Earnings Call Transcript - DCBO Q2 2025

Operator, Operator

Good morning, everyone, and welcome to the Docebo Q2 2025 Earnings Call. I would now like to turn the call over to Docebo's Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike.

Michael W. McCarthy, VP of Investor Relations

Thank you, Julianne. Earlier this morning, Docebo issued its Q2 2025 results. The press release, which included a link to management's prepared remarks and our quarterly investor slide deck were all posted to our Investor Relations website. This morning's call will allow participants to ask questions about our results and the written commentary that management provided this morning. Before we begin this morning's Q&A, Docebo would like to remind listeners that certain information discussed 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, Alessio Artuffo, and our CFO, Brandon Farber. Gentlemen?

Unidentified Company Representative, Company Representative

Good morning.

Operator, Operator

Our first question comes from.

Unidentified Company Representative, Company Representative

I was going to say you can take the first question, Julianne.

Operator, Operator

Our first question comes from Ryan MacDonald from Needham & Company.

Unidentified Analyst, Analyst

This is Matt Shea on for Ryan. Congrats on a nice quarter here, guys. Maybe just to start, you guys called out strength in the mid-market during the quarter. Could you just unpack that a bit? What are you seeing in the mid-market? And how durable do you think that strength is? And then were there any verticals within that mid-market strength that were particularly strong or noteworthy?

Alessio Artuffo, CEO

So, we did report a very strong outcome in our mid-market segment. And I would underscore that Docebo over the past several years has strengthened its position in the mid-market, mid-enterprise and enterprise segment. This is the result of work that we have done to better segment our efforts in outbound and in digital marketing, being more efficient where we allocate our spend and target verticals that are more in line with our strengths and capabilities. So really having a stronger focus on the industries where we have more success. Historically, in mid-market, the technology sector has been a leading sector of our efforts where our product resonates very well with SaaS companies. However, we are seeing beyond that, with even organizations across health care and financial services playing a significant role in this success. Additionally, I would say we have implemented some processes and people changes in mid-market with new improved leadership capabilities, and we have seen an immediate impact. Thus, we are very pleased with this uptick. Relative to durability, we expect mid-market to continue to be strong in the quarters to come. As this combines with a strengthened H2 relative to enterprise cycles, we are very excited about the future.

Unidentified Analyst, Analyst

Got it. That's helpful color. And then it was nice to see a majority of new customers still looking to use you for 2 or more use cases. I mean, nitpicking a little bit here, but that 65% level for 2 or more use cases that we've seen in the last 2 quarters is down from the, call it, 70% to 80% rate last year. Would be good to get your view on what has changed maybe this year versus last year? Are customers just buying smaller in 2025 given the macro backdrop, and then you kind of think you can expand with them over time? Or how are you thinking about the lower multi-use case adoption rate so far in 2025 relative to last year?

Alessio Artuffo, CEO

Yes, sure. So, look, our priority is, as you say correctly, to win as much market share within a customer or addressable market as we can. And there are a couple of ways of doing that. Firstly, to penetrate a customer and sell as widely as we can from day one. That has the backdrop of reducing the sales velocity because bringing on board both internal and external use cases, for example, and the subcomponents of those use cases has the benefit of higher multi-use case and likely higher ACV. The downside is having more cooks in the kitchen and, therefore, a slower decision process. So, we are continuing to refine our process that optimizes ACV and velocity. When you see a slight reduction, it means that we found that in certain segments, it is more productive to enter an organization with a couple of use cases, win their trust, do a really great job, and then expand from there. This is a very good example of what we've done with a notable enterprise customer this quarter.

Operator, Operator

Our next question comes from Robert Young from Canaccord Genuity.

Robert Young, Analyst

It's great to see the expansion among the big five tech companies. First, could you confirm that you currently have two of those clients? Additionally, could you discuss how you secured those accounts and the reasoning behind replacing an internal system?

