious for your general take on the operating environment that we saw in Q3?

We know seasonality and understand the market motions in different geographies across different months. This year was no different, frankly. We've seen a huge return to getting out of the house, and I think people are resuming a normal life in many places. This reflects in what we've experienced. Our ability to deliver record ARR performance and continue to grow our strong pipeline is a testament to how solid we are and how versatile our offering is, regardless of the environment, whether people are in the office or remote. We have satisfied both scenarios, and we've seen it in the numbers.

Great. Congrats on those good results. Thank you.

Thank you.

We will now take the next question from Richard Tse from National Bank Financial.

Yes. Thank you. In regards to these enterprise wins, my guess, and it’s just a guess, is that the absolute dollars to acquire those customers is probably higher. But on a relative basis, let's say, on a per dollar of ARR, are they higher or lower, or are they about the same as your remaining base?

Yes. Hi, Richard. I would say in terms of the dollar acquisition for the higher enterprise customers, I don't think there's a significant jump. If you take a look at our calculations around sales and marketing expense over the ARR that we add in the quarter, that's tracking relatively consistent. One of the ways we continue to expand the ACV is landing and expanding within the customer base. We've been very efficient at that. In overall landing enterprise customers, we're relatively efficient in our CAC ratios, so I wouldn't say there's a much higher cost to acquiring those customers.

Okay.

Yes, and there's also a factor of sales organization maturity. We have onboarded and invested a lot in sales and marketing over the past year. These incredible talents within our organization are gaining confidence. Our trainers are being empowered to sell our products, pitch correctly, position accurately, and identify customer needs. So it's a mix of factors, and part of this factor is all the investment we're making to strengthen our team and organization.

Okay, great. And then to my second question, relative to sort of growth, I don't know if you want to use ACV or annual recurring revenue. But if you look at the growth, can you maybe share with us the split in terms of the contribution of that growth, where it's coming from, whether it's new or from existing expansions?

Yes. I think if we look at the ACV, Richard, I would say the primary driver for the growth in ACV, and I think the numbers you have seen show that the new book has gone up from $46,000 in the quarter to almost $60,000. I would say the growth in ACV primarily comes from the complexity of the hybrid application focusing on our Docebo Learn product. Whether it's at the department level or organization level, the increase in complexity in hybrid applications is really what drives the increase in ACV. Some of the products have just been launched in the past few weeks or in the past quarter, so they haven't been significant drivers in Q3. We are positive on those products and have a strategy alluded to at the start of the call. We’ll share progress on that as we gather more data in the near future.

Okay. I appreciate that. Thank you.

We will now take the next question from Paul Steep from Scotia Capital.

Great. Good morning. Can you maybe just talk to how much of that enterprise channel has been driven by either OEM partners, or has it been primarily direct when you've been picking up these wins? And then maybe the second part of this, we talked a lot about it, but I guess I'm just trying to understand why now? What's driven this change that sort of lifted hybrid? Obviously, you're getting multi-department and larger wins. Is it just simply profile, or has there been any other changes you may have made over the last year that you're now seeing the fruits of? Thanks?

Paul, thank you. Great questions on the OEM front versus direct. Direct remains our largest contributor in terms of revenue adds. OEM is a business that we started building, and we have some incredible partnerships that continue to bear fruit. They meet our expectations, and we have plans to continue to grow that business. Again, while the biggest contributor is direct, more than 50% is through that channel, the form of logo and upsell extensions. When it comes to the 'why now?' Why are these organizations coming to the table with more needs? It’s a trend, Paul. There has been an underlying trend that has largely been underserved for a long time that Docebo has been at the forefront of selling for years. However, the market wasn't quite ready. As we have continued to invest in this technology, we have gained a competitive edge over others. Our technology is now designed to satisfy hybrid use cases with a degree of flexibility and depth that perhaps other vendors cannot match. We believe that fundamentally, we're seeing just the maturation of a trend that initiated long ago, combined with our technology capabilities and an environment supporting the needs of these enterprises.

Yes. Let's not take for granted that all industries understand that training is not only an HR matter; it's also important for employee retention, education, and engaging employees. Many organizations have a dated approach to training and learning. Consequently, they're realizing that their learning strategies were outdated. This realization assists us as we continue to present a new narrative and paradigm of learning over several years.

And Paul, I'll just add one point to it. The labor market environment is significant. Our learning suite and platform is one of the most cost-effective ways to engage employees and improve their efficiency. One of the pressing problems out there is to decrease attrition, which we're seeing in the market. This also factors in as customers think about solving and engaging their employee and customer needs.

All right. One last very quick one, I promise. If we think about moving forward, because you've highlighted that you didn't get large any sort of whale deals in the quarter, should we now be thinking that the time to full deployment in an enterprise has materially shrunk? Should we now be seeing full deployments much faster than we might have thought about? Thank you.

