Hello, and welcome to Virtual Investor Conferences. My name is Anthony Kraus, and on behalf of OTC Markets, we're very pleased you've joined us for our next live presentation from Kneat.com, Inc. Please note, you can submit questions for the presenter in the box to the left of the slides. You can also view a company's availability for one-on-one meetings through the Schedule Meetings tab found on the conference platform. At this point, I'm very pleased to welcome Eddie Ryan, CEO, co-founder, and executive director of Kneat.com, Inc., which trades on the OTCQX Best Market under the symbol KSIOF and on the TSX under the symbol KSI. Welcome, Eddie.
Thank you, Anthony. Good morning, all. Welcome to my presentation today. I'm looking forward to giving you an update on the Kneat story. As Anthony said, I'm the CEO and co-founder of Kneat. Initially, I will just touch on our safe harbor statement. There may be forward-looking statements in my presentation today. And if there are, please bear in mind that these forward-looking statements may not materialize. They're based on current thinking and current plans, which may change in the future. Kneat provides a SaaS platform for quality management within life sciences. This is a problem that the founders observed when they worked in pharmaceutical manufacturing for many years. They built a platform based on the problem that they saw. Prior to that, they looked for solutions in the marketplace when they worked for pharma.
And when they could not find one, they developed the product themselves. So today, Kneat is the market-leading platform for validation within life sciences. I'll explain validation to you in a few moments. Today, we have a very strong high customer and revenue retention. When we look at the end of 2023, our net revenue retention was 138%. So our customers are typically large customers. We do have some small customers also. And the growth model for us is through a land and expand model, where we just want to usually we start with our customers in a smallish financial arrangement. So it could be maybe CAD 200,000 to get started. But over a number of years, they will become multi-million CAD annual recurring revenue customers. That's our proven trajectory, land and expand model with these, especially the larger pharmaceutical and medical device and life science companies.
So we have a very strong thesis these regulated companies are really pushing to automate and digitize their processes. Kneat is proven and widespread within these companies. It's tried and tested. It's the leading solution. It's got huge support from users on the ground because of its ease of use. As we move through the life cycle of the company, and as our SaaS revenue growth outpaces services revenue, our margins are improving significantly. I'll touch on that a little bit later as well. As I spoke about earlier, the founding team understands the domain life sciences, pharmaceutical, and manufacturing intimately. We come from that industry. We developed a solution for that industry that's easy to use, that's performant at scale, and can scale across multiple companies worldwide.
If we take one of our advanced customers, they have 10,000 users across 27 sites globally within their organization. It's a very quality-focused culture. This is a mission-critical process for these companies. We're solving a problem here around data integrity, helping them to be compliant with the regulations. When they go to audit with the FDA or the European Medicines Agency, they need me to stand over their data and their information. These companies don't buy platforms for this purpose without doing serious due diligence. They'll come to you. They'll audit you. They'll spend days auditing your processes, how you design, test, and release software, how you support it, is it tested adequately before they can purchase your software. We often say that to our customers, we're selling you quality. We have a very strong purpose in our organization.
We exist to help our customers to develop, manufacture, and deliver their products to the highest safety standard. So we're talking about some of our traditional and typical product companies, big pharmaceutical manufacturers. They have to be able to stand over all their information in audit. And so it's very critical for them that they can have a strong understanding around their processes and be able to reassure the regulator that their data is adequate for the purpose. So today, we're addressing validation within life sciences. So validation overall is a subset of quality. So typically, the VP of quality in these pharmaceutical, medical device manufacturing companies are responsible for this process validation. It's a subset of quality. And within it, there are many use cases.
If we take an example of one of our most advanced customers, they have 10 different validation use cases on our platform for 10,000 users, like I said earlier, across 27 sites globally. So everything that's used in the design, testing, and manufacture of a pharmaceutical product and medicine must be validated to ensure that it will deliver consistent quality and will not inadvertently affect patient safety. So it's all about their equipment, their processes, their products, and their computer systems must be validated and maintained in a state of validation. And Kneat solves that problem for them in an easy-to-use digital way. So all the results of all this testing must be captured and documented and available for audit for many years to come. In the old way, it was a hybrid doc management system.
Create the paper documents, go and execute the testing, scan the paper documents back into the doc management system, and then put the original records into Iron Mountain for safekeeping. Today, you do everything in Kneat. You never, ever go to paper. And when the auditor comes to visit you, it's the press of a button that brings all that relevant data and information back on a screen in front of them. And it's really a high level of right-first-time compliance that we're delivering for our customers.