Alessio Artuffo, CEO

And yes, to question number one, you're accurate in that number, too. Relative to the one we've announced and the expansion that we spoke about, we're really pleased about it because it truly reflects the strategic efforts we've been putting in place to achieve this type of growth within an account. First, let me say, this is a very strategic customer that we have been serving already for a while. Expanding these customers, especially in the enterprise space, underscores the importance of our investments in customer success, where in these enterprises, complexity and the ability to truly serve the customer across multiple use cases and stakeholders becomes crucial to win their trust to expand further. Second, I think you were asking about why the customer chose us, and it's very simple. The customer's main objective was to scale their learning operation and infrastructure with a partner that could accomplish two things: first, true enterprise capabilities; and second, high integrability, meaning the ability to integrate with multiple preexisting systems via APIs, web hooks, and other technological means. This customer interestingly had been using an internally developed system. Despite prior discussions, we're seeing that a large corporation like this is moving away from building its own system towards using Docebo as the backbone of their infrastructure. Finally, to add, this deal is particularly special because it focuses on customer experience technology teams that fit within the target market of this company. So, it's just a perfect example of our execution.

Robert Young, Analyst

That's great. For my second question, Brandon, it's encouraging to see the guidance increase, and I was hoping you could share some of the assumptions behind that. Are the larger deals still a potential opportunity? Is FedRAMP still an area of growth? Additionally, I remember you mentioned last quarter that net retention was expected to improve in the latter half of the year. Is that still part of the assumptions? I'll pass the line.

Brandon Farber, CFO

Rob, before I answer your question, it's important to reflect on our last update from May 9, which was about 30 days after Liberation Day. At that time, we provided guidance that we believed accurately represented a somewhat chaotic environment. Typically, in such times, companies address changes first, and once those are managed, they start to invest in operations again. Looking back, it appears that some of the chaos was more noise than substantive news. We are now updating our revenue guidance based on the current macroeconomic conditions, which include strong performance in our mid-market sector, as Alessio mentioned. However, we still see extended sales cycles in the enterprise segment. Additionally, foreign exchange rates have positively impacted us, contributing 1% to total revenues and 2% to subscriptions this quarter. If you break down our annual guidance and consider our Q3 and full-year outlook, you'll notice we are leaning towards the higher end of our projections rather than the lower end or midpoint. Regarding net revenue retention, similar to last quarter, we noted that we expect improvements in gross retention following Q1. From a retention standpoint, it has met expectations, if not exceeded them slightly. We foresee another improvement in retention for Q3, but anticipate a decline in Q4 due to the loss of AWS. All these factors have been taken into account in our guidance. As for FedRAMP within the large enterprise segment, it remains outside our guidance.

Operator, Operator

Our next question comes from George Sutton from Craig-Hallum.

George Frederick Sutton, Analyst

It was nice to see you get FedRAMP earlier than expected. It sounds like you're discussing potentially meaningful contributions in the second half of '26. Can you just give us a little sense of the trajectory of what you would expect from FedRAMP?

Alessio Artuffo, CEO

So first, FedRAMP was a very important milestone for us. We achieved it just as a look back in May, which unlocked a $2.7 billion TAM across U.S. federal, state, and local agencies alongside SLED. That's a very important fact to recall. You are correct that we experienced an acceleration in obtaining the FedRAMP certification, which we are very pleased about. Regarding our forward-looking expectations, due to the preparation we undertook with partners like Deloitte and others, we've seen an increase and strengthening of our government pipeline over the past few months. While we're cautious in this market because it is new to us, and we are still learning its dynamics, the pipeline behavior is making us very excited with deals that have the potential to close this year, and certainly, we expect growth in 2026. We anticipate meaningful contributions from the federal and broader government vertical of Docebo by H2 2026. To conclude, we are particularly excited because we are in a unique position to offer a solution in this market that currently lacks robust competition, as existing players lag behind in capabilities, features, and innovation. If you consider the White House's communications regarding AI modernization and preferences over legacy systems, this plays directly into our hands.

