Docebo (DCBO) Q2 2026 earnings call transcript

I'd now like to turn the call over to the seat both vice president of investor relations Mike McCarthy. Please go ahead Mike.

Thank you Krista. Earlier this morning the table issued its Q two two thousand twenty six results. The press release which included a link to management's prepared remarks in 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 and a table 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 the tables public filings. They are not recognized measures and do not have standardized meetings under IFRS. Please do our MD and A for additional information regarding our non IFRS financial measures, including reconciliation to the nearest IFRS measures. Please note that unless otherwise stated all references to any financial figures are in the US dollars.

Now I'd like to turn the call over to Dr. Chabos CEO. Unless you are our twofold and our CFO Brandon pharma.

Good morning, Rob. Starting with hiring a foundational that is intended so that we can build the playbook before we scale that practice further.

The way we think about it is. We are going to build custom agents workflows that aim to solve the four vertical use cases, right? Very specific needs that are customers to begin with. Have. Think about solving for specific operational challenges across them. He was our health care, financial services. We know that these organizations have a data challenge. Everyone has an integration challenge. Everyone has a data discoverability and validity challenge.

And we are going to have these SDS help with creating this customer flows on top of our technology. How does this compound? How does this create greater value?

Our plan is to abstract these agents at a greater product level and make those agents available more broadly to a broader audience.

In terms of monetization, look, we are going live with agent and knowledge enterprise in the fall and will update you after that time.

Rob, when we start to hire them, you know, it's going to be before the product is released, you know, the start will be more of an R&D type cost. These are going to work with our top 10, top 20 customers. You know, as we think about scaling, charging, professional services, this adding usage to our AI, whether that's through credit, service, price, you know, that's where it flips to gross margins.

So it really depends on, you know, when to get released, when we start monetizing. So it's either going to be an R&D or a cost cost.

Yeah. So let me talk a bit about the underlying ARR acceleration. This is the second quarter in a row where we have an acceleration and, for sure, what are super pleased with that.

Rob, if you recall, in November of 2025, during a conference call, we refer to 2026 as the year of the enterprise.

And that would lead you into 2026. And had a point of view that the initiatives we were taking on the product, and as well as, you know, broadly execution where added in the direction where we thought that 2026 were going to show the results of the work we were doing. And when I impact that, I think it's a sort of three, three vectors, right? There is overall execution where we made investments across the board over the past several years.

There was a sort of product with the acquisition of 365 and the acquisition of Zives, both. And frankly, a re-acceleration of shifting features in our core product as well, right? It's not only a story of buying technologies.

And then I, you know, to characterize growth and re-acceleration, I always like to kind of separate our partner motion because it is, you know, a subcategory of execution, but it truly has become important. The large majority of our enterprise pipeline, roughly 80%, has a partner involved in some fashion, whether it's a call sale fashion, whether it's an employment fashion. And most times, this is hybrid of both. And, you know, you know, shout out to partners like Deloitte and new partners like an IIT that are really embedded with our org, and we work super well together.

So that sort of re-acceleration is, I would say, it hinges on several factors. It's growth-based, right? It's showing in that new, it's showing in expansion, it's showing international.

And I like that very much because these multiple factors don't, you know, rely on just one segment doing all the work.

And as far as the confidence of the future, you know, it's very high. We're extremely pleased that we have the growth of our pipeline. We look at our pipeline in terms of, you know, deals that are significant in material inside above 500K, and we think it's a really great time at the Chebo. And, you know, very, very excited about the coming quarters now, as far as a federal pipeline and quarter three.

Look, we think about government more broadly than just federal. We think about government as a combination of our success in state, local, as well as federal. And quarter three is a heavy federal quarter, but, you know, we don't disclose what's going to happen in that quarter. We're just extremely pleased with the pipeline building up and execution of our teams.

Yeah, thank you, Rob.

Yes, awesome. Ryan, your premise in seeing some parallels with the investments that we made rather into government. I think it's very soon. I agree with you. There are several parallels.

First, let me ground us in the context of the healthcare market as we have studied them. We value this. We see this as roughly a $3 billion term over a roughly $30 billion corporate learning market that we already operate in.

