Docebo Inc. (DCBO) Earnings Call Transcript

Good morning, everyone, and welcome to the Docebo Third Quarter 2026 Earnings Call. [Operator Instructions] I'd now like to turn the call over to Docebo's Vice President of Investor Relations, Mike McCarthy. Please go ahead, Mike.

Thank you, Jillian. Earlier this morning, Docebo issued Q3 2026 earnings results. The press release, which included a link to management's prepared remarks and our quarterly investor slide deck were all posted to our Investor Relations website. This morning's call will allow participants to ask questions about our results and the written commentary that management provided this morning. Before we begin this morning's Q&A, Docebo would like to remind listeners that certain information discussed may be forward-looking in nature. Such forward-looking information reflects the company's current views with respect to future events. Any such information is subject to risks, uncertainties and assumptions that could cause actual results to differ materially from those projected in the forward-looking statements. For more information on the risks, uncertainties and assumptions relating to forward-looking statements, please refer to Docebo's public filings, which are available on SEDAR and EDGAR. During the call, we will reference certain non-IFRS financial measures. Although we believe these measures provide useful supplemental information about our financial performance, they are not recognized measures and do not have standardized meanings under IFRS. Please see our MD&A for additional information regarding our non-IFRS financial measures, including reconciliations to the nearest IFRS measures. Please note that unless otherwise stated, all references to any financial figures are in U.S. dollars. Now I'd like to turn the call over to Docebo's CEO, Alessio Artuffo; and our CFO, Brandon Farber. Jillian, please open the line for questions.

We will now begin the question-and-answer session. [Operator Instructions] Your first question comes from the line of Suthan Sukumar with Stifel.

Congrats on another strong quarter. Good to see consistent execution here. For first question, I wanted to touch on the government segment. I didn't catch much of an update this quarter. Can you give us a look at what current operational traction is looking like? And what is your outlook going forward post the U.S. midterm elections?

Alessio speaking. Very proud of the team. Regarding government, we're very pleased with how things are progressing on our end. We introduced government as our very first verticalization and our strategy is starting to play out. We entered Q3 with a very strong pipeline and a consistent pipeline build, frankly, above our expectations. We had anticipated this could happen. And as a result, we have started our plan to staff up the team to continue to meet the goals that we're setting forth in the future. When you approach a new market, it's also an opportunity to learn. And what among the learning opportunity is that the procurement processes across both SLED, state and local and federal are, let's say, trivial at times. While we have progressed very positively during quarter 3, very significant deals, we were hoping to get some of them in the quarter itself. But we have great confidence that they're going to still come in, in this fiscal year. And one more thing. When we speak about government, we tend to focus a lot on federal. But as a reminder, we are really building a much more diversified public sector, state and local government relationship also through partners. And with relationships like Deloitte, we feel like we're very well positioned to continue to succeed in this new vertical. So stay tuned for more news coming next quarter.

Appreciate the update. For my second question, I wanted to touch on the special dividend that you guys announced. Obviously, this is a positive confidence from you and the Board. How are you guys thinking about deleveraging? And what does this mean for M&A capacity from here?

So just taking a step back, so as you mentioned, we announced today an approximate $60 million onetime special dividend. The dividend will be funded from our remaining debt capacity, taking us from $90 million to $150 million of debt. That leaves us in a net debt position of approximately $108 million with an adjusted EBITDA or projected adjusted EBITDA of $56 million. That's a net debt-to-EBITDA ratio of 1.9. So I think the ultimate question is why dividend, why now? If you actually look at our capital allocation priorities, they really remain consistent. So number one, invest back in the business. We're investing in healthcare, we're investing in FTE. We're going to continue to hire in the government. We're doing that with still projected 20% EBITDA margins, and that's going to grow into 2027. Acquisitions, you brought it up. We've done 2 acquisitions in 2026 and funny enough for Docebo, that's a lot. We continue to believe that we're at heart in organic growth story. And we will always be opportunistic in M&A. But when we look at the next 12 months, we're really heads down on execution. And that leads to the third is returning cash to shareholders. And listen, we've historically aggressively done that from buybacks. In 2026 alone, we spent $82 million repurchasing 4.1 million shares at an average price of $19.97, which is frankly generates significant value for shareholders. If you look at the last SIB we did a couple of months ago, only $2.5 million was filled at a possible $70 million. So we looked at today, we looked at our balance sheet flexibility, we looked at our excess capital, and we felt like returning cash to shareholders versus dividend was the best use of cash. And it really speaks to the confidence we have in the business right now, not only us but the Board. And when we look at our business, it's highly recurring in nature, subscription business, highly predictable cash flow that is growing and will continue to grow.