Brandon Farber, CFO

Yes, I would just add, seasonally, Q2 is a strong quarter for state and local, and we saw strong performance in the government sector. While federal gets a lot of attention, it's important to emphasize the opportunity at state and local. Today, we are in about 10 states, and within those states, we're about 10% penetrated. Thus, there's a substantial room for growth, and we are witnessing increased traction following the FedRAMP certification as our brand improves in the government sector.

George Frederick Sutton, Analyst

Super. It was nice to see you've seated a CRO, and it looks like Mark's background is quite good. I'm curious, given sales cycles, when would we start to expect to see his imprint on the numbers?

Alessio Artuffo, CEO

Immediately. That's what I tell him every day. More seriously, Mark is a couple of weeks in and is already making an impact in the organization by focusing on what are obvious short-term wins or low-hanging fruit. However, I have a longer-term view of his contribution. First, it's essential to note that he has a track record of success at the likes of outreach and Catalyst, where he mastered the art of selling, and also has a deep understanding of the customer success function as it relates to selling. That is a very important attribute in a modern CRO, and I'm excited that Mark has it. His mandate is clear: to sharpen execution and increase efficiency. If you ask him, what he can deliver in the quickest manner, it's improved velocity. Mark is exceptional at identifying processes and/or ways to optimize the funnel, and he's actively working on that. However, the greatest long-term contribution I expect him to provide is the integration of our post-sales and sales functions, which will significantly impact our retention rates. He is already spending considerable time on this integration. I would also point out that it’s not common for sales organizations to have an in-house learning officer expert. We are leveraging Brandon Carson, our CLO, who partners with Mark and Kyle to support our enterprises in the early stages of strategy definition. We are noticing early signals that this strategy of involving the CLO in the learning strategy during pre-sales is paying dividends. Thus, Mark, Kyle, and Brandon, combined, are going to be a powerful force in our go-to-market efforts.

Operator, Operator

Our next question comes from Josh Baer from Morgan Stanley.

Joshua Phillip Baer, Analyst

Alessio, you gave a good summary of where Docebo is with AI innovation in your prepared remarks. I was hoping you could talk about what you are most excited about and where you are with monetization. And then I'd also like to know how you're thinking about and monitoring potential risks from AI on both sides.

Alessio Artuffo, CEO

I love this question. The risk is that I talk for far too long, and Mike and Brandon told me to wrap it up. I will do my best to summarize all my thoughts, but it's a great question that opens multiple interesting points. First, let me explain what excites me the most. It needs to be placed in the context of what we have been doing at Docebo over the past year, which is a clear intention to transition from being one of the most innovative and modern LMSs to an AI-first learning platform. It impacts not only our products but also what we do within the company. We began this transition at a rapid pace about a year ago. In this context, we launched Harmony in July after announcing it at our Inspire conference. What is Harmony? Harmony is our Agentic platform. We went live in July, and this capability enables users to conduct searches on our platform in a modern way, asking natural questions and getting summaries like you would with ChatGPT. This is merely the beginning of a long-term vision, which excites me the most since Harmony is destined to become an agent of agents. It will help create content, automate time-consuming administrative tasks, and perform actions at speeds that dwarf human capabilities. I believe Harmony's purpose extends beyond just improving administrative tasks; it's about transforming Docebo into a complete AI-first platform that provides learners with an AI-centric experience. This technology enables a shift from an instructor-led model, which is prevalent in LMS, to a learner-first model where individuals control their learning and upskilling. The focus is shifting, and Harmony will facilitate that. This overview is relatively high level. We are also implementing considerable innovations within the core product. Customers consistently tell me, 'Alessio, you're excelling in AI, but we are still using the core product.' This is a classic innovator's dilemma. Thus, we need to balance the evolution of our core product with preparing Docebo for the next few years. This is a portion of what excites me the most. I haven’t even mentioned Docebo Creati and all its content creation capabilities, which is another thrilling area. I'll stop here as I anticipated this would be lengthy.