We, you know, already have an important base of healthcare customers call it roughly $10 million of ARR. And we've acquired the $10 million of ARR and not withstanding certain gaps of knowledge and product that we, you know, are now much more educated about. And so I would say that similarly to what happened in the past with the certain local education market, we have operated opportunistically, but we have not been extremely focused and strategic in the way we've addressed this market. Now, as we are a much more mature company, as we have matured our GTM engine, we believe that as an horizontal player, every opportunity we have to become more efficient in our GTM engine and more efficient in the way we address customers' needs and build products for targeted audiences, the better off we're going to be.

We're going to be better in our success of adoption. We're going to be better in our win rates. And so it was an overainer to start with healthcare because we believe the distance between where we are today, capability-wise, and the optimal scenario is very much in reach. And we don't have to do, you know, years of work to be an optimal scenario to double our win rates.

I think we have, you know, months of work as opposed to years of work. Now, healthcare is a broad definition. And, you know, depending on how you slice and dice the verticals, we already have a view that is a multi-year view after which we would tackle life sciences. Life sciences carries along a bit more complexity in terms of technical requirements, which we are already partial addressing, but we're preparing ourselves over the next 12, 24 months to go in even deeper.

What else can I tell you? You know, I think this is a great market. We're already winning, and I mentioned it. It's a motion where we're going to invest in products. We're going to invest in the partner ecosystem. We have partners that are really great in the healthcare industry, and we work closely with them.

And also, you know, when I mentioned the content network, healthcare involves the story of content. Our technology being such that you can now aggregate multiple content partners. And we can augment that part is going to be important for our healthcare customers. And listen, one further validation point, we know that in healthcare alone, there are organizations that are, you know, very sizable. Frankly, in ARR, they are comparable to the chair board in that range. All they do is healthcare, healthcare learning.

And, you know, just that validates that if we approach this deeply and become more specialized, which I think is very much in reach, we have an additional little factor. So, very excited about it.

Yeah, you know, I think a bit the opposite of that, like I, as a, again, we built the chebo up to where it is today as a horizontal player and with the exceptional government, which we started specializing in a while we, we've always recognized that there is a greater benefit in the earlier stage of company as being a generalist. As you grow up as a business, you realize that the generalist categorization starts to become an impediment to healthy growth, and it shows in every function of the company. It shows also in the way we support the customers that this is a big, I'm a big believer that in order to do a great job with customers, you need to understand their business deeply and each address their needs deeply.

And when you know you have a disparate sheer example, somebody in a sales executive capacity that at 9 a. m. in the morning has a conversation with the manufacturer, you know, and at 11 a. m. with a security company and 2 p. m. with an healthcare organization having that depth of knowledge of the business problems that each of these carry is incredibly hard to scale. And so I believe that it's incumbent upon us as we continue to mature to taking the most valuable verticals and creating emotion around that. And the caveat there is, is there an opportunity to also verticalize the product and create capabilities that go beyond the lingo in the jargon. And if there really is the combination of that product bill that alongside the knowledge creates, you know, and unstoppable force and an absolutely differentiation in the market.

So we don't see it as a need to find a new pocket, rather as a desire to win a higher rate and be seen more as a leader in those in those verticals.

First, let me tell you, we are, we are beyond pleased with the progress that we've made so far in the integration process of 365 talents. It's like all integrations and acquisitions.

There are always challenges and we don't shy away from those. But the results take for themselves. We are six months in, frankly, and our five targets that we've blown that up. We are very pleased that we've seen the pipeline rose, including the 365 enterprise combined office. While I can tell you exactly the percentage of deals and attachments. I don't know that that's something that we are necessarily disclosing. I, you know, we've mentioned a couple of the wings that are very significant in this war, you know, one being the world of the largest telecom and network. One of the world's largest telecom and networking companies are one being the world's largest player or the automotive safety systems.

And, you know, both of them would have, we would not have been at the table with them had we not offered the capabilities of 365. And, and to me, that is, you know, more than, more than initial validation. I think it really validates what we originally thought. And when I look at our pipeline, there are many more of these coming up. The next step here is the job isn't done to be clear. The job is far from being done.

