Docebo - Earnings Call - Q3 2020
November 12, 2020
Transcript
Operator (participant)
Good morning, everyone, and welcome to the Docebo Inc. Q3 2020 earnings conference 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. I will now turn the call over to Docebo's Investor Relations, Dennis Fong. Please go ahead, Dennis.
Dennis Fong (Head of Investor Relations)
Thank you, Operator. Before we begin, Docebo would like to remind listeners that certain information discussed today may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties, and assumptions that could cause actual results to differ materially from those projected in these forward-looking statements. For more information on the risks, uncertainties, and assumptions related to forward-looking statements, please refer to Docebo's public filings, which are available on SEDAR. 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 for reconciliations to the nearest IFRS measures.
Please note that, unless otherwise stated, all references to any financial figures are in U.S. dollars. Now, I'd like to turn the call over to Docebo's CEO, Claudio Erba.
Claudio Erba (CEO)
Thank you, Dennis, and good morning, everyone. I hope you are all keeping safe and well. Joining me on today's call, it is Ian Kidson, our Chief Financial Officer, and Alessio Artuffo, our Chief Revenue Officer. In the Q3, we continue to see strong momentum across our business, driven by the increased need of digital training around the world and growing demand for Docebo's products and services. Our ARR, at the end of the Q3, grew by 55% year-over-year to $65 million, and this was supported by subscription revenue growth of 54% and total revenue growth of 52%. The strong growth in revenue along with disciplined investing resulted in our first positive Adjusted EBITDA in Q3, a milestone that we have reached a year faster than expected.
The health of our business, despite those unprecedented times for the global economy, is allowing us to restart investing into growth as maximizing profitability is not our main target at this stage. I should point out a change we have made this quarter on how we report total customer count. Previously, we counted two different departments with the same organization that used two separate instances of Docebo as two customers. However, we think investors like us will see this as an example land and expand. We have adjusted our customer count in the MD&A to reflect this change in definition, and the single logo is counted as a single customer, regardless of how many departments we sell into.
This has only modest implications on our average contract value today, but it will provide metrics that better reflect the performance of our business going forward, as we focus on expanding our product suite and increasing adoption of Docebo across multiple departments within a larger organization. At the end of the Q3, we had 2,025 customers. Our average contract value grew both quarter-over-quarter and year-over-year to nearly 32,000. This was driven by the higher value of our new customer addition, where the average contract value was approximately 50,000. We had another record quarter of a new logo sales and upsell performance. This expanded the broad range of use cases across different industries, showcasing the flexibility of our platform.
In September, we announced that Amazon AWS had selected Docebo for a multi-year agreement to deliver AWS training and certification products to its vast network of clients and channel partners across the globe. This is a great testament to the strength and scalability of our platform, and we were honored to be selected by them. Other new customers we were happy to add in the Q3 include Economical Insurance, SiriusXM, and the World Anti-Doping Agency. Economical was looking for a modern learner-centered platform and selected Docebo for its ability to deliver a personalized learning experience to train both internal employees and their broker partners. SiriusXM chose Docebo for internal training to support onboarding and professional development, and the World Anti-Doping Agency selected Docebo for global athlete education, practitioner training, as well as creating an opportunity for community and peer learning. We also had a number of great customer expansion wins.
In the Q3, we expanded our business with Syngenta Group, the World's Largest Agrochemical company. Previously used within a small pocket of the organization, Syngenta now looks to scale learning across the entire organization, and Docebo technology will play a crucial role in this. We are also thrilled to announce that in Q3, Docebo was selected by one of the largest operators of quick-service restaurants in the world to scale their learning across the globe. Originally signed in November of 2018 to train 3,000 restaurant locations, beginning in 2021, Docebo will extend training across 24,000 locations worldwide and will include some of the world's most prominent and iconic quick-service restaurant brands. Our OEM business is also continuing to progress, growing both quarter-over-quarter and year-over-year, and is our largest single contributor to our ARR.
Onboarding our first OEM partner and developing Docebo's white-label solution took more than a year from initial agreement to first revenue. Naturally, we learned a lot during this experience and are able to move much faster now. In the Q3, we realized the first revenues from a second OEM partner just one month after signing our initial agreement. Every OEM agreement is different, and the revenue timing is not something we directly control, but we are excited about the potential for OEMs to become an increasing contributor to our business over time. Moving on to our product, in September, Docebo was recognized as the first learning management system of 2020 by the learning industry. At the annual Brandon Hall Group HCM Excellence Awards, we were proud to receive 14 Excellence Awards alongside our customers.