Joshua Phillip Baer, Analyst

That's great. And on the risk side, I mean, anything that new entrants or ways that companies are leveraging LLMs internally themselves, any insights on potential areas to monitor?

Alessio Artuffo, CEO

Sure. There will always be new entrants. In my 13 years at Docebo and 20 in the industry, there have always been newcomers. We understand that story well. First, we have the advantage of experience, data, and customers that enable us to enhance the learning landscape. There’s certainly a discussion about whether individuals can learn in isolation through an LLM and bypass traditional learning methods. I suggest the following reasoning regarding risk mitigation: Learning within an organization encapsulates two main components—the transformation of knowledge into learning, followed by the assimilation of that learning into skills and competencies that evolve over time. LLMs lack insights into existing knowledge that an individual possesses in a specific area. They are nondeterministic systems. If you ask an LLM the same question three times, you may receive three different answers. To be effective, a platform requires a knowledge base that transforms that knowledge into structured learning with pedagogical models and an underlying skills framework. That’s our approach. We are constructing a platform that provides an LLM-like experience while tying learning and knowledge to skills. We are doing this in an agentic way, and that is how we aim to mitigate risk and future-proof Docebo for the next decade.

Operator, Operator

Our next question comes from Suthan Sukumar from Stifel.

Suthan Sukumar, Analyst

I wanted to double-click on the big tech expansion deal you guys announced this morning. Could you give us a bit of sense of the size and scope of the deal? As you think about this customer long-term, what are the factors for additional growth opportunity here?

Brandon Farber, CFO

Suthan, regarding the size and scope, this is a customer use case. I would estimate it's a large six-figure deal, slightly below the seven-figure mark. From a customer count perspective, this won't show in our new logo ACV as it's the same customer but in a completely different department. As for your second question, you're right to ask; what are the long-term growth opportunities with this customer? It's a great question because within the two use cases we have, they represent two customer-adopted use cases. We do not have the employee experience use case integrated just yet. From what we know today, this customer is still using multiple LMSs—not just for internal use, but for other customer experience use cases too. Thus, while it’s difficult to precisely quantify our penetration within that customer, I would still posit that we are underpenetrated.

Suthan Sukumar, Analyst

Got it. And just on the recent CRO hire, it's good to see a new CRO in place. While he's just stepping into the role, how do you anticipate the focus or priorities evolving with respect to your current go-to-market strategy?

Brandon Farber, CFO

I don't believe, Suthan, that there will be any drastic shift. As I mentioned, there will be a real focus on execution, efficiency, and ensuring that as we engage with customers, we create value together. Mark has extensive experience across both sales and customer success. Integrating these functions and providing a full cycle where customers feel encouraged and supported remains an area where I believe we can grow. Strengthening our capabilities in that regard is a key mandate.

Operator, Operator

Our next question comes from Yi Fu Lee from Cantor Fitzgerald.

Yi Fu Lee, Analyst

Nothing better to end the week than a positive earnings print. So, Alessio, I just wanted to start with your favorite—Harmony Agentic AI—which you were most excited about at Inspire. It looks like you're ahead of schedule in delivering Harmony in staged functionalities—first, with search and Copilot this quarter, and expected automated actions by year-end. I wanted to drill down more on the go-to-market and sales strategy for monetizing this great product. How do you plan to approach pricing now that you have Mark in place as CRO?

Alessio Artuffo, CEO

Great question. I believe Josh previously raised a similar question regarding monetization, and I'm glad to cover this for you. It's important to note that my priority is to deliver capabilities that create value for our customers first; monetization will follow once that’s achieved. We launched Harmony Search in early July. Our approach capitalizes on providing capabilities at a high level of readiness and iterating rapidly to enhance these abilities. This differs from standard 3 or 6-month release cycles, as we aim to enhance our AI capabilities weekly. While it’s still early to pinpoint exact usage figures, our usage dashboards indicate promising engagement. For example, features like the video presenter we released a few months ago have already generated more than 20,000 minutes of video content, and around 2,000 customers generated AI assessments with our content builder, which also yielded over 2,000 learning assets developed by customers. All these data points suggest that these products are gaining popularity among our client base. The question, however, remains: will we monetize it? How fast, how soon, and how in general?