What we need to do and what we're doing is progressing at fast speed, our product integration. So that's the story of one plus one equal three becomes even more tangible, even in the product, not just in theory. And we are, you know, I had a schedule in that regard. I'm very pleased with our integration here. And, and additionally, you know, I think the story wraps and comes together as we launch agents of and we develop further our agenda efforts.

Agents that reason around data and take into consideration skills in order to train people on what they want to need is the ultimate connection of all the points here. And, you know, again, I can, I can tell you all that I am about 365 moving forward, more work to do. And on the stand-alone side, we haven't even scratched the surface of the potential. This is the secondary product. And that's what we ought to do in 2027 and beyond.

And then we have not seen that type of today. If anything, in H1, we've seen sales cycles decrease in a number of segments. Now, a lot of that is related to execution. You know, if you recall our mark, our new center of cereal came in roughly July and last year came in, this mid-tweeks and machines, some processes that were seen for that labor in H1.

But the commentary that you're referring to of other software companies seeing elongated sales cycles is not something we're seeing today.

Sorry, Rhonda.

Yes, correct.

And is that one of the reasons why you're seeing the enterprise strength that you're seeing? George, for sure. You know, NIT is a relatively new partner. I call them out in the context of our partner motion being a significant contributor to our ARR acceleration. Who knows to the partners and to our partnership teams and broadly our GTM teams for, you know, the way we're leveraging this partner motion.

It's a lot of work and it's not just over the past few months. And I wouldn't, you know, I wouldn't regard a single partner as part of this. And I, it's a relatively new partner. We're doing great work with them. They have a great penetration.

And, you know, I would equally regard the partners that we worked with longer, like Deloitte as, you know, a firm that is very aligned with the way we operate. And we're very close with it. So, yeah, that's, that's all I have to say about that.

So the topic of the week in AI, or certainly one of them has been around rogue agents.

Yeah. Yeah. Look, we, we, first of all, our agents technology is something that we've been working on for a while. We have a very sophisticated team in our team that has been doing this for a long time. I trust, you know, their knowledge and expertise and that's in this area. Our CTO and I have, you know, a very strong point of view on the value of the table operating enterprise space is, you know, very much also needs reliability and safety and security. So everything we're going to be building is going to do is going to have a strong point of view on safe guards and guardrails standards. And frankly, George, you know, I think it's a, it's a different territory.

And we're going to be working closely with our customers and their security officers to progress, you know, how we document this and how we give confidence to everyone that what we're building is, you know, as bulletproof as it can be.

I'll start and I don't know if Randall wants to then follow on the specific capital location, but I would say. In, in, in, in, in the service. And we, we have a. Executism to lemonade with three, six, five, and enzymes. Different profile in terms of, you know, costs. And, and, and frankly, different profile in terms of the category and capabilities and whatnot.

But that, that is giving us the point of view that we have a lot of work to do to truly benefit from, you know, what we have acquired. It's, it's very significant. As a result, we are just incredibly focused on integrating and extracting value and building for future capabilities. And our, you know, we remain opportunistic. We always look at the market.

We, we don't disregard any opportunity, but M&A presently in terms of net new deals is our primary focus. On capital allocation, you know, it's something we think about daily and as different variables change our priorities change.

There's a great deal of opportunity because, you know, the, the work that partner has in, in our mind, different connotations. You have different categories of partners, different specialties, different virtualization, different market positions. Think about, you know, content partners that is very important part of our business. We, we, we partner with several great companies in that area and it will be plausible that we will increase the portfolio even more in the future. System integrators are the ones that, you know, we tend to think immediately more of the enterprise context.

But there is different degrees of integrators, some are regional, some are more global, some are very much specialized around certain vertical sectors. You know, for example, we, we work closely with a partner called one great firm that has a great deal of expertise in the healthcare sector. And, and it's important to have a broad day is a varied strategy around partners. So our job, frankly, is to become increased or increased by any more clear as to how to couple partners in the areas where we want to win and continue to execute them. Our GTM together, there's also, you know, partnerships that are more product attached partnerships. I can think of marketplace initiatives like AWS where it's less of a commercial first motion, but it's the ability to attach on to big, you know, commercial engines like Amazon, AWS one to enable customers to buy using credits.

We've had a lot of deals and customers that have preferred that buying modality as opposed to, you know, direct buying modality. And all these avenues of buying the way we think about it is how can we reduce the risk and the friction of purchasing for the customers.