We are now taking the same approach in building a best-in-class LMS to expand Docebo into a multi-product suite that supports learning needs across the training cycle. Last week, we were excited to announce the closing of our first acquisition of forMetris. This acquisition provides us with two significant benefits. First, they are innovators and leaders in Learning Impact analysis, which means we will have the capability to cross-sell our customers a power survey engine that captures qualitative data and real feedback to determine the effectiveness of their learning strategies, understand the retention of knowledge, and incorporate the feedback loop to measure return on learning. This product has been rebranded and launched as Docebo Impact, that we can sell alongside both Docebo LMS customers and customers that are not using the Docebo LMS. Second, forMetris gives us a physical presence in France.
France is one of the largest economies in Europe. It is a major market for online learning, and having a local presence is important to have meaningful success there. In summary, we are seeing positive momentum across all the main pillars of the growth strategy we outlined at our IPO, the new logo sales, land and expand, OEM, and product expansion. We are still not immune to overall macroeconomic challenges that may arise, like a second wave of COVID-19, that could bring a potential threat to our customer businesses and our revenues. But we believe we are still only scratching the surface on the market potential for digital learning, and that is why we will continue to invest to position Docebo for growth in the future. With that, I will now pass the call to Ian to speak to the financials.
Ian Kidson (CFO)
Thank you, Claudio, and hello, everyone. As always, you can find a detailed breakdown of our financial results for the three months ended September 30, 2020, in our press release, MD&A and financial statements, which are now available on our website and on SEDAR. We also now have a slide deck accompanying our earnings call discussion that is available on our Investor Relations website. For those who want to follow along, I'm starting my remarks on slide four. As Claudio indicated, we saw growth on all fronts this quarter and are very pleased with our results overall. Total revenue grew to $16.1 million, an increase of 52% from the prior year period. Subscription revenues grew 54% from the prior year and were $15.1 million, or nearly 94% of total revenue for the Q4.
Professional services revenue in the Q3 was $1.0 million, an increase of 27% from the prior year period. Our new logo additions and upsell performance in the Q3 established a new record for us, and I was particularly pleased by the fact that we experienced lower churn in the Q4 after seeing an increase in the Q2 from companies that were being most impacted by the pandemic. This resulted in net ARR growth of $7.6 million in the Q3 when compared to the Q2 of 2020. At the end of the Q4, we had $64.6 million in ARR, an increase of 55% from the $41.7 million at the end of the Q4 in 2019. As we have noted in most previous calls, while ARR is not an accounting measure, it is the key metric that we use to evaluate our progress, as it is an excellent predictor of future revenue.
The growth in ARR was driven by an increase in the number of customers as well as average contract value. Our number of customers increased to 2,025 at the end of the Q3, up from 1,632 at the end of the Q3 of 2019. Average contract values, or ACV, increased to approximately 32,000 at the end of the Q3, up 25% from 26,000 at the end of the Q3 of 2019, and is up from 27,000 at the end of the Q1 of 2020. Slide five shows the gross profit for the Q3, which was $13.2 million compared to $8.5 million in the prior year period, an increase of 56%. As a percentage of revenue, gross profit margin was 82.1% of sales, an increase from 80.1% of sales in the prior year.
This improvement in gross margin was driven by the realization of some benefit of scale in our infrastructure costs, and going forward, we expect gross margin to remain in the current range, with some potential to move higher, maybe up into the 82%-85% range over time. On slide six, you can see a summary of our operating expense lines. Total operating expenses for the Q3 increased to $13.9 million compared to $11.6 million for the prior year period, an increase of 20%. Included in our Q3 results is a foreign exchange loss of $400,000 that relates primarily to the cash held in our balance sheet and, therefore, is for the most part unrealized. Operating costs excluding this loss were $13.4 million and were generally in line with the $13.3 million in operating costs excluding foreign exchange impacts that we reported in the Q2 of 2020.
Strong growth in revenue and improved gross margin, along with stable operating expenses, resulted in our first Adjusted EBITDA positive quarter as a public company. We reported Adjusted EBITDA of $0.6 million for the Q4 compared to a loss of $1.4 million in the prior year. We also reported a net loss of $1.2 million this Q4 compared to a $3.7 million net loss for the prior year, and as we just noted, the net loss for the Q3 also reflects the same $400,000 foreign exchange loss. One implication of our positive Adjusted EBITDA performance this Q4 was that we were essentially free cash flow neutral as well. Looking at our balance sheet, in August, we completed a financing in which we issued treasury shares for gross proceeds of $18 million. Cash at the end of the Q4 was $60.8 million, and we carry no debt on our balance sheet.
