Docebo - Earnings Call - Q1 2020

Transcript

Operator (participant)

Good morning, everyone, and welcome to the Docebo Inc. First Quarter 2020 earnings call. All participants are currently in a listen-only mode. Following the presentation, we will open the line for a question-and-answer session for analysts. Instructions will be provided at that time for research analysts to ask questions. Docebo would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties, and assumptions relating to forward-looking statements, please refer to the Docebo's public filings, which are available on SEDAR. During the call, we will reference certain non-IFRS financial measures.

Although we believe these measures provide useful supplemental information about our financial performance, they're not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including for reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. I will now extend the call over to Docebo CEO, Claudio Erba. Please go ahead, Claudio.

Claudio Erba (CEO)

Thank you, Operator, and good morning, everyone. I'm speaking to you from my home in Italy, and our Chief Financial Officer, Ian Kidson, is home in Toronto. Joining us on today's call is Alessio Artuffo, our Chief Revenue Officer, who is also in Toronto, and we'll participate in a Q&A. We hope everyone is healthy and staying safe, and we're appreciating you joining us for our First Quarter 2020 earnings call. In the first quarter of 2020, we continued to see strong momentum in our business, and we are pleased to report revenues and ARR growth in excess of 50% for the third quarter in a row since our IPO last fall. Revenue for this first quarter grew 56.7% from the previous year to $13.5 million, and ARR grew 55.5% to $52.1 million at the end of this first quarter.

Our growth was driven by new customers, as we added more customers in the first quarter of 2020 than we did in the fourth quarter of 2019. At the end of the quarter, we had 1,938 customers, an increase of 130 from the end of the fourth quarter of 2019. I will also point out that March was a strong month for us, as we added more new customers in ARR than we did in either January or February. We added some brand-new logos to the platform this quarter, including Walmart in North America and Barilla in Italy. Walmart will be using Docebo to enable their North American partners that sell their products on Walmart.com. Walmart will leverage Docebo to train their partners on how to sell online, how to properly ship, how to do refunds, and much more.

Partner enablement and training is a very successful and powerful use case for us, as almost half of our customers use Docebo to help train their partners and customers. As a company founded in Italy, we are also thrilled to be bringing on board Barilla, the world's largest pasta producer. Barilla was looking to find a single solution to replace an older LMS. They used two systems to train close to 8,000 employees worldwide. Barilla selected Docebo for its ease of use, ability to improve their current training activities, drive higher adoption across their workforce, enhance internal communication, and collaborate while lowering administration time and support efforts. Although Barilla is still in their implementation phase, they've already hit the ground running through courses provided in Docebo Content.

When I last spoke on our Fourth Quarter 2019 earnings call in March, I mentioned that we had made a great start on our hiring plan for 2020, and we were already thinking about our personnel needs and planning for 2021. During the first quarter of 2020, we added 75 people, bringing our total number of employees to 411. Nearly half of our new hires were in sales and marketing. 14 were in service and support, falling under cost of goods sold. 10 were in G&A, and the largest share of the remainder was in the R&D with 17 new additions.

I think we were fortunate to be able to onboard the majority of these people before the broader COVID lockdown hits, and the accelerated hiring means we not only have the team in place to execute against our growth plans for 2020, but are already well-positioned with respect to 2021. We are not going to continue to expand the organization at this pace. At this point, we do not expect to hire many more people for the remainder of the year, or at least until we have better visibility into how the COVID situation plays out. If we need to, we still have time to add additional sales and marketing personnel in the fall for 2021. The hiring we did this quarter resulted in a subsequent bump in expenses for the first quarter that Ian will speak to, but we expect expenses to stabilize for the remainder of the year.

