Docebo has still more upside, says National Bank Financial

E-learning company Docebo (Docebo Stock Quote, Chart, News TSX:DCBO) is still an under the radar tech name with the chops to play with Canada’s more well-known tech stars. That’s the assessment from National Bank Financial’s Richard Tse who reviewed Docebo’s latest quarterly performance in an update to clients on Thursday. Tse kept his “Outperform” rating for the stock while bumping up his target price from C$60.00 to C$65.00 per share.

Docebo has a cloud-based, customizable, artificial intelligence-based e-learning platform which offers end-to-end capabilities for training internal and external workforces, partners and customers along with the ability to track and certify online courses and training.

The company released its third quarter 2020 financials on Thursday, representing Docebo’s first quarter as a public company with positive EBITDA. Revenue grew by 52.0 per cent year-over-year to $16.1 million, with subscription revenue being 94 per cent of total revenue. Adjusted EBITDA hit $0.6 million or 3.6 per cent of revenue compared to a loss of $1.4 million or 13.1 per cent of revenue a year earlier. Docebo finished the quarter with cash and equivalents of $60.8 million and had near breakeven free cash flow at negative $0.140 million compared to negative $1.986 million a year ago. (All figures in US dollars except where noted otherwise.)

“Customer momentum remained strong in the third quarter as we reported 55% year over year growth in ARR and 54 per cent year-over-year growth in subscription revenue, driven by another quarter of record new logo and upsell performance,” said Claudio Erba, CEO and Founder, in a press release. “We will continue to focus on increasing our sales reach, expanding our relationships with our customers and broadening our product offering to capitalize on the tailwinds we are seeing for Docebo and the Learning Management Systems industry.”

Docebo’s Q3 top and bottom lines came in better than expected, according to Tse, who had estimated revenue of $15.7 million and an adjusted EBITDA loss of $1.6 million, compared to the realized $16.1 million and positive $0.6 million, respectively, and the consensus estimates of $16.1 million and negative $1.5 million, respectively.

Tse said the positive earnings were the big surprise of the quarter and a signal of the potential operating leverage in the company’s business model, while at the same time cautioning that the company’s growth investments will likely prevent the continuation of positive EBITDA.

Tse noted that Docebo received initial revenue from a second Original Equipment Manufacturer (OEM) partner just one month after completing the agreement, showing the company’s emerging skill with onboarding.

“For investors following our research, you’ll recall our view that the process around bidding and onboarding a partner is getting refined with each new partner, which means we could see a pickup in the pace of wins,” Tse wrote. “We’d also note those potential partners could go beyond the obvious HR specialty firms into even bigger markets like ERP. In our view, what’s compelling about OEM partners is that they come with considerable relative profitability while at the same time expanding the sales channel for Docebo.”

The analyst has revised his estimates after the Q3 results and is now calling for full 2020 sales of $62.1 million (previously $61.3 million) and adjusted EBITDA of negative $2.5 million (previously negative $6.6 million). For 2021, Tse is calling for revenue and EBITDA of $86.5 million and negative $0.8 million, respectively.

Docebo has been the stock to own in 2020, with year-to-date gains of 225 per cent. At press time, Tse’s new C$65.00 target represented a projected 12-month return of 18.9 per cent.

“While Docebo added another ~120 logos in the quarter to reach a total customer count of 2,025, we note the combination of larger transactions and expansions have also driven the company’s Average Contract Value (ACV) up 24.8 per cent Y/Y to $32,000. But perhaps the most notable takeaway from these results is that the Company’s remote operating model has insulated the potential disruption from deployment delays – as such, we see lower short-term execution risk on this name. All in, we continue to like Docebo for its outsized organic growth, recurring revenue stream and potential operating leverage. In our view, those valuation drivers are not fully reflected in the stock,” Tse said.

Over the third quarter, Docebo closed on a bought deal financing round of 1.5 million shares at a price of C$50.00 per for proceeds of C$75 million. The company said the funds will go towards strengthening its financial position and pursuing growth strategies including selective acquisitions.

Docebo also reported signing a customer expansion agreement with one of the largest operators of quick-service restaurants in the world to scale their learning. Docebo said the company first signed on in 2018 to train workers at 3,000 of its restaurant locations whereas now the company will use Docebo’s platform across 24,000 locations worldwide starting in 2021.