Looking forward, I think it's important to remind investors of some of the comments we made on our Q2 earnings call as they still apply today. We are in the process of executing our hiring plan to add about 50 people to support our ongoing growth. While we would expect to see operating leverage growing in our business, in the intermediate term, most of this will likely come from the G&A line. Achieving positive EBITDA this Q4 was a great milestone for us, but as Claudio said earlier, being EBITDA positive was more an outcome of this year's unusual circumstances, and we do not intend to necessarily manage the business to remain EBITDA positive going forward. Instead, our focus will remain on optimizing our customer acquisition costs to maximize revenue growth as long as there is a strong return on that investment.
With that, I'll turn it back to the operator now to take some questions from the analysts.
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. If you are using a speakerphone, please lift the handset before pressing any keys. In consideration of other callers and time allotted, we do ask that you please limit yourself to two questions. First question comes from Robert Young at Canaccord. Please go ahead.
Robert Young (Technology Analyst)
Hi, good morning. The positive EBITDA, you just said that not to expect it to continue, but should we still think of the rough guidance of hitting free cash flow positive exiting 2021, or are you signaling that growth at this level is more important and you're willing to push that up?
Claudio Erba (CEO)
Robert, can you hear me? Claudio speaking.
Robert Young (Technology Analyst)
Yes.
Claudio Erba (CEO)
Perfect. So we think that the market is very fragmented, and there are a lot of opportunities to catch more quotas of this market. That said, and we can do it in several ways: developing new products, investing in sales and marketing, being open to new geographies and stuff like that, which is part of our comprehensive strategy. That said, when we say we want to continue to invest on growth, I will add one word: we want to continue to invest on growth efficiently. And I mean, that means that we are not to burn cash just for the sake of unsustainable growth. The metrics that we really love and Ian Kidson mainly loves is the cost of customer acquisition, which is the KPI we want to keep under control as strict as we can. I don't know if Ian wants to add something on that.
Ian Kidson (CFO)
No, I think that's fair, Claudio. Rob, we said a couple of times this year that our hiring was restricted during the Q2. We would have continued to grow our cost base and would not be EBITDA positive if COVID hadn't been around. That's what I meant when I said the acceleration of becoming EBITDA positive was a function of circumstance. What we're trying to say at this point is we are going to continue to aggressively grow this company's revenue base, but as Claudio has repeatedly said, it's always going to be in the context of making sure that the return on investment is appropriate.
Claudio Erba (CEO)
Yeah, and Rob, I want to add another point. I mean, there is this false signal, which is a trap, where COVID created extreme efficiencies on companies because companies were able to save on cost. Some part of this cost was investment for the future. I mean, not doing exhibitions, not having the possibility to stay in touch with the team for all the companies as a cost. So another element we want to focus, we want to stress, is that we are aware of that, and we are investing hard to mitigate this investment, which has not been done, but needed to find an alternative to continue to build the pipeline. So the efficiency on cost is also a trap if not correctly addressed.
Robert Young (Technology Analyst)
Okay, thanks for all that, Claudio. I'm also curious about some of the timing of the wins and the ARR growth, which is ahead of top-line growth. I guess that would suggest that some of these deals came in late in the Q4. And the second piece is some of the wins you announced, including this quick-serve win. I think in the press release, you suggested it would ramp in 2021. And so should we think of ARR benefiting from that deal in the current quarter, Q3, Q4, or even Q1? Maybe if you could talk a little bit about the large wins and how they impact ARR the next couple of Q4s?
Ian Kidson (CFO)
Sure. So the quick-serve win will hit our numbers, both ARR and revenue, in the Q1, Rob. Everything else is being reached in the Q4.
Robert Young (Technology Analyst)
Timing in the Q4? Were some of these large deals later in the Q4?
Ian Kidson (CFO)
Yeah, I think that's fair. Yeah. Yeah, I mean, the last month in a Q4 always tends to be a strong month. So I think the best thing, if you're looking at the numbers and thinking of where they were weighted, if you assume it basically came evenly over the Q4, all of the ARR, you're probably reasonably accurate.
Robert Young (Technology Analyst)
Okay, and last little tiny one.
Claudio Erba (CEO)
I think.
Robert Young (Technology Analyst)
Oh, sorry. Go ahead, Claudio.