As the COVID-19 pandemic reached Italy in February, we put a business continuity strategy in place that prepared us for the lockdown that followed at our offices in London, Athens, Georgia, and Toronto. Our employees were already working at home one day a week, so expanding our work-at-home program full-time hasn't impacted our productivity in a meaningful way. Internal KPIs we monitor relating to response time to our customers, time spent on delivery certain internal tasks, platform uptime, and number of new leads and closure rates all suggest our business is healthy. Businesses in Italy are beginning to reopen, but in an abundance of caution, we have decided to postpone reopening our office in Italy until June, as our productivity levels haven't been impacted at all.

In anticipation of Brexit and possible new data regulation, we set up AWS data center in London to support our British customers and to be more compliant with hosting data in the UK. From a development standpoint, we have reprioritized one element of our product roadmap, with the rebuild of our booking system for virtual instructor-led training instead of physical instructor-led training. In summary, I'm proud of how our employees have executed through these unprecedented changes and want to thank them for their hard work and dedication. Now, I will take some time to drill down a little more on our sales cycle and customer exposures. Our sales cycle is typically 90-100 days. That means the majority of the business that we closed in the first quarter of 2020 came from prospects that we were communicating with before the COVID-19 lockdown in North America and Europe.

We closed approximately 95 of our deals remotely, so the current work-at-home situation has not impacted our ability to close business and to deploy systems for our customers. Although some larger enterprise deals that require face-to-face interaction and several layers of management sign-offs may get pushed out, the growth reported in Q1 showed that this is not a significant part of our business. We focus on mid-sized enterprises and divisions with larger global organizations, and we think deals of this size have less friction to closing in this environment. The average ARR for new customers added in the first quarter was over $37,000, and we are not seeing signing new small projects. Our minimum subscription service is now $20,000. One of the strengths of our industry is learning use cases.

We don't have concentrated exposure within a single industry vertical aside from technology and IT, which make up close to 28% of our ARR base, and the industry that those companies service is diverse, which further mitigates against concentration concerns. Our exposure to industries that have been extremely hard-hit, like hospitality, travel, airline, and restaurants, is relatively small, at less than 3% of our ARR. Now, more than ever, we want to be partners with our customers that are especially impacted by COVID-19. Some companies have seen their revenue efficiently altered because of lockdowns, and we will work out ways to defer payments for these customers in these difficult times. Overall, we think all of these factors point to a fairly resilient recurring revenue base.

It's becoming clear to us that through this pandemic, enterprises recognize more than ever before that e-learning is strategic to their business, and the LMS is becoming critical. Some of the companies we work with desperately need training to arm their people with their essential skills to deal with this crisis, and we want to do our best to help. In March, we partnered with Go1 to make COVID-19 educational courses available to every one of our customers for free. We worked with Newcross Healthcare to rapidly expand their virus protection and control training program across their workforce. We also rolled out new platform integration and established a commercial partnership with LogMeIn, the owner of the product GoToMeeting, and also a customer of Docebo to improve our customer ability to schedule and launch virtual live training sessions.

This is helping to fill a gap in the market now that in-person training is not possible. More recently, we were proud to work with the Heart and Stroke Foundation of Canada, providing close to 15,000 users with complementary access to our platform for the next nine months to ensure that they could provide critical online training for frontline COVID-19 workers. This is a cause that is near and dear to the people of Docebo. These past few months have been unlike anything the world has ever seen, and we are all in this together. When we last spoke in March, we spoke to a spike in web traffic for our Italian customers in February, as well as increased trial activity suggesting that COVID was driving higher usage and distant interest in our platform.

This trend continued through March and April across our customer base, and total utilization of our platform is approximately 25% higher than pre-COVID levels. We also continue to see higher activity in terms of number of trials and requests through our website. This has led to us shifting resources from outbound sales to inbound sales in order to accommodate the increase in inbound activity. It's still too early to tell how our sales conversion rate will be post-COVID lockdown. As I said earlier, our sales cycle is typically 90-100 days, and it's been approximately 60-70 days since the broader lockdown in North America and Europe began. Yes, we have seen some business pull forward because customers need to deploy a solution quickly.