When we ask our customers and we look at the case studies that they author for us, every customer is telling us that they're saving 50% of the man-hours associated with all this data and documentation management, 50% of the cycle time to get regulatory documents and records reviewed and approved, and a higher right-first-time compliance overall, plus quicker time to market for their products, new and existing products. So this just talks about the ROI in a little more detail. When we look at the ROI, it's really about removing the paper pain. The paper pain is difficult for these organizations. They can't manage on paper anymore. They're looking to digitize every aspect of this process, remove the time, remove the susceptibility to data integrity, which is a big issue.
Today, when the FDA comes to audit these customers, they're often finding them for data integrity issues. They can't trust the data they see. They can't trust the data is often missing. They can't find the records of something they did maybe a couple of years ago to prove to the regulator that they are compliant with the regulations. This is a real big challenge for these companies. Kneat solves that problem. Kneat enhances right-first-time compliance with the regulations in real time as all these scientists and engineers are doing their work on a daily basis across all their sites. At the press of a button, management can see everything going on in real time across the world. At the press of another button, they can bring back the relevant information for the auditor when they ask for it.
So it's removing these compliance issues and giving them a huge higher right-first-time quality and de-risking their business. So I touched on validation. And I said there was a number of use cases. And I gave an example of one of our customers that has Kneat rolled out for 10 different use cases across 27 sites for 10,000 users globally. So let's just put a little bit of color on that for you. So there's two vectors of expansion in this land and expand model that we have. So a customer may start with a couple of use cases, one or two use cases within the validation umbrella. And that's for those cohort of users. Then they'll expand that across all their sites. And as they expand, they're increasing their licenses and their annual recurring revenue with Kneat. And then they add on new use cases.
And as they expand the use cases, again, they expand them across sites. So that's how they get to 10,000 users over a period of three to five years, depending on how quick they can get that done. So this touches on all the different types of validation processes, use cases, analytical instrument validation, equipment validation, method validation, drawing and management, computer system validation. So we're saying to our customers is, you can start anywhere on any one of these use cases, whichever is priority for you. And you, with our help or with your help, your own help with your own internal people, or with the help of our partners, they will set up Kneat for you. And there's no coding whatsoever involved in that. So Kneat is a configurable platform. There is no coding to set up the different use cases.
That's a very important feature of the platform. So when we look at our market, our total addressable market, today, we call our market life sciences. And today, we're focused on digital validation within the life sciences vertical. And within that vertical, I'm talking about primarily our core market is the manufacturers, pharmaceutical, medical device, biotech manufacturers. And then we have the supply chain into these manufacturers, such as equipment vendors, IT systems providers, engineering companies that manage capital projects for them, logistics companies that move products around for them under a certain validated state. And also on the discharge side, on the output side, you have companies that are responsible for getting product to market to the point of sale. So we have customers in all these segments.
We look at all these customers and the amount of traction we can get with these customers based on what our customers are doing right now and scale it to the total customer base, we see an annual recurring revenue of $2 billion in that market. When we look beyond that market to the right of that first circle, we see that TAM going to over $7 billion. And that's based on addressing adjacencies within the life sciences space. So the first circle is validation where we are the leaders today, proven in the marketplace, able to count the majority of the top 20 biggest pharmaceutical companies in the world as our customers who are at different stages of expanding our product across all their sites. That's the life sciences market. That's our core. That's a $2 billion.
We then look at when we go outside of validation later, we see adjacencies that we can address where we see opportunity to improve solutions that are already there and that we can achieve significant traction in. That moves us up to a $7 billion TAM. Beyond that, further out again, we see it going to more than $15 billion in annual recurring revenue yearly as a TAM. So there it just shows you the logos of the top 20 global pharmaceutical companies. Today, most of these are Kneat customers. We can't say who they are because we have contracts with our customers that we cannot talk about them unless they have authored case studies. If they've authored case studies, we can talk about them. That's why I can say Merck. Merck is one of our customers there.
If you look on our website, you will see a case study how Merck has scaled from one site to 27 sites in a 2.5-year period to 10,000 users. I encourage you to read that to get an overview of the value proposition that Kneat delivers for these companies. This just touches a little bit again on the land and expand model. Our net revenue retention, which we quote at the end of every year, was 138% at the end of 2023. It really speaks to this expansion of our customers. As I said to you earlier, we can start off with CAD 200,000 on the first site. We scale in 2 directions, additional use cases within the validation space and new sites. We're 2 vectors of expansion from that perspective. Each use case has its own cohort of users.
And every time you add a new use case, you're adding on a new cohort of users. And that's adding new license seats. And the ARR is going up for Kneat in that way. And that's how Merck went from a small one or two sites initially all the way to 27 sites to a multi-million CAD annual recurring revenue customer. And the one thing to say is that these companies are all, when they're purchasing a solution for this space, this mission-critical space, they're actually very diligent about what they select. They will want to trial everything. They will want to do everything to a high degree to make sure it's the right solution for them. Because when they're buying this, they're buying with the goal of harmonizing validation across all their network, all their sites worldwide. And it's a corporate decision to do that.
