Welcome to the Kinaxis Inc. fiscal 2019 third quarter conference call. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. I'd like to remind everyone that this call is being recorded today, Friday, November 1st, 2019. I'll now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis Inc. Please go ahead, Mr. Wadsworth.
Thanks very much, James. Good morning, and welcome to the Kinaxis earnings call. Today, we will be discussing our third quarter results, which we issued after close of markets yesterday. With me on the call are John Sicard, our President and Chief Executive Officer, and Richard Monkman, our Chief Financial Officer. Before we get started, I want to emphasize that some of the information discussed on this call is based on information as of today, November 1, 2019, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release, as well as in our SEDAR filings. During this call, we'll discuss IFRS results and non-IFRS financial measures.
A reconciliation between the two is available in our earnings press release and in our MD&A, both of which can be found in the IR section of our website, kinaxis.com, and on SEDAR. Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations section of our website. Neither this call nor the webcast archive may be re-recorded or otherwise reproduced or distributed without prior written permission from Kinaxis. To begin our call, John will discuss the highlights of our quarter as well as recent business developments, followed by Richard, who will review our financial results. Finally, John will make some closing statements before opening up the line for questions. I'll now turn the call over to John.
Thank you, Rick. Good morning, and thank you for joining us today. I'm very pleased to report our third quarter results, which include SaaS revenue growth of 28% to $31.2 million, total revenue growth of 29% to $47.1 million, and adjusted EBITDA of 26% of revenue, which includes a $2.5 million one-time charge we took following the amicable resolution of our previously disclosed arbitration with a former agent customer. Adjusted EBITDA was 31% prior to this charge. Our strong results in Q3 were driven by several new customers we closed in the second quarter, including British American Tobacco, Honda, Yamaha Motor, and Teva Pharmaceuticals, to name a few. Additional net new customers and expansions in Q3 have been instrumental in further driving our backlog to new heights, which provides exceptional visibility into the remainder of 2019.
Based on this success, we are increasing all aspects of our guidance, with higher expectations for subscription revenue, term license, and total revenue, as well as a higher EBITDA target for the year. Richard will provide these details in a few minutes. Our business performance demonstrates traction from our strategy to expand our global sales team in 2018, and again earlier this year. Momentum in digital supply chain transformations continues, and I believe Kinaxis holds a unique leadership position using RapidResponse, our powerful concurrent planning platform, as a vehicle to solve modern-day supply chain planning challenges. Since our last call, we also announced several new strategic partnerships designed to both scale our implementation capabilities and advise new prospects when they are considering their own digital supply chain transformations. We recently announced a very unique partnership with one of our long-term customers, Flex.
They are demonstrating the power of RapidResponse to their extended customer base from their global Flex Pulse centers. We've already had a couple of initial wins, thanks in part to their support of referrals. We also announced that JFE Systems of Japan, a subsidiary of one of the world's largest steel companies, joined our partnership enablement program to accelerate opportunities in that region. We have worked closely with JFE over the past decade and have joint customers in high-tech, automotive, and consumer products industries. Crimson & Co, who are specialists in global supply chain management consulting, were added to our growing partner ecosystem this past quarter. They serve clients in a number of vertical markets we share, including consumer products, high-tech and electronics, industrial equipment, and life sciences.
While we are thrilled with our growing customer base and partners, I am equally excited by the increased pace and depth of our product innovation. Within the first half of 2020, we will dramatically increase the extensibility of RapidResponse with the launch of our development platform. Partners and customers will be able to harness the power of concurrency by building new capabilities and applications that are tailored for their specific needs. These extensions will plug directly into and leverage all the power of RapidResponse as a unique always-on concurrent planning engine, all without customization of the core RapidResponse code. For customers and partners, the benefits are obvious. For Kinaxis, it means that we can better position to offer our leading SaaS-based supply chain planning platform to a broader market.
As part of our latest product announcement, we also introduced compelling new data visualizations, including a unique interactive supply chain network visualizer with a patented way to present performance data on different screen formats ranging from desktops to mobile devices. These innovations will enable planners to shrink the time it takes to gain insight from hours to seconds. These innovations were extremely well-received by customers, prospects, and partners when we announced them at our recent and record-breaking Kinexions user conference. Our success this quarter and to date is driven by our focus on investing for sustained long-term growth. Expanding sales teams, leveraging partnerships, and accelerating product innovation all take significant time, investment, and focus. As shareholders of Kinaxis, we appreciate you supporting our long-term view. With that, I'll turn the call over to Richard for an overview of the financials for the quarter. Richard?
Thank you, John. Good morning. As a reminder, unless otherwise noted, all figures reported on today's call are in US dollars under IFRS. On a comparative basis, total revenue in the third quarter increased 29% to $47.1 million, driven primarily by SaaS revenue, which grew 28% to $31.2 million. This growth was due to contracts secured with new customers, as well as the expansion of existing customer subscriptions. We recorded $3.3 million of subscription term license revenue in Q3, consistent with our previous comments regarding the expected cadence of this year's customer-hosted subscription renewals. As we have previously noted, subscription term license will vary quarter to quarter in line with the timing of the individual customer renewal terms. Professional services grew by 8% to $9.3 million compared to Q3 2018.