Claudio Erba (CEO)
Do you want to give some more color or operational details on the ARR and distribution?
Ian Kidson (CFO)
Sure. Look, on top of what Claudio said and Robert, it is generally true that, as you know, particularly larger deals tend to have a higher concentration tail-end of the Q4. That is generally true. I'd say that certain large deals, for example, AWS, are so programmatic and are so managed over time that we try to manage them without having to necessarily push them towards the end of the Q4. And so in that case, that did not happen. But it's true that the rule of end of Q4 for larger deals remains valid. So your inference is correct for the most part.
Robert Young (Technology Analyst)
Okay. And then you said that the churn was a little bit better than you'd expected, Ian. Q4, is there any seasonality in Q4 from some of the smaller customers? Or would you expect that to kick up just seasonally or as some of the companies or customers impacted by COVID-19 might be coming to the end of their existing contract? And I'll pass the line.
Ian Kidson (CFO)
Sure. It's interesting. When I look historically, and this is not what I would typically expect, and honestly, I don't know if it's just an artifact of circumstance or whatever, but Q4 churn is not historically our worst Q4, and I would have instinctively said it would be, but it's not, so when we look at Q4, and Alessio has done a great job in putting a team together and managing our churn better than what we have in the past, so we're beginning to get a little bit more visibility into what we think is going to happen. I'm reasonably comfortable that there aren't going to be any shocks in Q4 like we had in the Q2.
Claudio Erba (CEO)
Let's not forget that we are happy about the vaccine, but the COVID is not gone. So if the COVID will stay longer, there will be companies that are fragile but still operating that will suffer. So there are some variables that cannot be evaluated with the standard historical model. So COVID is still a factor here.
Operator (participant)
Thank you. The next question comes from Daniel Chan at TD Securities. Please go ahead.
Daniel Chan (Director and Technology Analyst)
Hi, good morning. Congrats on the great Q4. Your deployments seem to be getting larger and larger. You've been targeting departments of large enterprises, but should we expect you to start doing more of these global deployments like you're doing with this quick-serve operator?
Claudio Erba (CEO)
So first of all, let's refer to AWS. AWS is a large deal, but it's a department deal because it's made to train a specific vertical in the company, which are partners and so on and so on. And the same, if you go into a big restaurant chain, these projects are projects made to train the restaurant owners and operators. So it's a large deal, but it's still a departmental deal. It's not an ultra-global project with a lot of consulting activities that covers all the departments because we think that this kind of project, I mean, one size cannot fit all in e-learning. So if you have to think to imagine a large check signed to the table, probably will be a large departmental deal like the AWS one and not a global comprehensive project that covers multi-departments.
Daniel Chan (Director and Technology Analyst)
Okay, that makes sense. As you continue to gain wallet share with these customers, when your deployments grow within their companies, do you have customers that want to adopt your solution across the entire enterprise, across multiple departments, and are you at a scale yet that you might be able to do that soon?
Claudio Erba (CEO)
I mean, usually, what happens is that departments negotiate their deal on their own. There is not a centralized orchestrator, let's imagine the HR, that buys the platform for the sales academy or buys the platform to empower the help desk team. What happens is that they can leverage the Docebo Extended Enterprise technology, buying one only Docebo instance, but with the Extended Enterprise module that has an independent segmentation of the platform itself, which is different methodologically speaking of the approach to have one department that orchestrates all the learning. I mean, we never have imagined an LMS managed by the HR department that will deliver safe training to the sales academy. In this case, there will be a unique LMS with multi-layout, multi-entry points, multi-domains, where there are different administrators that are the owners of their business unit that will train their own audience.
Daniel Chan (Director and Technology Analyst)
Okay, that's helpful. And then with regards to your growth strategy, you did mention that you're expecting to hire 50 people, but what role do acquisitions play here? Should we expect you to do more acquisitions like forMetris that give you a beachhead in some key markets?
Claudio Erba (CEO)
So the Docebo growth strategy is mainly based for the future on two main pillars. The pillar number one is to become a learning suite. The fact that now Docebo has two products, Docebo Impact and Docebo LMS with all the add-ons and models, it's the first step to extend our offering to cover all the training cycle. That means from learning culture to content production, whatever it is, LMS, content delivery, learning impact, and learning analytics. So the first step is having more product to sell to our customer base and to new customers. The second is geography expansion. Geography expansion means, for example, that forMetris, which was performing incredibly well in France, was not that present in the U.S., where we are very strong with our sales machine.