We also believe some of the increased interest in the trial and personalized demo requests are being driven by emotion, and these prospects may not close at the same rate as our pre-COVID inbounds. Overall, we haven't seen any material negative impact to our business moving into Q2, but we need to be clear that we have less visibility now, and we must be pragmatic about the current business environment and manage our operation and capital accordingly. Before I pass this call to Ian, I will summarize by saying, on the one hand, the first quarter was Docebo's best ever in terms of revenue, ARR, and customers. I'm happy about our growth rate and feel that with the hiring we have done, we are very well-positioned for the future.

Of course, I'm not happy at all about how COVID has impacted the global economy, our customers, our employees, and their families. We believe we will still grow in this environment, but we need to be cautious in the near term. Over the long term, I'm quite confident that we are going to see structural changes because of COVID-19 that will benefit our business and underscore the importance of the LMS. As we all recover from this situation, I think there will be more people working remotely, less corporate travel, and less classroom training. Companies will need to establish policies and protocols to accommodate a remote workforce. We think these trends will pull forward the need of an LMS, and we are in a great position to capitalize on the growth of our organization, the momentum in our technology platform, and the strength of our balance sheet.

With that, I will now pass the call to Ian to speak to the financials.

Ian Kidson (CFO)

Thank you, Claudio, and hello, everyone. Before I start, I'd like to remind folks you can find a detailed breakdown of our financial results for the three months ended March 31, 2020, in our press release, the MD&A and financial statements, which are now available on our website and on SEDAR. Moving to our results for the quarter, total revenue grew to $13.5 million, an increase of 57% from the prior year period. Subscription revenues were $12.2 million, or nearly 90% of total revenue for the quarter, with professional services revenue making up the difference at $1.3 million. Consistent with past quarters, the significant growth in revenue was driven by new customers, resulting in our number of customers increasing to 1,938, up from 1,596 at the end of the first quarter of 2019.

Our ARR at the end of the quarter was $52.1 million, an increase of 56% from the $33.5 million at the end of the first quarter last year. It's also an increase of $4.9 million from the $47.2 million we reported at the end of the fourth quarter of 2019. Although ARR is not an accounting measure, it is the key metric that we use to evaluate our progress. As Claudio noted earlier, we added more new customers in the first quarter of 2020 than in the fourth quarter of 2019. Average contract values increased to approximately $27,000, up 28% from $21,000 at the end of the first quarter last year and is up from $26,000 at the end of the fourth quarter of 2019. Gross profit for the quarter was $10.7 million compared to $6.8 million in the prior year period, an increase of 58%.

As a percentage of revenue, gross profit margin was 79.1% of sales, an increase up from 78.6% of sales in the prior year period. Included in our cost of revenue are web hosting fees that are directly related to utilization of the platform. Our subscription revenues are driven by the number of monthly users on the platform, but not the utilization rate. Periods of higher platform utilization, such as we have experienced during the onset of the COVID-19 pandemic, will result in higher associated costs to deliver our services and therefore have an impact on our gross profit margin. Operating expenses for the first quarter increased to $10 million compared to $8.6 million for the prior year, an increase of 15%. Importantly, our Q1 results include a foreign exchange gain of $3.7 million that is, for the most part, unrealized.

Shortly after the IPO was completed last year, we converted our Canadian dollar proceeds into U.S. dollars. Since that time, the Canadian dollar has weakened considerably against the U.S. dollar, producing this accounting gain. Please note that this gain is truly an accounting concept, as it gets reversed at the bottom of our income statement when determining comprehensive income. Operating costs before or excluding this gain were $13.7 million, an increase of $5.1 million, or 59% on a year-over-year basis. The largest component of our operating expenses is salaries, and the increase in operating expense was driven by the people that we've added to our team. As Claudio said, we do not expect to hire at this pace for the remainder of the year, and absent a return to normality, I really don't expect to see us add more than perhaps 20 heads between today and year-end.