Professional services revenue is driven by a number of factors, including the number, size, and timing of customer projects, as well as the level of deployment engagement supported by our partner network. Overall, we remain pleased with the diversity and strength of our revenue base. On a year-to-date basis, our 10 largest customers account for 33% of our total revenues, with no individual customer accounting for greater than 10% of total revenues. Gross profit grew 36% to CAD 33.3 million or 71% of revenue, compared to 67% in Q3 2018. This increase resulted from the growth in SaaS revenue and other revenue, partially offset by an increase in cost of revenue, such as the related headcount, partner, third-party costs, and expanded data center capacity. Profit grew by 70% during the quarter to CAD 4.5 million, or CAD 0.17 per diluted share, compared to CAD 0.10 per share in Q3 2018.
Adjusted EBITDA for the third quarter grew 29% to $12.1 million or 26% of revenue, in line with Q3 2018. These results were due to an increase in revenue and gross profit, partially offset by an increase in operating expenses, including investments to support the company's long-term strategic growth initiatives. Included in the third quarter G&A expense was the write-off of $2.5 million in receivables booked in 2017 related to the resolution of the arbitration proceeding with a former Asian customer. Excluding this charge, adjusted EBITDA was $14.6 million, or 31% of revenue, and profit was $6.3 million, or $0.23 per diluted share. This matter is now fully resolved. While up 34% on a year-to-date basis, Q3 cash from operating activities of $1.1 million was 41% lower than Q3 2018, largely due to fluctuations in operating assets and liabilities.
As of September 30th, 2019, cash equivalents, and short-term investments totaled CAD 202.2 million, an increase of CAD 20.7 million from CAD 181.5 million as at December 31st, 2018. Our minimum contracted revenue backlog continued to strengthen. As of September 30th, 2019, it was CAD 289.7 million, as detailed in Note 12 to our financials. This amount is driven by the CAD 246.9 million of future contracted SaaS revenue, as well as bookings for maintenance support and subscription term license revenue. The backlog will be recognized over the following periods. CAD 46.6 million will be recognized in the fourth quarter of 2019, of which CAD 31.2 million relates to SaaS business and CAD 12.1 million relates to subscription term license. CAD 111.9 million will be recognized in 2020, of which CAD 97.4 million relates to SaaS business, and CAD 131.2 million will be recognized in fiscal 2020 and thereafter, of which CAD 118.3 million relates to SaaS business.
Total bookings in Q3 were $80.2 million, of which SaaS bookings were $48.9 million. We are very pleased with this performance. As you know, bookings will vary between periods as they depend upon the timing of the closing of the underlying subscription and other contracts. Based on these results and our business outlook, we are pleased to increase our revenue and adjusted EBITDA guidance for fiscal 2019. We now expect total revenue will be $188 million-$190 million. SaaS revenue will grow approximately 22% over fiscal 2018. Full year subscription term license revenue will be approximately $26 million. With our ongoing accelerated investments in sales and marketing, we now expect sales and marketing will be between 23%-25% of total revenue. Continuing our product team expansion and new product innovation investments, we expect that research and development will be in the range of 18%-19% of total revenue.
Based on these revenue and investment expectations, we now expect full year adjusted EBITDA margin between 27%-29% of revenue. Our business model is supporting capital expenditures in the range of $11 million-$12 million, the majority of which we have already invested in Q2 on planned data center expansion and R&D investments. Thank you for your continued support of Kinaxis. With that, I will turn the call back over to John.
Thank you, Richard. In summary, we are pleased with our meaningful progress so far in 2019 and believe that we are well positioned to deliver on our increased full-year targets. I'm encouraged by market conditions and ongoing sales activity, the growth in our stable of top-tier partners and their level of engagement, and our accelerating product innovations. Most of all, I am humbled and encouraged by the top-quality brands who continue to trust Kinaxis with their supply chain transformation initiatives. On behalf of Kinaxis, I would like to thank you for your support, and as always, for taking the time to join us on the call today. With that, I'll turn the line over to the operator for Q&A.
At this time, I'd like to advise everyone, in order to ask a question, please press star followed by one on your touch tone keypad. If your question's been answered or you wish to remove yourself from the queue, please press the pound key. Thank you. We'll pause for a moment to compile the Q&A roster. Your first question comes from the line of Richard Tse from National Bank Financial. Go ahead, please. Your line is open.
Yes, thank you. Are you guys being very conservative here with guidance? Your implied Q4 numbers on revenue pretty much seem like they're already in backlog. Maybe you can kind of give us a bit of commentary on that, please.
