Good morning, ladies and gentlemen. Welcome to the Access Inc. This fiscal 2019
At this time, all participants are in a listen only mode. Did you follow-up with questions? I'd like to remind everyone this call is being recorded today, Friday, August 2, 2019. I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis. Please go ahead, Mr.
Wadsworth.
Thanks, operator. Good morning, and welcome to the Kinaxis earnings call. Today, we'll be discussing our 2nd quarter results which we issued after close of markets yesterday. With me on the call are John's card, 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, August 2, 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 Conaxis' SEDAR filings. During this call, we will discuss IFRS results and non IFRS financial measures. A reconciliation between IFRS results and non IFRS financial measures is available in our earnings press release and in our MD and A, both of which can be found in the Investor Relations section of our website, can dotcom 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 IR 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 pleased to report 2nd quarter results that continue to support our strong growth outlook for the year. On a comparative basis, during Q2, we grew SaaS revenue by 18 percent to 28,300,000 We grew total revenue by We closed a number of large marquee customers This new business has driven a record setting backlog for Kinaxis and continues to fuel my confidence in hitting our full year growth outlook. We are thrilled to have earned the trust and confidence of companies in every geographic region during the quarter including recently announced Johnson Electric And Yamaha.
Today, I'm happy to share that Guardian Glass was also included in the group that the importance of digital supply chain transformation in the market continues to gain momentum and that Kinaxis is uniquely positioned to address this need using We have teamed with Global Consulting And Digital Services leader Infosys, who operates in 45 countries and have a strong partners, including Accenture, Deloitte, and Genpact. Together, our partners help scale our implementation capabilities support our growth and continue to be key influencers in helping us win new business. As in previous quarters partners continue to influence the majority of our In addition to having growing customers recognize our differentiated value, we are pleased to see that Gardener continues to distinguish Kinaxis as a leader in their latest report on sales and operations planning systems of differentiation. We have been named a leader by Gardner in 6 consecutive reports related to supply chain planning, which is a testament to the distinctive value we provide to the market. In short, our successes in and our ability to delight our remains very strong.
As always, With that, I'll turn the call over to Richard for an overview of the financials for the quarter.
Thank you, John and good morning. As a reminder, unless otherwise noted, all figures reported on today's call are in On a comparative basis, total revenue in driven primarily by SaaS revenue, which grew 18 percent to $28,300,000. This growth was due to contracts secured with new customers, as well as the expansion of which was consistent with As we've previously noted, given these customer renewal cycles, subscription term license revenue will vary quarter to quarter. Professional services revenue was 13% lower compared to 2018 at $8,400,000. Professional service revenue varies quarterly based upon a number of factors, including the number, size and timing of customer projects as well as the level of deployment engagements supported by our partners.
Overall we remain very pleased with the diversity of our revenue base. For the year to date, our 10 largest customers accounted for 37% of total revenues with no individual customer accounting for greater than 10% of total revenues. Geographically, for the year to date, we are seeing an increased percentage of our revenue coming from both Europe and Asia, which is consistent with our recent investment in these regions. Gross profit grew 11 percent to $29,400,000 or 69% of revenue compared to 68% in Q2 2018. This increase resulted from growth in SaaS revenue partially offset by an increase and higher depreciation costs associated with to $4,000,000 or $0.15 per diluted share compared to $0.16 per share in Q2 2018.
This change reflects the resulting higher operating costs given our accelerated level of investments in sales product and global operations. These investments were primarily additional headcount and higher expenses related to sales commission and marketing activity. $1,000,000 or 27 percent of revenue compared to 28% in the same quarter of 2018. The increase in adjusted EBITDA is due to an increase in excluding stock based compensation and depreciation. Cash from operating activities decreased 4% to 8,800,000 largely due to recognition of deferred revenue balances and payment of income taxes during the quarter.
For the 6 months ended June 30, 2019, cash, cash equivalents and short term investments grew by $19,400,000 to 200,900,000 Our minimum contracted revenue backlog as of June 30, 2019 was a record $247,300,000 as detailed in Note 12 to our financials. This amount includes future contracted SAS, maintenance support and subscription term license revenue. The vast majority of this backlog was the $229,300,000 related to future SAS revenue. The total backlog amount will be recognized over a number of periods as follows: $64,300,000 will be recognized in the second half of twenty nineteen, of which $57,700,000 relates to SAS. Backlog for fiscal 2020 is $87,900,000 of which $81,700,000 relates to SaaS business.
And the remaining $95,000,000 will be recognized in fiscal 2020 and thereafter, of which $89,900,000 relates to SAS. I'm pleased to of $55,600,000 totals approximately $113,000,000 and forms the basis for continued confidence in our 2019 SaaS revenue guidance of 20% to 22% growth. Total bookings in Q2 were $46,800,000, of which SaaS bookings were $45,000,000. We are very pleased with this performance. As you know, bookings will remain variable between periods as they depend upon the timing of customer decisions.
Our backlog metric is based upon the minimum revenue of the signing of the customer contract. Trade receivables and deferred revenue balances are accounting cycle metrics which are driven by The issuance of customer invoices, especially for late quarter deals, may not be fully reflected in trade receivable and deferred revenue balances as at the end of the quarter. This was the case in the second quarter. Regarding our current year investment plans, in particular our accelerated investment in sales and marketing, we continue to expect that sales and marketing will be in the 24% to 26% range of total revenue. With our product team expansion, and new product innovation investments, we continue to expect that research and development will be in the range of 18% to 20% of total revenue.