Great question. So the first, the first milestones are going to be, you know, setting up the team for success. We are going to be staffing and organization across product and GM to, to really cover this, this new vertical while we continue, by the way, parallel to winning vertical. It's a bit like, using a more sophisticated plane while we fly already a plane.

So once we have the team in a seat, which is working on actively, then comes the development of, you know, it's all readiness.

And that's, you know, we will occur over the next few hours. I guess differently from federal, okay, in this category, I want to emphasize is that, you know, we're already winning significantly because customers in healthcare right now. And, and some of these requirements at times become more stringent and times are a little looser. And, and it's not that, you know, federal is either you have fed rep or you don't have fed rep without care. It's our ability to, to increase our right to win is going to be dependent upon how fast we execute on the people and product vectors. That's a simple that.

And maybe the margin profile. You know, I'm hesitant to, to share details that have not been fully out on that.

And that's what we're prepared to do. We want to really enter in organizations and not just on board them and let them do the work. We want to do the work with them and for them to work their own personalized outcomes. How does this translate in a recurring model and, and the margin, I feel that it's something that, of course, we're thinking about deeply.

And, and we believe we have good constructs, but perhaps that they pretty much sure to share in this call and I feel more comfortable that we're going to have a more polished point of view. As we, as we talk in November post our ages, which is going to be the fall.

That's great.

Thanks for taking my question Brandon. I wanted to circle up on the guidance a little bit. You guys have a second straight quarter of accelerating underlying ARR. Just want to get a sense for what level of food-ins is baked into the guidance and you guys change your philosophy in terms of handicapping and some of the big deal pipeline and any color there would be helpful.

Yeah, maybe let's just take a step back and look at the actual revenue increase. So we raised our guidance by three and a half million dollars. You know, it's just the last quarter. You know, I'm trying to find a little bit more point six of that was from our two two needs and two point one of that is the flow through gauge two. And then even within that two point one, you have one point two of that being professional services and closer to 900. So, you know, let's really drive in that increase. What assumptions are we changing? You know, when we go through our different segments, been marked it, our assumptions are pretty much flat, you know, we've seen consistent performance.

The team is still performing great. There's no changes. We already had strong expectations built into our guidance. So, you know, we knew where we're going to execute. We had a record split quarter to two, three, we do expect a solid federal border and that was always based into our commitment. So, well, change. It's really enterprise. You know, we came into twenty twenty six. I talked about it in February where we see roughly, you know, flat enterprise growth, which was conservative.

You know, we saw two quarters of performance strongwind rates, good pipeline. And that's given us the cost is the increase or enterprise assumptions in each two. And that's really what's driving the incremental revenue guys.

That's fantastic. And then the other half of the guidance, you guys kept even done change. I think you called out healthcare as an investment that you guys are making in the back half. How should we think about the run rate of that investment? Is this just a small start that ramps up? Is this something that we should expect to carry into twenty seven?

It's going to be relatively small pods for each two. The expenses will certainly continue to grow. It's twenty seven, but you know, you know, how we're thinking about it is that each two is more heavy on our investments. So when I think about our spend patterns, like sell the marketing, we know it's going to be down sequentially a two, three. A lot of that is eventually in spend that happens in two, two, and two, one. R&D will scale up throughout the year. So from two, two, two, three, two, four, we're going to see R&D scale up and G&A is going to remain relatively flat.

The Constitution team is going to be its own pod of engineering team with a specific product manager that's specialized in healthcare. And then we're going to scale up a sales team with a leader at specific healthcare and their own sellers. You know, we're going to start off small with a team of three, which is exactly what we did in government. So we're really following the exact playbook of and now we did in government.

I'm curious to what extent three sixty five talents near air releases are helping carve out a bit more differentiation and in a competitive space. And if you've seen any movement in your win rates as a result.

You are correct, Gavin. Six, six, five talents is giving us a stronger posture in internal use cases where the topic of SBO or skills based organization. Upskilling and reskilling are critical topics. Frankly, we had a light response prior to three, six, five talents in that context. And that becomes particularly true in the enterprise and strategic enterprise segments.