Your next question comes from the line of Robert Young with Canaccord Genuity.

I'd like you to unpack the guidance a little bit. It seems conservative after the read on the, like the confident tone in the prepared remarks. You just noted a strong pipeline ahead of your own internal expectations and then you've got seasonality benefit in Q4, as I understand it, and then new AI products in market. And so maybe if you could just give a little bit of context for us on how you arrived at the guidance and what's driving it?

Rob, if you think about the Q3 guide, it's one of the easiest of the year, but it's also the hardest. And why do I say that? It really gives you no insight into how the business is doing in a short and midterm perspective. And why do I say that? Well, when we guide to Q4, our starting point is what was our Q3 ARR. We look at the number of days in Q4. And then we unpack what happened in October. What happened in October is U.S. dollar strengthened a little bit. So we lost some ARR on FX. And when we look at our pipeline, which is heavy enterprise in Q4, that tends to lead to mature deals falling in December. So when we look at Q4 guide, it's a constitution of our Q3 ARR with almost little to none incremental revenues from Q4 bookings. That's all going to impact our '27 guidance when we provide that in February. But if you look at just at a macro [Technical Difficulty] interestingly enough in February, which was shortly just 9 months ago, we guided '26 revenues at the midpoint to 10.6% revenue growth. After being raised, being raised, being raised, our full year revenue growth is now projected to be 14%. On a quarterly basis, our subscription revenue was 12% in Q1, 12% in Q2, 12.4% in Q3, and we're guiding to 12.8% in Q4. So if you look at the year as a whole, it's been a strong rebound year for Docebo, and we really think we're setting ourselves up for success into 2027.

Okay. And my second question, nice to see the healthcare and medtech win in the quarter with, I think you said specialized partners. So give us an update on the investment in that vertical. That was a thing you were highlighting last quarter and the returns you're seeing. Is this win an effect of that investment, or should we expect more focus on this vertical?

We should expect more focus on the vertical moving forward. We should expect more wins in this vertical moving forward. And the reason is we are just very much getting started. What that means is, number one, we have hired the right people. This is not just a sales motion. We have staffed experts across our entire value in the company from GTM to product and engineering. We have, more importantly, studied deeply the market and the differences that exist across the denominations like life sciences and healthcare itself and the subcategories of industries that exist. We have mapped our existing customers, these categories and are talking to them and understand what they need for us to be better at, i.e., where we can take our product. We have used that to influence and create a more sophisticated and vertical road map. And finally, we have an operational strategy to target the right accounts in the greenfield. And we understand that those accounts that are with competitive products that are currently under strain. And with all of that said, now we have to execute to win in '27 and '28.

[Operator Instructions] Your next question comes from the line of George Sutton with Craig-Hallum.

Guys, first, I'd just like to congratulate the Board on the special dividend. We'd rather see a special dividend than more share repurchases just because of the liquidity of the stock. So nice to see. My first question is on the launch of Knowledge and want a better understanding of the extent that you can go to the broader knowledge work of the enterprise, and you're going to be targeting, obviously, CROs and CCOs, which are a very different sale process than just the traditional training folks. So how are you teeing up for that in terms of the sales process? And what sort of ARPU do you look for as a benefit to the broadening of the organization?

Let me take a step back and go back to circa 2016, 2017, which is when Docebo started -- identified the need in the market that was not -- that went well beyond the compliance training as we know of it today. And we embraced the need in the market to have learning become a more GTM monetization-based project as well. We did that. And over the years, now more than 50% of our customers use Docebo not only for internal purposes, but for external use cases. And the point being those external use cases already are served by -- supported by budgeted with the office of the CRO and the office of the CCO. We have built over time a capability to go after buyers and address buyers that are not L&D. I would say that gene has already been built in the company. Now where we're taking it next? And why it applies to knowledge? What we've seen over the past few years and in particularly, I would say, highlighted by AI is that learning and knowledge are blending, meaning buyers are telling us that their users don't just want to learn in the sense of taking structured courses, but they want to be in the flow of information. They want to have information available to them upon request. And certainly, the ChatGPT era has opened the consumers to new expectations. So what did we do? We took the opportunity to extend the concept of learning to knowledge by opening up effectively what we can have access to a much broader set of data, the enterprise data as opposed to the learning data. You can think of the LMS as a big database, and that database up until yesterday contained learning information only. But learning is created out of a much broader set of knowledge. Now we're connecting directly to it. Now we're enabling the enterprise to be able to reach into their SharePoint information, their Salesforce information, the Confluence information, their Notion information, their Google Drive information, something that was impossible until not too long ago in a sophisticated way. Again, we're bearing the benefits of AI. Our customers are having a wildly positive response to that. We're at the very beginning of the journey. We believe that the CIO office will be more involved. And we're going to repeat the same playbook that we adopted years ago when we approach a different buyer. We're going to do the same thing, and I think it's going to be fantastic.