We start out with a master service agreement with a price list. Then as they expand, they get a discount on the pricing as they go forward. When we look at our go-to-market, so as I said, we are focused on the different vectors of expansion, users, sites, and processes. Our route to market is based on direct to partners, to implementation partners, to resellers, and direct services ourselves and different levels of customers and different partners focused on different types of customers. We have also a very strong training in Kneat Academy that trains all our partners, trains all our customers where needed. We have the flexibility to provide direct services to the strategic customers or to leverage partners where that is beneficial.
When we look at our trajectory from a revenue perspective, you can see our annual recurring revenue has grown steadily over the last number of years. You can see today, at the end of quarter one 2024, it's at CAD 42.1 in annual recurring revenue. You see a little bit of orange along the way there as well. That's maintenance. Let's kick back to our legacy on-prem. We've converted everything over to cloud-native pure-play SaaS. You can see that that maintenance stream is going away completely. The biggest factor for us, the biggest metric for us now is annual SaaS annual recurring revenue. All but one customer is on our pure-play SaaS right now. That last customer is moving shortly.
So when we look at our gross margin, as you can see, it's tracking where you'd expect a pure-play SaaS company to be headed. It's above; if you follow that orange line, you'll see it's between 70%-80% and tracking upwards. You can see it was a little bit up and down in the past. That's a factor of the on-premise and the maintenance and stuff like that and moving to the pure SaaS, more our company evolving in a structure to where it's got a very strong defined structure in the company now and being more efficient as we scale as well. Okay. That's an overview of Kneat for today. Thank you very much for your time. I'd like to open it up now to questions and answers. I'll take any of your questions should you have some. Okay.
The first question is, can you describe a bit more about the channel partner motion? Are the partners starting to bring Kneat into more deals, or is it still at the stage when Kneat is feeding them deals to help them see the value of partnering with Kneat? That's a very good question. I would say to you is that the partners are very, very much engaged. They're bringing opportunities in. I would say regarding resellers, it's early for us. We reimagined our partner model late last year. We started signing up reseller agreements this year. So they're early days, but they're beginning to show, we'll say, early success. So in the past, it was partners were more implementation partners. As they evolved and became more competent, they're now moving into resellers.
They have a lot of products that they are also selling through the Kneat platform also, services of their own into the industry. Next question. Can you please comment on the new customer announcement today for a giant consulting customer for CSV? Are there other use cases beyond CSV? That's a very good question as well. So for me, there's two types of partners. There's what we call the boutique domain knowledgeable business process type partner, very close to the actual business side of things within the customer's domain. And then you have the large systems integrators who tend to be more focused, more closely aligned with the IT side of the business, right? So you have the business user. And those type of partners are boutique partners. And then you have the larger ones.
The one today is one of those large systems integrators who also are using Kneat to deploy their services, deliver their services to the industry because Kneat now allows them to deliver their services. So, say, for example, they're deploying an ERP system. They can now deliver to the high standard of quality and compliance and bring their customer into the process of that project using Kneat. And they're also there to resell and to implement Kneat globally. So they tend to be more systems implementers as opposed to resellers. And I would say the model here is early. We have some very strong opportunity conversations ongoing with these type of partners. There's more than one of these. That was one that was announced today. So there's a number of these type of partners. And if I was to just call them out, what type of partners are there?
You're talking about the Capgeminis of the world, the Cognizants, the Accentures, these type of companies. Hope that answers that question. So the next one, have you seen macro affecting validation budgets? Veeva and others have reported some slowdown. But is validation a bit more sheltered given the mission-critical nature because of regulations and audits? That's a very good question. I've been asked this on numerous occasions, especially last year, back end of last year when people were reporting a lot of sluggishness in budgets and stuff like that. I would say that why I think it didn't affect us. I mean, yes, it's a very mission-critical system process. The customers we deal with tend to be large companies. They don't tend to be as restricted on budgets. There are some issues with it, of course. But also, we think about our land and expand model.
We can get you started for CAD 200,000 into your first use case on one site or two sites or something like that. Then we start scaling you over time. That's typically how we have progressed with our customers. It's not spend CAD 2 million day one and we're going to roll this out. It's not like an ERP system that has to be kind of switched on at the same time. Yeah, the customers all joined up and it's a harmonization, but they can take it in stages. Some customers in our customer base go faster or slower. There can be differences in speeds of how that's done. So I talk about Merck. Merck did that in two and a half years across to 10,000 users. Some of the others might take four years to do that. Some might take three years.