Yi Fu Lee, Analyst

How about the go-to-market aspect? In terms of how you plan to reach existing clients, considering you already have a customer base, how do you leverage the CRO and CMO positions to promote Harmony to encourage clients to try it?

Alessio Artuffo, CEO

Yes. For clarity, our strategic decision was to offer these products to as many customers as we can. We provided both Creati and Harmony to all our customers who wished to activate them without discerning or using them as upsell mechanisms. Our goal is to reach a point where customers want to leverage these products and seek more of them before we implement monetization strategies. Currently, we utilize these products as a proof point of our AI strategy and as differentiators against legacy vendors. It also marks the commencement of our positioning as strong contenders in the AI-first category, which we are gradually establishing.

Yi Fu Lee, Analyst

Excellent insights, Alessio. I want to follow up with Brandon on the financial side. It sounds like you’re optimistic about the second half with renewed signs of tech investments in reskilling and upskilling. Brandon, can you discuss other sectors within the ongoing trade negotiations? You previously mentioned auto, industrial, and retail in the last quarter. Are we out of the woods yet, or do you still have some reservations? Additionally, how does the big 5 tech win you highlighted earlier today signify that Docebo can effectively serve other large tech companies, even in light of the unfortunate loss of a contract with AWS? That’s it for me.

Brandon Farber, CFO

Thanks for the question. On the general industry groups we discussed, I'd say that within the enterprise space, we continue to witness deal scrutiny and elongated sales cycles. However, the good news is that we have a playbook that has proven effective in various macro environments over the past three years. When deals become challenging, we focus on value engineering, collaborating with our prospects to build a business case and demonstrate the ROI of learning so they can advocate for it with their executives arguing that by not purchasing this LMS, they are actually incurring costs. In the current quarter, this strategy worked in our favor, particularly in the mid-market space, resulting in several manufacturing wins. Generally, I would continue to differentiate between mid-market and all other segments, recognizing that while we experienced strong performance in enterprise, elongated sales cycles were prevalent in most sub-segments. Regarding the large tech win, this is a customer of ours who has been satisfied with Docebo for a while. Their continued expansion is a testament to our effective execution from an implementation standpoint, in customer success, and customer support. They remain strong advocates for Docebo and continue to introduce us to different departments. Ultimately, having more of these large tech clients reinforces our credibility and aids in securing additional contracts.

Operator, Operator

Our next question comes from Kevin Krishnaratne from Scotiabank.

Kevin Krishnaratne, Analyst

Just one maybe clarification here. In your prepared remarks, you talked about customer count above 100,000 ramping at 23%. I think it was 16%. So, a really nice acceleration there. I'm just wondering what we're seeing there. Is there something mechanically to think about because it looks like quite a jump from 16% to 23%.

Brandon Farber, CFO

Yes, Kevin, there are really three ways a customer could become a customer count above $100,000. First, a first-time Docebo customer during the quarter. Second, an existing customer expanding from a $50,000 customer to over $100,000 during the current quarter. We saw strong performance in mid-market both from a new logo and expansion perspectives. Thirdly, we benefited from foreign exchange, where certain contracts denominated in euros or GBP, previously around the $90,000 to $95,000 range, crossed above $100,000. So, these three factors combined contributed to the acceleration in our customer count growth.

Kevin Krishnaratne, Analyst

I see. Okay. That's super helpful. The second one, I know you gave us the guide for Q3, but can you talk about the ARR trends and sort of what you expect to close out the year? Q3 and Q4, you had a pretty good bump up here in Q2 by $8 million. I know FX would have helped there. Obviously, a couple of large deals were signed. But just help us think about the ARR build for Q3 that will assist us in considering the rest of the year.