Thank you, Richard, for the question. We are very confident with regards to the guidance that we have provided. The nature of the subscription does provide the long-term visibility. As I think you appreciate, Richard, sometimes it's the timing within a year that can vary. While our model has really been predicated for many years, and still is, on that 80% of the forward visibility of the next 12 months, with regards to within the next three months, it's traditionally been in the very high, 90% range. This guidance is consistent with that type of model. As we now disclose the backlog, you as a reader have greater insight. I'll just say that we're very confident and our goal is to continue to not only secure business, but to secure it on a timely basis within the quarter.
Any of that performance will impact ultimate results.
Okay. John, you guys had some great product announcements at Kinexions recently. I'm kind of curious to see whether you can kind of give us some post-conference feedback in terms of the reception. Obviously, it's been good, but I'm more curious to see your sense that that interest level cascades into incremental revenue in 2020 from those new products here.
Yeah. Well, we were thrilled, obviously. I think at Kinexions, at least in recent memory, I can't remember another Kinexions that was that successful, and I can't remember ever announcing that many innovations at one event like we did. It was obviously the work we've done around self-healing and machine learning, AutoML, and other elements related to those math functions, as well as the new user experience. Obviously, I've been talking over the past couple of years about preparing for RapidResponse as a platform. These are all slated for, I'd say, General Availability inside of the first half of 2020. Obviously, everything we do in R&D gets monetized in some way. On the RapidResponse as a platform initiative, we have early adopters, I will say, in a beta program working with us already, and working on customer-initiated applications. That is absolutely thrilling to me.
It's exactly what I'd always dreamt of, if you will, having that kind of mass runtime configurability. It's no longer just the visualizations, but the ability to build customer-specific IP safely in a SaaS environment. Something that is safe from upgrades. You upgrade safely even though you have those extensions. The adoption's been very strong. Obviously, we had the demo booths at the event, and they were very highly busy, I would say. We're really excited with what we've launched.
Okay. Just the last one from me in terms of the partner channel. You got a bunch of partners that kind of use a baseball analogy. What inning would you say you're in with the broad partner group when it comes to that group sort of reaching critical mass here for Kinaxis? That's it from me. Thanks.
I am consistently saying the same words. We're in chapter one, book one. At the event itself, we announced and we showed we have 25 partnerships now. All at varying stages of maturity. For me, it's not so much about the quantity, it's about their maturity, as they continue to work with us. Frankly, I don't look at it as, okay, we're done, we can slow down the partnership initiative. Some of our greatest partners are boutiques in different parts of the world, in Europe. We're thrilled with the uptake in that space where we continue to see more and more consultants get certified and badged as consultants and ready for implementation services. I don't look at it as us being deep in the game whatsoever. It's still early days for us.
That's great. Thanks. Congrats on a great quarter.
Thank you.
Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Go ahead, please. Your line is open.
Hi. Good morning. John, can you update us on what you're seeing with respect to spending environments? Clearly it didn't seem like there were any macro issues this quarter, but, as you talk to customers currently, are there any concerns that might be affecting pipelines and sales cycles or not at this point?
I'm not seeing any negative effect. The pipeline remains very, very strong. The pipeline is very diverse, continues to be. I said the same words at the last earnings call, Looking at the pipeline today, very strong, very diverse, both in geography, Europe, Asia, North America, all very, very healthy. A great distribution across the market segments we serve as well. We're seeing particular increased interest in the CPG, in the consumer packaged goods arena. Yeah, we're not seeing a negative effect whatsoever at this point.
Maybe in terms of Asia, clearly you've had some wins there. If you could provide some more color, is the cadence of sales cycles in Asia comparable to other regions? Are the industries that you're targeting there, that you're having traction there similar to the other geographies? How's that pipeline progressing?
Yeah. I would say, there's a slight acceleration, if you will, in Asia and Europe, predominantly. We're investing heavily in those regions. We talked about that a year ago, putting our foot on the gas. We're seeing the fruits of that labor as a result. Obviously, we can't announce every single account we win. Obviously thrilled to be able to announce Honda and Yamaha in Japan, almost back to back. This is very significant for us in the automotive space, in Japan. Again, the work that we've done in Europe around CPG with BAT and others, is really strengthening those verticals in that region as well. We're continuing our investments in those regions. Again, as color, I would say we're seeing perhaps a slight acceleration in Europe and Asia, predominantly. I think it's reflective of our investment in those regions.
Great. Two quick ones for Richard. You raised your term license guidance for 2019. Did that reflect the expansion of existing on-premise customers, or did you sign a new one?
With the subscription term, they have been on a renewal basis, and it's not uncommon to see expansion and growth on renewal. That really was the driver for the higher than anticipated performance.
Finally, you'd previously given us term license guidance for 2020. It sounds like it was in the vicinity of 11 million term licenses for next year. Is that still your expectation?
Well, with regards just to guidance in general, we're still going through our development plan and initiatives. We're going to be providing that when we comment on Q4. In terms of the broad range, yes, that holds because those would be renewals that we would look forward to completing throughout 2020 and then, obviously in the out year 2021.