And so using forMetris to have an office in France, which is a very local market, which needed to be the negotiation, the contracting need to be in French, there need to be a culture alignment, is the footprint that we needed to have more success in France, where we have already a lot of customers. And you can expect that in the future, we will cover some other meaningful country, meaningful means with a lot of internal demand with new offices. The acquisition is part of our multi-product strategy, but it's not the only strategy we are pursuing to become a multi-product company because, as you know, we have a lot of new products that after one year and a half of R&D are now ready or are already in beta testing in our customers with some of our customers that are helping us to validate the product.
That said, acquisition is part of the multi-product strategy, and if the target of the acquisition is in a specific country we need to cover, it's a good thing because we don't have to open an office on our own.
Daniel Chan (Director and Technology Analyst)
Okay. And then final question for me, because you mentioned that the customers for forMetris are strong in France but not so big in America. How big is that cross-sell opportunity for both selling to the base and to forMetris?
Claudio Erba (CEO)
You know what we did when we started talking with forMetris? And this happened, I mean, we are in touch in terms of partnership since a couple of years. And we thought that the product was great, but they shared with us that they were struggling on selling in the U.S. So we bring forMetris to our customer event, I don't remember if in Boston or in Toronto, and they opened the booth. When our customer went to the booth and tried the product, they said, "I want this integrated in Docebo." And then we started figuring out that there was a need in the United States on adding a tool that assessed the return of learning, which is the efficacy of the training that you do, that was not covered by almost anyone because the survey system is another tool. It's a simplified system to run surveys.
forMetris itself, it has a million industry benchmark pre-mapped. So when we run a learning impact analysis, we can tell to our customers how they are positioned compared to the industry to a specific training that they have delivered in terms of satisfaction and return of learning. So the fact that we run these empirical tests, opening a booth in our customer event, and our North American customers were excited, started triggering in my mind that maybe we don't have to partner with a company like this, but we have to buy because there is an incredible upsell and cross-sell opportunity.
Daniel Chan (Director and Technology Analyst)
Okay. Thank you.
Operator (participant)
Thank you. Your next question comes from Stephanie Price of CIBC. Please go ahead.
Stephanie Price (Executive Director and Senior Equity Analyst)
Good morning. Congratulations on getting the MHR OEM agreement so quickly. I'm just wondering what the pipeline of other OEM agreements looks like here.
Claudio Erba (CEO)
I can say it looks bright, but bright means that OEM can shift by six months easily. That said, we are starting learning. I mean, we have started learning on how to pitch the OEM integration. We start learning how to better engage our OEM partners. We start learning how to deploy fast the OEM. And there is another opportunity, which is not completely related to the HR platform, but now talent management platforms are becoming an interesting OEM vendor because the shift that the old-school talent management platform had, which is identify skill, internal mobility, upskilling, sorry, cross-skilling, reskilling, are all actions that trigger one only thing: training. Because you can only upskill your workforce through the training. You can reskill your workforce through the training. So alliances like talent management and similar software performance support enablement and stuff like that are all good targets for us.
The pipeline is good. We are speaking with interesting companies that we think they can bring value in terms of potential, in terms of geography, in terms of use cases. But as you know, an OEM deal can shift easily from one quarter to another because it's a complex deal that is not paying back immediately.
Stephanie Price (Executive Director and Senior Equity Analyst)
That makes sense. You've mentioned geography.
Claudio Erba (CEO)
Stephanie, sorry. Stephanie, sorry. Ale want to add one point here.
Stephanie Price (Executive Director and Senior Equity Analyst)
Sure.
Alessio Artuffo (CRO)
Yeah. Hey, Stephanie. In addition to what Claudio shared, when we started approaching the OEM market, it was clear that the HCM players were particularly interested. What we've observed over time, Cla alluded to this, is that there are other sources of addressable markets from an OEM perspective. One that we are observing and doing some good work in pipeline development is also very reputable system integrators that want to not only do system integration per se and so professional services, but bring to market products combined with technology that allows them to serve certain customers they're already serving or new markets, and we think that opportunity is also very interesting because these firms are strategic. They have resources, and they have a deep penetration in the market already.
So that's a new pocket, I would say, of players that have shown a great degree of interest for our OEM technology. I thought you would appreciate that.
Stephanie Price (Executive Director and Senior Equity Analyst)
Yeah, that's great. Thank you. The other question I had was around geographies. Claudio, you mentioned several times on the call trying to expand into new geographies. Just curious what areas you're looking to focus on.