Brandon Farber, CFO

Generally, Q3 is a seasonally weak quarter for us, especially in EMEA, where vacations in July and August make September the only month we can execute on contracts. From an ARR perspective, we would expect a step down in Q3 compared to the $8 million we recorded in the current quarter. In Q4, although typically a strong quarter for us historically, we will also account for the loss of AWS coming out in December. Ultimately, I would say the impact on ARR is reflected in our revenue guidance, and we anticipate the same seasonality trends we've historically observed.

Operator, Operator

Our next question comes from Aaron Kyle from CIBC.

Unidentified Analyst, Analyst

I just wanted to ask a question on the Global Education Solutions customer win in the quarter. You mentioned students in response to an earlier question as well, Alessio. So, I'm just curious about that win. First of all, how many use cases did they select Docebo for? And then just on the education vertical in general, are you seeing more demand in that industry?

Alessio Artuffo, CEO

Yes, good call out. This is one of the world's largest education publishers, and we are very pleased to welcome them to our family. Regarding the use case, this is a full Docebo multi-use case hybrid category. We are delivering capabilities for sales enablement, customer support, onboarding, and also for continuing education aspects focused on the customer. Notably, this customer transitioned from a very well-known large legacy vendor, where the issues encountered were primarily rigidity and usability challenges. Thus, we were able to resolve these pain points by providing flexibility and what we do best: crafting an environment capable of managing complexity for the customer. Additionally, it was a highly competitive deal against various competitors, both mid-market and enterprise, and we were delighted with our win. In broader terms, the education sector is a growing area we target, particularly in delivering learning solutions. While Docebo is not specifically aimed at the academic education space, we have a notable number of customers utilizing Docebo in a manner similar to this latest use case, and we see this as a growing segment in the market.

Unidentified Analyst, Analyst

That's very helpful color there. And maybe I'll just switch gears to capital allocation. You're fairly active on the NCIB this quarter on share buybacks. Could you provide an update on the capital allocation priorities for the second half of the year as we look forward?

Brandon Farber, CFO

Aaron, as we've discussed previously, we have three areas where we allocate our cash. The first is investing back into the business whenever strategic opportunities arise. Currently, we are focusing investments in headcount, sales, and marketing aligned with our government vertical, as well as R&D to accelerate our AI roadmap. Secondly, buybacks serve as a good use of our cash; however, it’s not a fixed program, rather something deployed when we perceive our shares as attractively valued. Lastly, M&A remains a vertical we continuously monitor. We are waiting for an asset that meets our criteria in terms of product, pricing, and talent. Until all three of these elements align, we will continue to utilize our cash in other ways.

Operator, Operator

Our last question will come from Gavin Fairweather from Cormark.

Gavin Fairweather, Analyst

Just a quick one on the federal sector. Given sales cycles, I'm curious how much visibility you have on expected RFP levels in 2026? What are you hearing from your partners about upcoming activity levels, perhaps versus historical norms?

Brandon Farber, CFO

Gavin, we've taken the opportunity to reach out to all federal departments ourselves. For several years, we have focused on prepping Docebo to become a FedRAMP solutions provider. I can say that we are building our pipeline not solely on RFPs but also through self-sourcing and pitching Docebo. Generally, from a sales cycle perspective, Q3 tends to be the most significant quarter for federal contracting because the government fiscal year ends on September 30. This is why we consistently discuss expecting more meaningful revenue from the federal sector in Q3 of 2026. Since the recent receipt of FedRAMP compliance, we need to pitch, validate our product, and secure procurement before the end of September, which is quite tight. While there may be one or two potential deals on the horizon, we believe it’s prudent to proceed cautiously and maintain guidance that this opportunity will manifest more significantly in 2026.

Operator, Operator

We have no further questions. I would like to turn the call back over to Alessio Artuffo for closing remarks.

Alessio Artuffo, CEO

Thank you, everyone. Thank you for participating in this earnings call. We look forward to seeing you in the next call for quarter 3 reporting in November. Have a great day. Thank you.

Operator, Operator

This concludes today's conference call. Thank you for your participation. You may now disconnect.