Okay, thanks guys. I'll echo Richard's congratulations on the quarter.
Thank you.
Your next question comes from the line of Daniel Chan with TD Securities. Go ahead, please. Your line is open.
Hi. Good morning, guys. You saw a nice acceleration in the backlog building up there. Can you provide some color on the seasonality of the deal closures, and should we expect the backlog to continue to accelerate as we get through Q4?
Well, thank you, Dan. Our goal is absolutely to see sustained growth in the backlog. As you, I think, appreciate the timing of the deals. In other words, what goes into that amortization schedule, that long-term subscription revenue, is going to be dependent upon the timing of the arrangement. We don't really see seasonality so much with regards to the subscription side of things. It just continues to be building. It is, I would say, more than common that those transactions occur later in the quarter, hence my earlier comments about contribution within the quarter or within even sometimes the fiscal year. As John commented, the health of the funnel is very strong. The investment we've made in sales and marketing is considerable and continues, that our coverage of representatives both not only in sales but in marketing and related support globally continues to expand.
Our expectation and focus is just to continue to drive that backlog.
Okay, great. Then for the large deals that will take multiple years to deploy, such as the BAT three-year deployment, are those deals fully reflected in the backlog, or do you add it in phases as you complete parts of the deployment?
Our backlog, just to clarify, is the minimum firm contracted revenue, and it follows, as disclosed, the corresponding revenue type, so albeit subscription or the on-premise subscription term license. It is not common for professional services to be really committed in the long term. In fact, most of our arrangements and deployments are in a much shorter period of time and on a time and material basis. They're not reflected in the backlog. They are reflected in our broader guidance, but not in the backlog. Really the focus is the ongoing subscription license revenue is, as noted, and that is the driver for, as we noted, the $80 million bookings in total and $48 million related to SaaS.
Great. Thank you.
Your next question comes from the line of Deepak Kaushal from GMP Securities. Go ahead, please. Your line is open.
Hi. Good morning, guys. Thanks for taking my question. I have a quick follow-up on Thanos' question on the term licenses. Did you guys say that you're expecting it to drop next year, and kind of what's the intuitive sense of growth on term licenses versus SaaS?
In broad ranges, our arrangements are longer term, as you can appreciate, Deepak, and generally speaking, most of them average around three years. Subscription arrangements, a number of whom we actually have been working with well over 10 years, in some cases even converted to subscription when we went to the subscription model in 2005, continue to be deployed and continue in a number of cases to expand on a customer-hosted basis. Those are the agreements, even though they'll pay us in annual installments over three years, under IFRS, we do have to bifurcate and present that revenue as subscription term license and the maintenance support. It just happens that the cadence is really higher in this year and would also be higher, or our expectation, in 2022.
As we have indicated previously, that level is going down to about 50% level in 2020, and then going down further in 2021. Our goal is then to be on the renewal cycle so that it would again increase. Cash, the business, everything else remains consistent throughout that period. We just have that bit of a curve. Obviously, it depends upon a number of factors, the extent to which customers renew and expand. We have, in a number of cases, actually worked with the customer to help them understand the additional benefit of us hosting them in the cloud. We've converted their customer premise arrangements to that cloud, in which case then they follow into that broader SaaS model that you can see is just the sequential revenue growth.
Okay. Excellent, Richard. That's very helpful. Thank you. I have a couple questions for John. John, Flextronics, I asked them a couple of years ago if they were seeing a network effect with their downstream supply chain partners by using RapidResponse, and they kind of smiled, but they didn't say yes or they didn't say no. Clearly, if they're a partner now, they're seeing some kind of benefit. Can you give us a sense of what the benefit to a, maybe not in specific terms, but what's the benefit to a major company to push RapidResponse to its partners? What do the partners see? What is the main customer see?
Yeah. It's a great question. Thank you, Deepak. When you think about the macro level value that we're providing, we're essentially collapsing time, cycle time, the speed to detect, the speed to correct. It's really one of the core tenets of RapidResponse. It's one of the core tenets of what we call concurrency and concurrent planning. Obviously, our customers focus inside their walls first. The speed at which they can connect demand forecasting, demand planning to their master schedule and capacity planning and inventory and so on, is where they achieve tremendous value. It's not uncommon for them to say, "Hey, what used to take two weeks now takes less than two hours," or, "What used to take two hours now takes 30 seconds." It is a giant leap forward.
When you start thinking about extending that speed, that concurrency outside your four walls, therein lies a level of indirection value, if you will. The speed at which either the customers or suppliers of a contract manufacturer could be connected. If there's a demand change from one of Flex's customers, for example, the speed that Flex can absorb that, having been connected, having a RapidResponse to RapidResponse connected environment, collapses tremendously. You eliminate a lot of that lead time. The same is true the other way around. If you're a brand owner leveraging a contract manufacturer, the speed at which you can see downstream effects of the supply chain is directly correlated to the speed at which you can course correct when those adverse conditions occur. It's all about speed and time. The speed at which you can connect learning.