Software is the second largest component of our operating expense, and we are also in the process of deploying several enterprise-wide systems this year, including a new corporate CRM and HCM, as well as a new global accounting platform. These efforts have resulted in added infrastructure expenses in the near term that will support overall cost savings in the future as we continue to scale our business. Sales and marketing expense for the first quarter was $5.9 million compared to $3.7 million for the comparable period last year. As a percentage of revenue, sales and marketing expense was 43.5% compared to 42.7% last year. We've talked about a target sales and marketing expense of 35%-40% of sales, and that target has not changed.

We expect to get back within that range as our new hires start to reach full productivity, which will occur over the remainder of the year. General and Administrative expenses for the quarter were $4.3 million as compared to $2.6 million last year, a year-over-year increase of $1.7 million. The increase was driven by growth in headcount, as well as higher costs associated with being a public company, including increased legal and accounting expenses. Research and Development expense this quarter was $2.9 million as compared to $2.1 million in 2019. As a percentage of revenue, R&D expense declined to 21.5% as compared to 23.9% last year. Investing in product development remains a priority of Docebo, and while we're comfortable with our current levels of R&D spending, we still anticipate a long-term target investment rate of 18%-20% of sales.

We reported an Adjusted EBITDA loss of $2.4 million for the first quarter of 2020 as compared to a loss of $1.6 million in the prior year. Our positive net income of $0.7 million compared to a $2.5 million net loss for the prior year quarter. As noted earlier, net income for the first quarter reflects a $3.7 million foreign exchange gain. Cash flow used by operating activities this quarter was $2.5 million, and Free Cash Flow was negative $2.7 million. Thinking back, if I had to characterize our strategy as we entered 2020, I would have said that we were going to manage the company for aggressive growth in order to capitalize on our low cost of customer acquisition and large market opportunity. In the current environment, I would say our investment strategy has shifted now to prudent growth to maximize the return on our assets.

Because the most significant component of our cost structure is our people, holding our headcount relatively stable for the rest of the year will mean that our quarterly cost structure will not change much as we move through 2020. That will drive lower expense ratios each quarter as our revenues continue to increase. Cash at the end of the first quarter was $43.2 million, and we have no debt on our balance sheet. Capital efficiency has always been a priority for us, and we think this discipline will serve us particularly well now. Thanks for your time today. I think I'll leave it at that, and we can turn it back to the operator to take questions.

Operator (participant)

Thank you. Ladies and gentlemen, we will now take questions from research analysts. Should you have a question, please press the star followed by the one on your touch-tone phone.

You will hear a three-tone prompt acknowledging your request. Should you wish to withdraw your question, please press star followed by two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment, please, for your first question. Your first question comes from Daniel Chan from TD Securities. Please go ahead.

Daniel Chan (Analyst)

Hi. Good morning, everyone. Congratulations on the Walmart and Barilla win. It sounds like the Walmart one is for their partners and for them to sell on that platform. But was I correct in hearing that the Barilla one is more of an enterprise-wide deployment?

Claudio Erba (CEO)

Can you say it again? The second part of the question, please.

Daniel Chan (Analyst)

Yeah. What is the scope of the Barilla customer win? Is it for a specific department, or is it for the entire enterprise?

Claudio Erba (CEO)

Oh, no. It was internal training and was for the broad group.

It involves like 8,000 employees. So if Walmart is one of our use cases to support their partners to sell online because retail with the COVID online shopping became something big, so we are supporting this transition for Barilla. The use case was replacing another learning management system for internal training only.

Daniel Chan (Analyst)

Okay. And how did these deals come about? Was it something that maybe some of your partners brought in, or is it some outreach, or was it more of an inbound type of engagement?

Claudio Erba (CEO)

I leave these parts of the answer to Alessio Artuffo, Docebo CRO, that joined us for this Q&A. Ale, you are muted, probably.

Alessio Artuffo (CRO)

Hey, Dan. Great question. I'm happy to report that both Barilla and Walmart were part of our marketing inbound funnel.