Claudio Erba (CEO)
Yeah, so Stephanie, first of all, sorry if we answered the question so long, but we really love this kind of conversation, and we would like to talk about our business for like five hours.
Stephanie Price (Executive Director and Senior Equity Analyst)
No, exactly. That's great.
Claudio Erba (CEO)
If you want to bring the coffee, bring the coffee. We have five hours with you. The question here is there are markets that have proven to be more resilient to COVID and have a strong internal demand. Let me shoot one name: Germany. Germany is the biggest European market, both in terms of population, size of the economy, and need of training, and leadership that the country itself has in Europe. It is very close in terms of borders. Sorry, not borders. In terms of language, culture, and so on and so on. If there are opportunities to explore these kinds of countries, saying Germany, but it is only an example, with a strong internal market, we will be happy to explore the opportunity to work in these countries and to cover in person. I mean, what I mean in person, we want to have a footprint there.
Now with COVID, everything is remote, but we think that in certain countries, it takes time to penetrate the market and to stay in the market, and you can reduce this time of penetration, or you can increase the conversion rate just because you are local and you hire local people that speak the same cultural pattern and language that can be a benefit. So multi-product plus geographic expansion is our strategy to dominate the world.
Stephanie Price (Executive Director and Senior Equity Analyst)
Great. Thank you.
Operator (participant)
Thank you. Your next question is from Suthan Sukumar from Eight Capital. Please go ahead.
Suthan Sukumar (Research Analyst)
Good morning, guys, and congratulations this quarter.
Ian Kidson (CFO)
Good morning. How are you?
Alessio Artuffo (CRO)
Pretty good, thanks. Pretty good. Guys, the first question for me, obviously, it was really good to see such strong expansion activity this quarter. Could you guys speak a little bit more about the kind of profile of these expansion deals? Curious if these are just a function of expanded seats, or did they include some level of modular adoption as well?
Claudio Erba (CEO)
Yeah. Alessio?
Alessio Artuffo (CRO)
Sure. In the context of the expansion business, the way that we manage that business, the upsell and cross-sell business, when we expand customers, we focus on two things. One, we focus on the health, happiness, and as well as the success of the customer that we're serving at that very moment within that one or more installations that they have with other instances, for better word. Yeah? And so the goal there is to maximize adoption, to grow that project, to expand that project to new horizons by adding modules and capabilities. The second area of expansion is looking beyond that very business and understanding whether the organization has either parent or sister companies or subs that would benefit from our services.
And those activities are coordinated by leveraging the customer experience group that we put together that not only cares about the health of the customer but also analyzes and signals whether there is opportunity for expansion, which is then addressed via our account management team. So in the context of this engine that doesn't just necessarily look at the one instance, we have had success doing a couple of things. For the big expansion in QSR, we have moved from a brand to a multi-brand within a large organization, which has expanded us and added the additional 24,000 restaurants, which we mentioned in the press release. That you can see as an expansion of the cross-sell within the same organization, which results in additional seats. The products in that instance remain the same.
With regards to Syngenta, which we also announced publicly, in that instance, we had a project departmental which was very successful, and over time, the organization needed a broader solution, and that corresponded to a true upsell. But I want to make sure that those are seen in the context of our upsell cross-sell engine, which really targets the broad spectrum of the organization beyond the single instance that we may be working with at one time.
Suthan Sukumar (Research Analyst)
Got it. Thank you. That's helpful. And just kind of talking about the customer success program you guys have, how are you investing in that as part of your ongoing growth investments? And how has kind of the progress looked like on the land and expand opportunity with respect to driving more adoption of capabilities and modules?
Claudio Erba (CEO)
Yeah. Suthan, you know that now Alessio has aggregated under his responsibilities not only the sales part but also the customer success. And we have recently a great leader coming from the industry. So I let Alessio articulate this, but the fact that we now customer success and sales works together like marketing, which one year ago was another independent department, and one of the major challenges during the past year was not to work in silos. Now that these three elements work together, we are more confident that all the downstream benefits can happen from upsell to retention to catching opportunities. But I let Alessio articulate better tactically what is executing. I don't want to be too complimentary. Otherwise, the guy will relax a lot referring to Ale. But how Alessio is executing this.
Alessio Artuffo (CRO)
All right. Well, Suthan, the answer is pretty straightforward. Look, the way we view customer success is beyond the customer success, or in this case, our customer experience department. It's about it starts very early, market to the right people in the right way, sell in the right way according to capability, implement at excellence, continue the account management and customer experience according to segmented best practices by putting the best people, working with the right segment of the organization, which in turn is segmented within four segments that are strategic segments for us, and finally, support the customers in excellence. So there's no success unless it starts from the very beginning because you can do an incredible job at the tail end of the process, but if you sold the wrong customers, it's never going to work.