Therein lies the network effect, if you will. Flex has been a great customer of ours for many years, well past a decade, and maybe even closing in on 20 years. We know them extremely well. They're wildly mature, especially in the world of concurrency. I think they obviously benefit internally through the use of concurrency, but they see the potential of extending that concurrency beyond their own four walls to include their partners. The same is true for the partners themselves, their customers. It's extremely valuable to have that absolute transparency and high speed visibility up and down the supply chain.
Thanks, John. That's great insight. Just on that network effect, in the past, what I'd heard is that there was some concerns around data sharing and data privacy, and there's general hesitancy of the broader supply chain, external supply chains to do that. Did you guys solve that problem, or do the benefits outweigh that problem and customers are over it?
Yeah.
Which path kind of have you gone?
Yeah. It's a funny thing. Technology is never the burden, if you will, or the friction. Connecting these partners, the technology doesn't really get in the way. The relationships are what needs to get solved, and the trust between partners is what needs to get solved. I would say that in terms of the ultimate decisions, if you will, of having that network effect occur, it's a funny thing. When you're a brand owner, you still own a number to the street. You still own quality. You still own every promise you've made to every customer. Even if you don't manufacture your goods, you own all of that. You own quality. You own brand. You own promises. If you're public, then you certainly own a number to the street. There's a terrific need to have that transparency and visibility downstream. There's an absolute terrific need for it.
I don't think it is uncommon, and it's not an uncommon occurrence today, to have that visibility through subcontractors. We're seeing a lot of what we call the glass factory effect as more commonplace. The reason is really that. They need that transparency in order to maintain the promises they've made to the street, the promises they've made to customers, and to understand everything from on time, in full, and inventory disposition, and other elements like that.
Okay, excellent. No, I appreciate the detailed answers. Thanks for taking the time. I'll jump back in the queue to give some time to others. Thanks.
Your next question comes from the line of Robert Young with Canaccord Genuity. Go ahead, please. Your line is open.
Hi, good morning. You reported very strong EBITDA margin and raised your EBITDA guidance for the year, so it looks like Q4 will also have strong margins. Without giving guidance to 2020, how should investors think about your margin structure going forward? Are the initiatives that you have planned going to hold margins back? Or should we be thinking about operating leverage going forward? Then maybe if you could weave into your answer, how does the drop-down and subscription term license impact that?
A lot of questions there, Rob, but thank you for those questions. First and foremost, it is with regards to the subscription. We are very pleased by.
Not only the success of the recent quarters, but as John said, by what our future holds. As I sort of touched on very briefly, we are, as a management team right now, reviewing a number of additional growth initiatives and activities. We're in the process of completing our appropriate budget cycle and our longer-term investment. We look forward to providing that wholesome guidance of not only from a future revenue perspective, but also the margin perspective when we provide our Q4 call. Absolutely, from an income statement perspective, the change in subscription term license revenue being lower will have an impact on the margins. We are quite unique in that we consistently drive out very strong margins while we drive out that growth.
Directionally, yes, as your and other analysts model are projecting, we'll see still strong margins, but at a lower level. That macro trend would be there. As I noted, with regards to that subscription term cycle on really on a three-year basis, one would also expect seeing through to 2022 that you'll also see expansions in margins. For us, it's really all about the long term. It's all about continuing this growth and initiatives to actually further accelerate the core business, which is the SaaS subscription growth, and continue to drive out cash. That's about the directional statement that we can provide. Again, when we complete our year-end call, we'll provide that broader guidance.
Okay. I guess we'll have to wait for that. The $12 million in the backlog for term license in Q4.
Yeah.
Like you said, that's firm contracted. Are there any scenarios where that could push beyond the year or is your confidence there very high that that'll come through in Q4?
Well, because it's disclosed in backlog, Rob, it is contracted. Again, Well, for the customer-hosted arrangements, once again, we're required to break that into two components. One, the right to use, which is the subscription term license, which we'll recognize on the commencement of the renewal term. The residual, which is the maintenance support, we'll recognize over, say, that three-year term basis. In a number of cases, it's within the quarter. In other words, they'll sign the renewal, maybe they sign the renewal hypothetically on July 2nd, and the term starts in September, so it's all within the quarter, so you won't see that in backlog. In other cases, maybe you sign on September 15th for a November 1st start, in which case it would be, as we've disclosed, in the backlog.
In fact, our CAD 26 million number that we provided is simply the year-to-date number plus that CAD 12 million. I would say we're extremely confident. I mean, it's contracted and loaded. I don't know what else I can say in that renewal terms, again, those three-year terms, they're going to start. They do not want to interrupt their use of RapidResponse.
Okay, that's great. Is there any hesitation that you think might happen? You announced a lot of new products and a new Gen3 of the software. Is it realistic to think that there would be hesitation from customers waiting to see how this turns out to make sure that there's no issues with that? Is your funnel moving just as normally as it would without that?