Every customer has their unique use case, so there is no recipe to think some deployments are faster or some are longer. What we observe is that the more LMS is integrated inside the enterprise software stack, the more we need to integrate. We launched Docebo Connect, which contains more than 400 pre-built integrations with other software. This does not materially shorten deployment, onboarding, and project launch times, but it increases the data we can interchange both inside and outside Docebo, thanks to the integration gateway.

And Paul, I would also add, we were extremely pleased with the increase in my remarks that noted almost half the net ARR adds this quarter were deals over six figures. The quantity indicates consistency, and we're penetrating into the next level quite nicely. I think we are very pleased to continue building on that success.

Thank you.

We will now take our next question from Martin Toner from ATB Capital Markets. Please go ahead.

Hi. Thanks for taking the question, and congrats on good numbers, guys. The question is incremental ARR was around $10 million for the second quarter in a row. Is there any reason why that’s a ceiling, or are the pieces in place for you guys to continue to increase incremental ARR quarter-after-quarter?

Martin, thank you for your compliments, first of all. Conceptually, we see no ceilings. We believe we are designing the organization to continue to perform. Altogether, we had plans, and the results we're bringing to the table are consistent with our plans. Our plans are to continue to grow that top line in ARR. I’m not trying to be cautious, but there is no reason we shouldn't see that $10 million number continue to grow in the future. I’ll leave it at that.

Yes. And on top of that, we truly believe that consistency is one of our key values. So I prefer gradual growth—10, 11, 12—rather than spikes. We do have three pillars to increase the ARR: our core LMS, our OEMs, which are incredible products— and we're working to get more partners involved—and the new products; Learning Analytics, Shape, Impact, and the new ideas we are developing. The future for Docebo is in executing a mixed strategy and not just focusing on one area.

And Martin, just to add, we continue to see growth in geographical expansion as well. We opened operations in France and have built our presence in Germany from the ground up. There are areas in the world we haven't tapped yet, and that will be another focus for growth.

Great, guys. Thank you very much for that. That’s all from me.

We will now take the next question from Robert Young from Canaccord Genuity. Please go ahead.

So in the case where your ARR is growing going forward, do you see the need to expand your sales function materially, or do you see your current sales function as sufficient to grow at this order?

Great question on the growth of our sales function. We will continue to grow the company organically across the board—from engineering, products, services, and for sure there's consideration to continue investing and growing in sales. Every time we add sales functions, we grow our demand capabilities. Our focus is on delighting our customers, ensuring they receive the best service. We think about that continuously and implement strategies that lead to that outcome, which are not confined to sales alone but extend across all functions. However, in terms of absolute growth, we see more opportunities for penetration within our customer base. Therefore, we aim to increase coverage at all levels in sales, support, and customer experience.

Okay, that's really helpful. Thank you. And then just on the second question, I was just wondering if the inbound that you're seeing from enterprise customers and the overall demand for LMS and learning, has the velocity of cross-sell kind of increased? Have you seen the chasm to cross-sell the modules and new modules to customers? Have you seen that sales cycle reduce?

Yes. It is true across the board that every upsell or cross-sell sales cycle benefits from much higher velocity when compared to a new logo cycle. In most instances, you're not entering the same contract negotiation that our terms are already pre-established with a customer that has given you their trust. If they’re interested in buying more, they already have that relationship. This contrasts with the challenges we face when initially engaging a prospective client, where we must earn their trust first. The numbers confirm this velocity increase within our upsell and cross-sell business. This movement is a result of our investment in customer experience, and our desire is for our customers to rave about us publicly—to recognize us as the best at what we do. We work tirelessly to achieve that.

That's very helpful. Thanks for taking my questions.

We will now take our next question from Phillip Leytes from Berenberg Capital Markets.

Good morning, guys. Can you provide some more color on how the OEM partnerships are performing? How much of the revenue for the quarter came from the OEMs? How is Ceridian performing? And how does the pace of MHR ramp compare to the earlier days of Ceridian? Thanks.

Thanks. Good morning, Phillip. Sukaran here. I'll speak to the overall OEM. Firstly, regarding Ceridian, we're continuing to be very pleased with how we are performing with them. As you're aware, it's a meaningful contributor to our growth story. Now thinking about other OEMs and alliance partners we signed in recent quarters—I'll start with MHR. Since we signed MHR about a year ago now, we continue to see the same results as with Ceridian. Patience and consistent efforts yield dividends, and we are witnessing that with MHR as it begins to contribute meaningfully to our ARR growth. Looking at alliances and OEMs we've signed in recent quarters, patience will bring dividends from some of these partners early next year. Importantly, our solution addresses multiple verticals and use cases, not just HCM. We signed an IT service management provider and sales providers, and we see a robust pipeline of future alliances and OEMs to partner with. Therefore, we are optimistic in this area.

Thank you.

As there are no further questions, I would like to hand the call back to Claudio for any closing remarks.

Thank you, guys, for staying with us for another quarter. Let’s meet for Q4. Have a nice day, and happy holidays, as I think that the next call will be after the holidays.

Yes. Happy Holidays.

Happy Holidays, everyone.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.