And so where we are learning and where we are really investing is ensuring that all these functions are in hyper-synchronization so that by the time the customer is handed off after go-live, the customer is already set up for success. And that's a big job, but that's what we're pursuing. And I hope that answers. Good. No, that's helpful, guys. Next question for me, I just wanted to get an update on your shape offering. I know you guys wrapped up your beta program recently. Just wanted to get an update on what the feedback has been from users and how you're thinking about kind of incorporating some of that feedback and what the go-to-market plan is for that offering going forward.
Claudio Erba (CEO)
You are referring to the Docebo Shape, the AI content creator. Is it correct?
Suthan Sukumar (Research Analyst)
Correct. Yeah.
Claudio Erba (CEO)
Yeah. So you know what's happening, and I want to be blunt. I know that my team don't want me to be blunt, and they want me politics, but I am not. So what's happening now is that, sorry, someone is saying, "Shut up." I'm kidding.
Suthan Sukumar (Research Analyst)
I don't know what's coming, but I'm nervous.
Claudio Erba (CEO)
So you know what's happening? That our R&D department, the R&D that is creating new product, accelerated so fast and became so efficient that now not only Docebo Shape is close to be tested, beta tested by the customer, but also learning analytics, but also the other new products that we are building. So what is the main challenge now is not the product readiness, and some customers are already using it, and they like it, but we cannot release all the products together because we need to learn how to sell multi-product in the company. Alessio is specializing in training multiple marketing teams for multiple products. So the situation is bright, but the challenge is incredibly high because we now need to sell more product, and we have to learn how to market different products. And it's 15 years that we are selling only one product, the LMS itself.
Suthan Sukumar (Research Analyst)
Right. No, and I think that's fair. That's growing pains, I think, most companies go through anyway, so good to hear. And maybe one last thing for me, guys, and maybe this is just for Ian as well. Just kind of thinking about the profile of newer customers coming in, they're obviously larger, and you're seeing higher contract values here. Do you guys see any opportunity to maybe change or tweak your pricing model?
Ian Kidson (CFO)
Pricing doesn't sit with finance. I'll let Alessio talk about that.
Suthan Sukumar (Research Analyst)
Okay.
Alessio Artuffo (CRO)
Thank you, Ian. That's very kind of you.
Ian Kidson (CFO)
Thanks.
Alessio Artuffo (CRO)
I will say, Suthan, no consideration is a bad consideration. However, when we look at the strategy to continue winning and to continue maximizing results, we think there's a lot more work that we can do rather than changing pricing model to actually provide customers with what they need to succeed, and what I mean by that, Suthan, is we are not only investing every day to make products better, but also we are investing and growing our professional service organization with more capabilities like value-added services to unlock the potential they have in their organization. Some of this potential sometimes is unexplored, untapped, and results in not the maximum adoption they could have in the system.
Rather than sort of using the stick, which is changing pricing, the way we would approach it is offering those services that would unlock potential, that would allow customers to make the best out of our software, to use more of our software, and to have a better experience. That's our position at the moment.
Suthan Sukumar (Research Analyst)
Makes sense. Thanks, guys. Appreciate you taking my questions. I'll pass it along.
Operator (participant)
Thank you. Your next question is from Gavin Fairweather of Cormark Securities. Please go ahead.
Gavin Fairweather (Managing Director and Co-Head of Institutional Equity Research)
Oh, hey, good morning. I was hoping you guys could just comment on kind of the early stage of the funnel and how kind of inbound interest and conversion rates have trended kind of throughout summer and into fall.
Claudio Erba (CEO)
Alessio.
Alessio Artuffo (CRO)
Gavin, thank you for that question. We continue to see strong momentum on the inbound front. There is no doubt that at the very beginning and for the couple of months subsequent to the pandemic, the outbound business generally in the industry had a setback, which was caused purely and simply by the fact that people were not at work anymore, and as you know, the outbound business is based on, relies heavily also on phone connections, and those were harder to make when people were working from home. With that in mind, we've been following certain best practices and adjusted and calibrated our efforts to focus on our business development within the base, so we've invested and quickly pivoted certain decisions to empower more of our people towards account development rather than net new logo outbound development.