Yeah, no, it's a great question. We have a pretty robust alpha/beta program with customers well in advance. By the time we hit GA of any product, it has seen its paces. We've been at it quite a long time. Again, it's SaaS-based software. Obviously the burden is on Kinaxis to upgrade, not the customer. They're excited to take up new releases as they come out. Now, certainly, we're on a monthly cycle of releases, which is common in SaaS. It doesn't mean every customer takes every release every month. We do have a pretty strong upgrade program that keeps our customers up to date. Yeah, I wouldn't say there's any friction there whatsoever. The relationships that we have with our customers bring a lot of confidence to the releases when they hit GA.
Okay. Last question, just maybe a broader one. Like you said, the Kinexions was very well attended, and it seems as though Kinaxis has a profile that's growing, the reference ability is maturing. A lot of great companies using their products. Are you seeing any change in buyer behavior? We've always asked about an update on sales cycle. Is that changing? Is there more functionality being taken up front? Is there less pushback on price? Is there anything you can talk about buyer behavior as Kinaxis matures as a company? I'll pass the line.
Yeah. Thanks, Rob. It was great seeing you at the event. It's great for you to witness what we witnessed at Kinexions. For sure, it was definitely a record-breaker across the board. I would say we're seeing a lot more maturity in our prospects as it relates to what concurrency means. I think some of this is, there's a lot of discussion around it. There's peers. I would say there's a lot of maturity around the potency of concurrency. The conversations, when we meet a prospect, I would say much more fluid. I'd say there's a bit of an acceleration in terms of understanding what does it mean for me to transform into a concurrent type of a model for my supply chain. As it relates to shrinking sales cycles, and I think we started that discussion probably five years ago.
We've been monitoring that closely. These are still generational decisions that these customers are making. They're literally changing the business fabric of their process. We're still seeing in that 18-month type of a sales cycle, plus or minus. Some have been faster. Some, quite frankly, take longer. I wouldn't be prepared to necessarily say that deal cycles are shrinking. I will say the pipeline is quite healthy and quite broad. It's something I study every week, and it's great to see activity in every vertical we serve. If I were to put some color on it, I'd say there's a maturity around what concurrency means. I think people are becoming awake to that there's a new way to solve supply chain problems. You're right. Just being able to announce these great customer names.
Last year we announced, as you know, Unilever and others. You saw P&G speak at our conference. It lends a lot of credibility to what it means to join the concurrency approach. We're thrilled with where we are, obviously. If and when we start seeing deal cycles shrink, that will certainly manifest in guidance.
Thanks.
Your next question comes from the line of Stephanie Price with CIBC. Go ahead, please. Your line is open.
Good morning. Can you talk a bit about where you are in the rollout of the sales team and kind of what inning you're in terms of fully ramping that sales team?
Yeah. We announced last year, as we said, 2018, we announced an acceleration on that team and in marketing, quite frankly. Again, in Q1 of this year, we made that announcement that we were going to further accelerate even beyond what we had thought just three months prior. We have open headcount in sales and marketing today. We're continuing that acceleration to give us the coverage that we see in the pipeline. With, I'd say, an emphasis on Asia and Europe, but as well in North America. All regions are growing. We're hiring in all regions, and I wouldn't say that there's a line in the sand somewhere in the future where I'm going to say that the sales force is now at capacity.
Every quarter, I see a healthier and healthier pipeline, and so as the quarters manifest, we're going to grow to make sure we have appropriate coverage in sales.
Okay, great. Can you talk a bit about the implementation process for recent client wins? How has it changed versus a year ago, and can you talk a little bit about that timeline for implementation?
Yeah. We continue to see a lot of partner involvement. This is where we talked earlier. We now have 25 partners, formal partner arrangements. These aren't just marketing arrangements. We continue to see the vast majority of our net new wins coming in through partner influence. We're also seeing more and more partners pick up the prime position for professional services, which is exactly what we had hoped to see. That is becoming more commonplace. It's certainly not every single deal where a partner is prime, but I'd say the majority of them, we're starting to see that behavior, where we're playing a supporting role. I will also say, and this is, I just think it's best practice. One of the things we tell every single customer is not to boil the ocean, okay?
The project plans that we look out, that we work on their journeys, it's not uncommon to have multiple phases of rollout because, again, this is transforming business fabric and business process. The way we look at things is, there has to be what I would say, a go live stage inside of that six to nine-month window. It's not uncommon. It doesn't mean that you're done the full transformation for these large corporations. They are experiencing a concurrent environment with significant value accretion of the solution, inside of that window. They build it from there. That's how I would characterize the way deployments traditionally roll out.
Great. Thank you.
Your next question comes from the line of Paul Treiber with RBC Capital Markets. Go ahead, please. Your line is open.