Your observation, therefore, that three, six, five impacts our ability to win at larger scale in terms of use cases where our capabilities were wiser in the past is correct. And, you know, when I think about our agenda capabilities, I believe this becomes even even more true in the upcoming months. And so we're seeing a very positive return from the three, six, five side around into this.

It's great.

You know, our, first of all, it's a good opportunity to, to give kudos to our great management team, you know, led by our CRO and our CMO and our ADTO partnerships. So these guys have been working super hard. And, and their teams on the enterprise side. But even our mid market function international because it's always so what's happened as I said earlier, it's a broad daily success.

They've been doing the leader really good. As far as whether, you know, I was, and we reached. And we reached the max of what we can do. I believe there's a lot of runway ahead of us. Even the amount of products that we, we are, you know, delivering to sales by customers and upcoming products is that that's just something that we were likely to do.

But also, you know, there's the adding access to keep the meetings like enterprise knowledge and 365 that opens up the new, you know, new territories in terms of not only companies buyers, but also buyer personas that we're going to be able to sell into. We're going to get closer, much closer to the CIO office. We're going to get much closer to the CIO office. And as a result of these products, they can be used. And so I think we're, we're.

The practice crashed a surface of how this can look like over the next eight years. And for that, we're excited.

What is giving you guys that visibility from a net new AR as perspective? And how much is that growth is coming from expansion versus net new?

And it's a good question. So, you know, as we know, we are starting to laugh some of the quarters that make it easier for us to recelerate on the top line. So, you know, just as a reminder, you get AWS, charity, two, four, lots of $4 million. And we have, we have day force, which we just closed and it's essentially gone from 19 and a half to 6.5 million in the current quarter. So we're lapsing and let's go on $19 million of the next four quarters.

What's giving us that confidence? It's really what I talked about for where, you know, we're seeing strengths across our end markets, whether we're talking about mid-market. You know, Gov, if you think about last Q3, we essentially won FedRAMP. I think it was three to four months prior to this system. So, we didn't have much of an opportunity to play in FedRAMP space. This is really what we consider our first Q3 with significant pipe and the ability to win in FedRAMP. So, we have, we have the FedRAMP opportunity enterprise.

You know, there's no doubt about it. This year we have grown this significant. We're seeing strong performance, good pipeline. And when you just add everything together, it's pretty easy to see how we can re-accelerate on the top line.

Thank you. So, if you look at the numbers today, you know, and I'm just going to use some clean round numbers to make a little bit easier. So, we have $45 million in cash. We have about $90 million of debt. So, let's call it $45 million in debt on our annual equity guide.

As we know, we've announced an asset need for a spread that $70 million funded by $60 million in debt and 10 cash that would take us from 90 in debt to 150. Now, you know, at the same time, it's a bit of a nuanced question because we don't know how many shares will get tenured in the SIB. You know, if we look at today and you think about a rational investor, you know, our current stock price is relatively close or slightly above our SIB price. So, that would suggest we're going to have fairly, to frankly, no shares tenured in our SIB. That's just kind of, you know, the rational assumption to make as of today.

But, you know, we need, you know, always, you never say never. So, we need to think about the maximum potential method. You know, we do think at the moment, as Alessio mentioned, we are looking at opportunity back and looking, you know, while the cable made to acquisition page one, we don't believe that's, that's the norm. You know, we are very much an organic growth shop that's in our DNA. And that will always be part of our DNA. You know, will we continue to look at other opportunities such as 365 that are easier bolt-ons that improve ourselves in marketing deficiency because it's an easy add-on. You know, we will look at that, but we just don't see anything in the next 12 months.

So, we think about, you know, 12 months of runway or a strong fee for cash flow generation. You know, we do think we have the capacity to, you know, look at maybe increasing net capacity, paying down debts, or building up cash for cash flow generation. Under second question, new logo versus expansion. You know, we are typically 65, new logo, 35 expansion, and we've seen that form a lot relatively similar in Q2. And Q1 is a little more heavily shifted towards expansion. Could be a couple, a couple of large expansions, but you know, we're generally not 65, 35 range.

Okay. Okay, great.

I would now like to turn the conference back over to Alicia for closing comments. Thank you all for being the call today. And we look forward to our next earnings call in November. Have a good day.