Ian Kidson (CFO)

Okay. That's good. Thanks.

Alessio Artuffo (CRO)

So if you exclude the smaller legacy customers that are outside of your target market now, has the churn rate of your customer base changed at all?

Claudio Erba (CEO)

Well, over time, over the past two years, our customer base transitioned from the small business customers to the mid-enterprise companies or departments of large enterprises. That means we are not that much exposed to the small business storm because small business has been hit by COVID. And as you can see, the typical large enterprise customer that adopted Docebo by department was Walmart that is using Docebo in a context which is called extended enterprise. That means training external partners and not internal training. Okay.

Ian Kidson (CFO)

And then last question for me. You mentioned that your strategy has switched from aggressive growth to prudent growth.

What signs are you looking for that will cause you to kind of switch back to more of an aggressive growth strategy?

Claudio Erba (CEO)

Yeah. I leave to Ian M. Kidson this answer.

Ian Kidson (CFO)

Thanks, Dan. Good morning. I think we are in the same position that a lot of companies are in right now, where we're waiting for some return to normalcy, right, or normalcy. And until we see that, we really like the way our company is positioned today for what we're seeing in the world. But I think it will take the world being comfortable having a sigh of relief and back to work.

Daniel Chan (Analyst)

Thank you.

Operator (participant)

Thank you. Ladies and gentlemen, as a reminder, should you have any questions, please press star followed by one. Please lift the handset if you are on a speakerphone and unmute your phone before pressing any keys.

Please press star zero if you require assistance. The next question comes from Suthan Sukumar from Eight Capital. Please go ahead.

Suthan Sukumar (Analyst)

Good morning, and thanks for taking my questions. Hello. Hey. The first question I had was on the, I guess, looking at buyer behavior within your existing base. Curious to know if you're seeing any trends from your existing customers with respect to any cross-sell or up-sell opportunities.

Claudio Erba (CEO)

Well, the data we have in our hands are mainly the fact that actual customers have increased a lot the platform usage. I mean, and this started in Italy. If you remember, we discussed that the CDN delivery traffic climbed. But we confirm that on a global base now, we have seen a lot of adoption. That means increase on the average number of active users that are attending online training courses.

So if we can detect and decode some signal from the market, is that our actual customers are using the platform more and more than before the COVID? I don't know if this answers your question.

Suthan Sukumar (Analyst)

Yeah. And I was also curious to see if your existing customers are they looking at adding more modules in addition to the lift in usage that you're seeing?

Claudio Erba (CEO)

What we are seeing now is mainly more curiosity from a new prospect. And our actual customers now are mainly so busy to deliver more training. And if there is a request from the actual customer, it is on content. Like they want to train people about COVID. They want to train people on how better work remotely. They want to train people on how to manage people remotely.

So if you consider the content and module, and don't forget that Docebo is embedding the GO1 content marketplace, yes, customers are asking additional content about these topics.

Suthan Sukumar (Analyst)

Okay. Okay. Great. No, that's good to hear. And then from a product roadmap perspective, just given the pandemic and the lift in usage and some of this demand you're seeing from new prospect customers, do you see any opportunity to accelerate timing of any new product releases or potential to introduce any new use cases into the platform?

Claudio Erba (CEO)

So about the product roadmap, I want to highlight two facts. Fact number one. Also, if our people are working from home, both March and April release have been released on time. Second, we have anticipated the rebuilding, the refresh of the code base of our modules that is built to support virtual instructor-led training. That means online classroom and webinars.

I'm still making the refresh or the rebuild of our ILT module that was the classroom logistics and hardware mapping. We have anticipated the virtual instructor-led training module because we have seen an increase of adoption, obviously, on virtual instructor-led training activities.