Thanks very much. Good morning. My first question is for John. Earlier, you heard Mark mention that you're encouraged by the macro conditions or environment. Previously, tariff uncertainty delayed to delays, I think it was last year. Now there's still obviously a fluid environment in terms of tariffs. Just given the customer momentum that you're seeing as shown in the backlog, what's changed from a customer perspective in terms of how they're trying to address the changes in their environment?
At the event, we had one of our CPG customers, obviously, talking about how large-scale global manufacturers absorb catastrophe, like a weather event that is impending. Without concurrency, you generally run out of time to absorb those types of unexpected events. Now, that's a weather condition, but I would say that the tariff situations that occur, the regulatory adjustments that occur in life sciences, et cetera, can happen at a moment's notice. I would say, just drawing on what I previously stated about the maturity of concurrency and the potency of that approach versus the cascaded planning that people suffer today, I would say that it's the recognition of the importance of time. I've made statements like this before where, the last 20 years, manufacturers have been attempting to optimize their things and not optimize time.
To me, I think time is the new oil. It's incredibly valuable. The speed to detect is directly related to the speed you can correct. I'd say there's definitely a maturity related to that. People are open to looking at the problem in a very different way.
Okay. Thank you. For Richard, just in regards to increase in backlog, can you clarify if there was a customer that was a disproportionate driver of that increase or if the increase was relatively evenly spread across the number of customers or if the average win was in line with the historical trends that you've seen?
Well, yes. Just on the SaaS side, again, it was the past quarter, $48 million in booking. That was across a number of customers, a combination of new and quite frankly, expansion activities. As we noted, we do not have customer concentration situations. Deals will vary in size. Sometimes it's multimillion USD a year, sometimes it's several hundred thousand USD a year. Individual deals will continue to vary, but we're pleased to report that backlog was a number of transactions across all our key geographies and verticals.
Great. Thanks. Take my questions.
Your next question comes from the line of Paul Steep with Scotia Capital. Go ahead, please. Your line is open.
Great. Thanks. Could you chat a little bit more about your hiring trends, maybe where the number of staff is today, and then just what that trajectory looks like into 2019 and 2020, and then finally, where we think about you adding those staff and maybe some of the opportunities that you're seeing in terms of getting people to join Kinaxis as you continue to gain scale? Thanks.
Thank you, Paul. We are very pleased with the team and both our 30-year employees as well as our 30-day employees, the way we've been able to continue to expand. In fact, I think it was John noted about a year ago that we had a milestone whereby the number of new roles created in the company were actually in aggregate higher outside of Canada than within Canada. That's primarily because of the sales, the support, and other professional services groups that we've hired. We continue to attract very strong candidates. They welcome the ability to contribute to the concurrent planning model. We currently are with a very strong co-op program, about 700 individuals. We expect to continue to grow that, primarily in Europe and Asia, as well as throughout to continue to expand in the States.
The exact level, though, Paul, again, is part of that mid and longer-term planning that the management team is currently working through. That type of information will be disclosed, again, when we provide our full-year results.
Great. One final follow-up one. John, could you talk maybe about how you and Paul are thinking about the sales structure in terms of not only driving a number of the new wins that you've secured, but maybe the existing clients and how we should think about the expansion in those accounts, not only in terms of number of seats, but maybe in terms of module adoption as well. Thanks.
Yeah, that's a great question. Obviously, we've been scaling up pretty dramatically over the last 18 months, the entire sales engine. With that, by the way, is a commensurate scale-up of marketing. Both functions have actually been growing at quite a healthy pace. Obviously, that's fueling a lot of great activity, and as I said, some degree of momentum in Asia and Europe as a result. As it relates to what I would say the separation between selling net new and expanding into the base. That is an area that Paul and I have been working on as we achieve scale in sales. It starts to make sense to have dedicated focus on the base itself and ensuring a very strong relationship continues well past the initial deal.
We are looking at sales structure, if you will, as well as marketing support, by looking at it with that kind of a separation, looking at it from a net new account versus the base itself. Obviously, we have leadership in every geography. We have sales leadership in Asia, sales leadership in Europe, and specific sales leadership in North America. That's the way we're looking at it as we scale up.
Thank you.
Your next question comes from the line of Gus Papageorgiou from PI Financial. Go ahead, please. Your line is open.
Hi. Thanks, and congrats on a nice quarter. Just on the customer concentration, I wonder if you can give us an update on your customer count. You used to say you have around 100 customers. I'm wondering if you could give us a sense of year-over-year, what has the customer count done? On the customer concentrations, you're saying your top 10 is 33% of revenue. I'm wondering, if you remove professional services, which I assume is heavily biased towards new customers, look at revenue ex-professional services, could you give us a sense of what the top 10 would account for in terms of revenue? Not a specific number, just how much higher or lower than the 33%?