And just staying on the new release, you have 600 beta customers, which sounds like a very large number of beta customers. Can you talk about the importance of the message to that?

Thank you for capturing that nuance. It's one that I particularly care a lot strategically and in the way we think about how we build Docebo. First, let me explain 2 concepts of beta. There's a private beta and there's a public beta. And we have a few phases there. Once we reach public beta, we involve more people to talk to us. And what is the underlying message? What is the value? The value is becoming a company that builds with an engineering-first mindset to a company that builds with a customer-first mindset. It is doing that public data and working with those 600 customers that we get the real value, the real feedback, the real market, I would say, there's always a gap between what a product management team and an engineering team can think of until you bring something to the use of the practitioners. And so we put a lot of value into that. And we believe that as we do that, once we go in GA, our products are much better off. And frankly, there's a monetization component in that strategy. We want to come out of the gates very, very prepared to welcome net new customers that have already had a chance to go deep in the product and feel like they're part of it.

Your next question comes from the line of Ryan MacDonald with Needham.

Congrats on a great quarter. Alessio, we've spoken a few times this year about sort of the refresh cycle that's occurring in the LMS space from sort of a forced platform modernization from one of the large legacy incumbents. It wasn't lost on me that there is a number of sort of cited competitive take this year or in the quarter as you talked about client wins. So just curious to hear about what you're seeing from a competitive perspective and if you're seeing sort of a tailwind in RFP activity given the dynamics of the market.

So first, let me share something philosophical on how we run Docebo. We don't focus on the competition very much. We focus on ourselves. I'm a big believer that you need to establish what you think is right and go execute that and not worry about others are doing. But with that said, being educated and understanding what happens in the market is important. And here's what we see, but not necessarily focus on, okay? What we see is that the buyers that we're targeting, modern, complex enterprises want a modern platform that can support their needs. And these needs require a system with deep workflow and enterprise capabilities. Those enterprise capabilities range anywhere from features themselves to the security layer, to the governance model, to the ability to implement in a certain way. It's not just an engineering concept. It goes well beyond it. It's how you build a company. And when you think about the competitive landscape and you think about features combined with all these characteristics, notwithstanding things like FedRAMP certification that is definitely something that takes time, energy and investment. There's not a lot of, I can't see a lot of competition out there that then brings together AI, learning, knowledge, Skills Intelligence in a highly integrated platform that can withstand the complexity of 30,000, 40,000, 50,000, 100,000 people organizations. That is our moat. That is our uniqueness. And the reason why I love that moat, it's very hard to replicate. This is not an AI agent company that tomorrow displaces this need. The need will be there forever, but the way to get there is incredibly hard. We are there, and we're going to crush it.

Maybe as a follow-up, you also mentioned in the prepared remarks that your agents are helping you to expand who you're selling to within the enterprise, sort of expanding from a traditional HR or CRO or CCO sale to now the CIO. Obviously, a very exciting opportunity, but it sometimes can be a bit of a double-edged sword. So I'm curious, how are you thinking about what's the potential incremental budget you can unlock from a CIO sale? And then conversely, how do you think this affects sales cycles with selling to a new person or adding another layer in the selling motion to the sales process?

So first, the CIO is not a new person at the table for us. The CIO is already a stakeholder that is heavily involved. We actually have plays in our sales process, both at net new logo and existing logo where we address the CIO office, whether it's for a security questionnaire or for AI reviews and whatnot. So we are very used to that cadence. What the prepared remarks highlight is that the introduction of new capabilities such as knowledge and agents will probably make the CIO more relevant and budgets that were confined to L&D and/or CRO only could potentially open up to CIO budgets as well. It is early for us to give a clear indication in or hard thesis about what the percentage will look like. And we've been focused on creating the value and working with the CIOs and these customers to really understand what they care about. That's where our focus has been so far.

Your next question comes from the line of Matt VanVleit with Cantor Fitzgerald.