Suthan Sukumar (Analyst)

Okay. Okay. Great. And the last question for me is I was curious to see how your OEM partnerships have been performing during this crisis. It sounded like one of your HR software partners on the earnings call last week said they saw an uptick in demand for learning capabilities. Curious to see what you're seeing on your side and if there's been any changes in the level of interest or the type of partners that have been approaching you from an OEM perspective.

Claudio Erba (CEO)

So from the actual both, from the actual partners and from the pipeline of OEM we have, we don't see anything strange.

I mean, the OEM strategy for us is confirmed to be a really interesting channel that is driving us more interest, especially from the HR software industry.

Suthan Sukumar (Analyst)

Okay. Great. And then any color on how your existing OEM partnerships have been performing during the full crisis?

Claudio Erba (CEO)

I let Ian handle.

Ian Kidson (CFO)

Okay. I think we've said a bunch of times that the OEM business is a long-term game. We have one material relationship that people are aware of. There's been significant progress that we've made in the past quarter, and I'm choosing my words carefully here, with a number of our partners that we've been working towards establishing revenue-based relationships with. But Suthan, as we've said many times, these transactions happen over the course of years, not weeks or months. So yes, we are really happy with how that business is proceeding.

We've spent a lot of effort getting the team properly positioned and supported. But it's taken a patience pill from my perspective.

Suthan Sukumar (Analyst)

Okay. Great. Thank you for the clarity, Claudio. I'll pass it along.

Operator (participant)

Thank you. Thank you. The next question comes from Richard Tse from National Bank Financial. Please go ahead.

Richard Tse (Analyst)

Yes. Thank you. Just wondering if sort of the change in the environment has changed the way you market. Are you just going to pull back spending here until we return to normalcy, or are there different tactics that you can sort of use here to pursue the market?

Claudio Erba (CEO)

Yeah. So actually, Docebo is historically a company that manages inbound leads. And managing inbound leads means answering to different kinds of customers that have different needs. As of today, as you know, we have seen an increase of inbound traffic.

If something is changed, it's that we need to process more volume, process different requests because part of those requests were emotional. Other requests get irrational. Some requests have an urgency to roll out the system. Other requests were more pragmatic, and then they were doing business as usual. For sure, online education now became a hot topic, especially in the business because delivers ROI immediately. There is more consciousness that the learning management system industry now became a solid part of the enterprise software stack. It's now a must-have. It's a technology to prioritize and to integrate into the enterprise software ecosystem. Those are the changes that we have seen in the industry during these past two months.

Richard Tse (Analyst)

Okay. You talked about the 90-100 days in terms of building this lead.

Can you give us a sense of the coverage in the pipeline today versus what it may have been in the prior quarter?

Claudio Erba (CEO)

Yeah. I leave it to Alessio. Alle, you are muted.

Alessio Artuffo (CRO)

Richard, thanks for the question. So the month of April was one in which, like Claudio said, since the start of COVID, we've seen an increase in the demand. Google Trends reports nearly double demand for LMS and e-learning. So there is no doubt that demand is surging, and part of it is emotional. So our job is to stay extremely focused and execute against qualification in manners that are both automatic via our marketing automation stack, as well as with very strong business development processes that aim at maintaining focus in working with those organizations that are best suited to make the best use of our services.

Richard Tse (Analyst)

Okay. That's helpful. Thanks. And just one other question.

With respect to the comments you made on potential sort of helping your customers out with payment deferrals, can you give us a sense of the order of magnitude of your base that you'll be looking to sort of extend those terms to?

Claudio Erba (CEO)

Yeah. So all the industry, first of all, Docebo is a software that covers all the use cases and is horizontal. That means it's not focused on a single vertical. That means that our exposure to specific verticals is very limited. But Ian will go deep in this question, please.

Ian Kidson (CFO)

Sure. I mean, the industries that everybody is obviously sensitive to at this point are things like travel, restaurants, and any sort of hospitality-related airlines, etc. And as Claudio noted, our exposure to what we would characterize as industries that are under significant pressure or high-at-risk industries is less than 5% of our customer base.