Gus, thanks for the question. Yes, the model is, and what we're following under IFRS is the disclosure of the total revenue. Total revenue, as you've rightly noted, consists of a number of elements. That would be professional services and, say, the SaaS subscription fee. Our engagement with that customer in year 1, if we're the prime on the professional services rather than one of our partners, will actually probably be higher in year 1 than in year 2. In some instances, they may come into the top 10 because of that and then move out of the top 10 in the second year. You do have that variance. We are not disclosing the sub-components of that, and so I can't really address your part 2 question, other than just comment on that general trend.
We have seen that percentage continue to decrease as we've pulled on and secured the confidence of new customers. Directionally, yes, our customer count is increasing, and we can appreciate the value of sub-metrics. With the current customer level, it's difficult to really regress the future trends. We're not going to be providing guidance into the actual customer count other than to say that it continues to grow, and we're very pleased with the names of new customers, as well as our long-term experience with existing customers.
Okay. Would it be fair to say, though, if you remove professional services, that your top 10 customers would account for less than 33% of revenue?
Well, this year, one of the key drivers is subscription term license revenue. If you were to remove that, if that was in the old model, I think you would see a little bit of a different trend. The reality is, that's what it is. That is not a customer concentration. It's not a customer concentration in any geography. It's not a customer concentration in any vertical. I think the main takeaway that investors should take is that this is a very robust and growing customer base.
Great. Thank you.
Your next question comes from the line of Suthan Sukumar from Eight Capital. Go ahead, please. Your line is open.
Good morning, guys. Congrats on a strong quarter. Just want to touch on the backlog. What was the makeup of the backlog increase quarter-over-quarter by vertical, and how does that compare to what you're seeing in the pipeline today in terms of strength?
Thanks for the kind comments on the quarter, and thank you for noticing the growth in the backlog. The bookings, again, total in aggregate were $80 million, $48 million on SaaS. What you can see is the growth in overall backlog. In fact, it's stronger than would appear if you just
Simply looked at the June 30th to September 30th growth, because obviously June 30th would've had Q3 numbers in it, which have now been clearly recognized. Our focus has always been on the incremental growth in the go-forward periods. We're not, at this juncture, contemplating breaking that out into a geo basis. We are pleased to see the increased growth, though, and as you will read as well, in Europe and Asia. That continues to be a very strong growth. As to verticals, the growth in automotive and CPG is very strong. Right now, it's high tech and life sciences that are still the two strongest verticals. Again, there's not a concentration there because individually, they're both sort of in that 30% range. Very good dynamics overall, very pleased with the broad distribution.
I think it's just really reinforcing the message that RapidResponse is so applicable across the supply chain, and this concurrent planning, the same customer code can be used in different geographies, different verticals.
Great. No, thank you. That's helpful. That's just one quick one from me on just the RapidResponse platform. What new markets or verticals do you see the biggest opportunity in? Given that, obviously, partners will be leading the charge here, how much of a role do you guys expect to play from a, I guess, a sales and a support perspective?
Well, I'm going to let John comment further on the platform initiatives and the broader base. Again, it's great that Unilever, P&G are using the same RapidResponse code as Ford or Merck or any other, for Flex or any of our other great customers. When we do go into a new vertical, it has generally been with the support of a marquee customer. To develop those unique analytics, and with a platform, it's going to be increasingly easier for customers as well as our partners to take those unique embedded analytics, and it'll really extend the use of RapidResponse as we move forward. John?
Yeah, certainly. When I think about the platform, I think the greatest way to describe it is to think about what happened when salesforce.com announced Force.com, which is a platform in which you can build extensions to Salesforce. It opened up the market to extend Salesforce into applications and new areas. I liken what we're doing, it's not like we invented the model. It's a great model, and, as Richard said already, RapidResponse is being used to support six different verticals, plus a few, because there's always some that we're experimenting with we haven't yet announced. As it relates to extending RapidResponse into new market verticals, this platform initiative will be key. This is sort of in combination and in concert with our partners. We're not in every vertical that matters, but our partners are.
With RapidResponse as a platform at their disposal, my opinion is, at least my thesis, is that it will accelerate our entry into new market verticals over time. That obviously is very exciting for our partners, very exciting for us. For existing customers, especially the larger ones that have unique IP in their business process, RapidResponse as a platform will allow us to codify that unique IP safely in a SaaS environment, safe with upgrades. Again, the value to our customers is obvious, and for our partners, it gives them the opportunity to develop that unique IP for specific customers in a very safe SaaS manner. We've been at this a long time. RapidResponse has always operated as a platform. Our latest announcement at Kinexions was around the ability to extend the brain function, if you will, of RapidResponse, with pluggable analytics.
Essentially, that is what is going to fuel more and more partner engagement as we go forward.
With that concludes today's Q&A portion of the call. I'd like to turn the call back over to Mr. Wadsworth for some closing remarks.
Thank you. I understand some of you may have more questions yet. Please reach out to me with those, and I'll get them answered for you. We appreciate your questions on the call. They're good as always, and your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we report our Q4 results. Goodbye for now.
This concludes today's conference call. We thank you for your participation. You may now disconnect.