We have, however, seen a strong recovery of outbound momentum where it should have been all along in the past quarter. We're very happy with the results we're seeing. And outbound success is a hard job. We have great teams. We're not only investing in those in North America, but we're scaling them also in Europe to empower a language-based outbound across different regions because that's necessary. So in short sums, a strong moment of inbound, strong recovery of outbound post-COVID first wave. We'll see if the second wave will cause a slowdown. And very, very happy to report that our ADR business is doing fantastic.
Gavin Fairweather (Managing Director and Co-Head of Institutional Equity Research)
Okay. That's very helpful. And then maybe for Ian, you commented that you're beginning to get line of sight on gross margins kind of trending towards the mid-80s%. Do you have a level of scale in mind when you think about that, where you start to get some greater leverage on your hosting costs in particular?
Ian Kidson (CFO)
Yeah. When I try to talk about future levels like that, I'm usually thinking three to five years out. So if I take the company where it is today and if I had to guess where we'll be in three years, I'll say somewhere $150-$200 million. That's sort of generically three to five years timeframe in my head.
Gavin Fairweather (Managing Director and Co-Head of Institutional Equity Research)
Okay. Very helpful. Thank you.
Operator (participant)
Thank you. Your next question comes from Richard Tse of National Bank Financial. Please go ahead.
Richard Tse (Managing Director and Technology Analyst)
Yes. In regards to acquisitions, is it fair to say that your focus is going to be picking up niche technologies? Or is there potentially a larger opportunity with some of your bigger competitors? Because if you sort of look at across the board, some of them actually had pretty not-so-great quarters. And so it seems kind of obvious that you guys are taking advantage of that. So curious to kind of get your feedback on that.
Claudio Erba (CEO)
On a scale of one to 100, my excitement is one. I mean, we never wanted to buy competitors because we always say that there are implicit risks that are way above the risk we want to take. And the fact that we need to buy competitor, merge technologies, merge company cultures, and so on and so on, it's really something that makes us not excited. And also, it's another kind of business. I mean, in this industry now, we are seeing three big players playing three different games. There is one player which is buying other LMSs. So they are buying revenues and transferring everything in their main technology, which is one strategy I respect, but this is not mine. The second one is trying to play the content and HR side and the LMS side all together.
Ours is to stick to training and cover all the life cycle of training, from understanding the learning culture to understanding the content to delivery to assess through learning impact and analyze the data. That's what we want to say. The only way I see the way of buying an LMS, it's an LMS which is so small, but in such an interesting country, we want to step in that it is more easy to buy these 10 employees, small LMS company than opening an office on his own. But it's something that is very not realistic. So coming back to your question, I don't see the way of making a big acquisition of an LMS vendor. This is not the statement I would say if I had to think to some adjacent technology. But as of today, LMS, no big LMS in sight.
Richard Tse (Managing Director and Technology Analyst)
Okay. That's fair. Thank you. With respect to the AWS new agreement, I'm guessing that was a competitive displacement.
Claudio Erba (CEO)
Alessio? Was it competitor displacement?
Alessio Artuffo (CRO)
I'm sorry. Could you repeat that question, please?
Richard Tse (Managing Director and Technology Analyst)
Yeah. So the new agreement with Amazon Web Services, was that a competitive displacement?
Alessio Artuffo (CRO)
So the team at AWS has used comparable technologies in the past, but never to the extent and depth of the project and the scale that they plan to achieve with us. So the short answer is no, although they have used comparable technology, but the scope and the project was so much more ambitious that I would say where we beat competition was in the selection process, not in the displacement of it.
Richard Tse (Managing Director and Technology Analyst)
Okay. Fair enough. And the last one for me, in terms of the 50 people being hired, can you give us maybe a sense of the breakdown of what functions those positions are going to be in?
Claudio Erba (CEO)
Ian.
Ian Kidson (CFO)
Sure. I think if you had to guess where we're going to end up by the end of December, I would put half of them on the sales and marketing side and the other half into the product. G&A as a function is relatively static at this point.
Richard Tse (Managing Director and Technology Analyst)
Okay. That's great. Thanks, Ian. And congrats again on those great results.
Ian Kidson (CFO)
Thanks, Richard.
Alessio Artuffo (CRO)
Thank you.
Operator (participant)
Thank you. There are no further questions at this time. Please proceed.
Claudio Erba (CEO)
Thank you, everyone, for staying with us. We always enjoy speaking and talking about our business. And thank you all. Thank you, Ale. Thank you, Ian. Thank you, everyone. Have a nice day and stay safe. And wear the mask.
Operator (participant)
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.