So we're working with those folks. And to the extent that we believe a customer is going to survive, then we're doing whatever we can to support them. Look, all companies, whether you're in the travel business or not, all companies today are very focused on managing their balance sheet and managing their cash positions. We're no different. We're doing exactly the same. We're looking at our balance sheet and thinking hard about every balance on it. So we say we're working with our customers. I don't think really we're doing anything else or anything that anyone else in the industry is not doing.

Richard Tse (Analyst)

Okay. Thanks, guys. All the best.

Operator (participant)

Thank you. The next question comes from Gavin Fairweather from Cormark Securities. Please go ahead.

Gavin Fairweather (Analyst)

Hey there. Good morning. Morning. Morning, Gavin. Morning, Gavin. Additions to your sales team, and this might be for Claudio.

It might be for Alessio. But can you remind us how long it takes the average kind of sales rep to reach expected productivity? And as you think about the reps that you've added recently reaching those productivity levels, how do you think about your sales capacity in terms of how much ARR you can kind of book?

Claudio Erba (CEO)

Yeah. Before handing this to Alessio, like Ian said, the investment and the hiring we made in Q1 was meant to be made to build the machine for 2021, so we are building the foundation, the base to grow in 2021, and I mean, you have to hire people in advance to make them productive. That means that we are here for the long run, but I let Alessio detail the strategy on the strategy we follow on how we onboard our people, especially in the sales team.

Alessio, you are muted.

Alessio Artuffo (CRO)

Gavin, great question, and thanks for that. So there was a question prior in which another analyst asked if we made any change in our tactics as we approach this new world. And there is no doubt that an extreme focus on onboarding and enablement has been put to ensure our success of onboarding and continued performance of salespeople that have joined Docebo relatively recently in order to perform at best and to ensure their enablement despite being enabled at home. I will not lie to you. This is not something that we expected. But fortunately, we're very resilient to this type of dynamic because, in fact, we use our own technology to train our own people remotely. And we've seen very, very encouraging signs of productivity already early for those new hires.

In addition, I think you asked how long it takes for a sales rep to ramp. The answer is, in general and on average, it takes about six to nine months to achieve what we would call a consistent level of productivity. However, there are other variables to be taken into consideration. The number one variable is the segment in which the seller operates, whether this is a commercial, major, mid-market, or more upper market. Those deals yield a longer or shorter sales cycle, and therefore the ramp gets affected as a result. And the second one is the tenure of the seller. We are implementing a strategy of diversification of sales that are more tenured and others that are grown from within our base of business development to maintain efficiency.

So all in all, I would say that while six to nine months is a good average measure, we continue to work hard to implement better enablement to foster that cycle.

Gavin Fairweather (Analyst)

Okay. That's very helpful. And then you talked about how your minimum now is about $20,000 in terms of your ACV. Can you just remind us how that's changed over the last year or two? Yeah. So the price increase is consistent with our shift from small business to mid-enterprise.

Claudio Erba (CEO)

The fact that we have unified now the offering from two products, the growth and what we call enterprise CS, to a single product, which is ACS, same dynamics of sales, same service, just differentiated by the number of users, allowed us to position with an entry point, entry-level product into the mid-enterprise market.

So it's only consistent to our strategy to not sell to small business, but to focus mid-enterprise and department of large enterprise, which both of these segments are our sweet spots.

Gavin Fairweather (Analyst)

Okay. That's it for me. Thank you.

Operator (participant)

Thank you. There are no further questions. You may proceed.

Ian Kidson (CFO)

That's the end of the questions, operator.

Operator (participant)

Correct. There are no further questions in queue.

Claudio Erba (CEO)

Perfect. Yeah. Thanks again for listening to our call. We look forward to speaking with you again when we report our next quarter results. Thank you and goodbye. Thanks, everybody. Thank you, everybody.

Operator (participant)

Ladies and gentlemen, this concludes our conference call for today. We thank you for participating, and we ask that you please disconnect your lines.