There's different variations to that. So I think it's so Kneat gives a very strong value proposition. It's very well known in the industry today that Kneat saves 50% of the man hours and saves right first-time compliance, which was something they could not achieve in any other solution. Why Kneat was so successful is because Kneat has brought a product to the marketplace designed for the industry from the ground up that really targets compliance in an easy-to-use way by people who lived in the space and worked in the customer's shoes. So it's delivering the business value in an easy-to-use way for the customer. It's saving 50% of the man hours. It's getting to market faster. And it's hitting that compliance challenge, which is really de-risking their business. If I'm the VP of quality, I want the Kneat. I want Kneat looking after my business every day.
That's what they're getting. So I believe we're. I'm not saying we're resistant to macro issues, but I believe we're very strong from that perspective. I would say there's green shoots, if anything, this year as opposed to last year. So could you give us an update on the competitive landscape, specifically Veeva? Yeah. So that's an interesting one. Veeva is delivering a product to solve validation as well. But all I can say is that we have not. Our customers are renewing with us. We have not had, I would say, when we get to the final formal RFP, there's typically only two customers or two companies that are at the final stages. At this point in time, we don't see Veeva at that final stage. I'm sure and I'm expecting that we will see them in due course.
That's all good. We've been expecting Veeva to come for a long time. There's others coming into the space as well. They're approaching it from a certain angle. Yeah, so we're very confident in our own ability to deliver value to our customers and to really bring a really strong vision to our customers, which we share with them. And they're really excited about it. How do you think about the balance between growth and profitability? That's a very good question as well. So Kneat is, we think of both. Yes, we want to be profitable, but also we want to make sure we return for our investors. And primarily, our investors believe in this story as a growth story.
I would say that we have been over the last year and a half, we've been growing our business. We've doubled our workforce. Today, we're kind of growing into that workforce. We're seeing the output of building a sales and marketing team over a year ago. And we're seeing the pipeline developing very strongly for that reason. Some of these salespeople went into new territories if they build a pipeline there. And we're seeing the fruits of that coming to fruition now, the benefits of that or the output of that. So I would say that we believe that we can deliver. This year is, I would say, expenses are flat relative to revenues. We are for sure hiring key hires and all that. But we believe that we can deliver the expected growth in the current budget as well. So I hope that answers that question.
And that gives us, I mean, visibility on profitability. So next question is, how are you feeling about your pipeline? Okay. Very good question as well. So our pipeline, as I said, I touched on it earlier on there. Our sales team are coming to a very strong place that we've invested in the last year and a half. And we see I can't talk about today. I'm not talking about today because it's a public company, right? But our pipeline has been as strong as it's ever been. And I would have given that message at the end of the last quarter as well. And we're very optimistic about our pipeline into the future. Let's see. Please describe ancillary end markets beyond life sciences. Okay. Ancillary end markets beyond life sciences. This is a question. This is further out for us. Today, we're primarily focused on validation.
We have lots of different work, lots of work to do in validation. There's lots of different segments within validation. We're getting a platform for all of that. But we also see—I talked about adjacencies. We see a lot of opportunity where we see areas outside of it could be deeper in quality. It could be deeper in manufacturing. It could be deeper in knowledge management. All these areas, I'm not going to give a forecast on it right now. But all these areas, we see weaknesses in current offerings. We see opportunity there. Today is about building our trust, which we have developed with these large companies. These companies are asking us to go to adjacencies already.
And we're saying, "Sure, but we're focused on validation right now, but we hear you." And as we develop out our platform, we're going to make sure we bring on board those requirements as well. So anyway, next question. Back to the question. What's your objective for organic sales growth for the next few years? I guess the organic sales growth is today, we are very organic. We have built a platform end-to-end that's easy to use, and it's seamless and integrated. We are working a lot around integration now. Customers are asking us to integrate in a lot of different areas. And we're seen as a pillar of their landscape. And for that reason, we need to integrate the loads of applications adjacent to validation. So that's really a big part for us right now.
We would be looking at other products out there that may accelerate areas of our business in the future. But there's no indication of any acquisition at this point in time. How do you think about the balance between growth and profitability? Oh, we've been there. Sorry. Do you feel like you're adequately capitalized for the size of the opportunity? I do believe you can be cash flow positive to self-fund growth. But given the size of the market, does it make sense to raise a little more capital now to fully capitalize the business? It's a good question. Yeah. So today, as I said, this year has always been about not expanding too much from a cost perspective and to maintain our cost base, really just to optimize our business and to grow into the team we have. We have a very strong cash balance right now.
If you look at our numbers, it's not hard to imagine where profitability might lie. Of course, we are always balancing that equation. As I say for now, we expect to deliver the expected growth on the current expense trajectory. Just a few more questions there now. I think I've picked up most of the questions there now. I'd like to say thank you very much to everybody for attending today. I look forward to talking to you again soon. Bye for now.