Based on these results and our business outlook, we are pleased to reaffirm our guidance for fiscal 2019 which includes total revenue of $183,000,000 SaaS revenue growth of 20 percent to 22 percent over the 2018 amount of $97,200,000 Subscription term license revenue of $22,000,000 to $24,000,000 for the full year, approximately 40% to 45% of that full year amount will be recognized in Q4 full year adjusted EBITDA margin of 25% to 27% of revenue and our aggressive hiring plans for both sales and marketing research and development remain underway. Capital expenditures of $11,000,000 to $13,000,000 range, the majority of which were invested in Q2 on plan data center expansion and R and D investments. Thank you for your continued support of Kinaxis. And with that, I turn the call back over to John.
Thank you, Richard. In summary, we are pleased with our progress in the first half of the year and believe we are well very well positioned. To deliver on our full year targets. I'm encouraged by ongoing sales activity. The growth of our stable of top tier partners and their level of engagement, 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 as always for taking time to join us on the call today. With that, I'll turn the line over to the operator for Q
Our first question comes from the line of Richard Tse of National Bank. Your line is open.
Yes, thank you. It's great to see the backlog up. I'm just curious as you're bidding on these deals, have you seen any change in the macro environment? Certainly, that backdrop has been a bit volatile of late kind of curious to see what your thoughts are on that?
Yes. Richard, we're definitely seeing I'd say a more focus on digital transformation and more focus on looking at supply chain improvements. And we're seeing that in every theater, that we focus on. And frankly, in every vertical, when we look at our current pipeline, it remains very strong. And very evenly balanced across the six verticals that we're in.
So we're definitely seeing the market heating up. Okay.
And in regards to that, the pipeline, is there any way you can maybe help us sort of quantify the coverage of that pipeline perhaps what it is day versus what it was relative to last year. Just trying to, I guess, get some comfort around the reacceleration here, not with any of your comments on the backlog?
Yes. Well, certainly what I If I compare our pipeline today versus 12 months ago, it is much more evenly distributed between North America Asia and Europe. And a year ago, I might have seen Europe as, slightly depressed. In comparison. And part of that was our focus.
If you recall a year ago, we we made a very definitive decision to invest in Europe, as a primary geography. And And the result has been a strengthening of the pipeline. I would say, today, we're seeing more strength in aerospace and defense than we were, for example, a year ago. These are, what I call macro level differences And overall, the pipeline remains as strong today as it was certainly as it was a quarter ago.
Okay. And just one last one for me. I think you said the majority of your wins are influenced by partners. Could you maybe give us a sense of what that would compare to, again, relative to last year? And I guess related How many partners do you think you need to sort of be at the point where you can sort of just mind that base without having to add more?
That's it. Thank you.
Great question. And so, you know, when I compare partner influence today versus a year ago, it's higher. It has continuously every quarter seems to be gaining some momentum there, which is very healthy. Our opinion about partnership is these aren't what I would call marketing relationships. The partners that we sign are ones that have a very specific desire to grow a practice around rapid response and a practice around concurrent planning.
And so these are very serious engagements for us. In many cases, these are partners that have existing customers or prospects that are looking at supply chain transformation. And so this is this is what's fueling the relationships that we form. I don't know that I would say there's there's some specific number. We always have partners that I would call in the incubation period where we're talking to them, there's a relationship brewing.
When we make an announcement such as Infosys, It's because we've signed an agreement. It's not just a verbal agreement. We've signed an agreement with them and there's a serious activity and serious collaboration occurring between us. So I I can't honestly say that we're at the pinnacle point and we're no longer accepting partnerships. That is not the case, because there are always interesting not only large, but I'd say interesting boutique firms that have, very specific areas of expertise.
And those were always in us today.
That's great. Thank you.
Thank you.
And your next question comes from the line of Thanos Polos of BMO Capital Markets. Your line is open.
Hi, good morning. John, you're achieving a high 20% EBITDA margin, which on the one hand, it's obviously fantastic, but on the other hand, makes me wonder if you're reinvesting enough back into the business given the huge market opportunity ahead of you. And I realize it might be too early to talk about 2020 and beyond, but maybe in more general terms, how are you thinking about the right level of spending and the careful balance between investment and margins? Yeah.
So we're always going to be, we're always going to be focused on growth first. Always. And as I stated last in the last quarter, we are accelerating our spend in sales and marketing and on the products team, quite frankly. And so we continue we continue to, to focus on that. We have, we have open headcount in every theater.
And our expectations, as Richard pointed out on the sales and marketing, our expectation is that we'll hit that level of investment of 24% to 26%.
Okay. And, John, given that some clients are looking at broader transformation initiatives, as you alluded to, that are probably extending beyond just the planning piece I imagine deals are getting more complex. And is that leading to a change in sales cycles at all?
We're not seeing a change in sales cycles. Frankly, it is one of those measures I look at, somewhat as a leading indicator to get a sense for the market maturity, but these are quite important decisions. When someone is looking at a supply chain transformation or a digital transformation. They're making a decision that'll affect the next 20 years or longer. And so we're still sort of seeing that, an average of kind of an 18 month window as they go through interest and intrigue phase, the trust and confidence phase, and ultimately, the deployment selection and deployment phase.
So we're not necessarily seeing a shift. We are seeing, I'd say some degree of more breadth in some of the deployments. The notion of concurrency expanding beyond beyond sort of demand and scheduling and moving more into capacity and production scheduling and things of that nature. So we continue to see a broader footprint, not only with existing prospects, but also with our current customers and current deployments.
Great. And then finally, how do you feel about your deployment capacity? I mean, obviously, you brought on a lot of new partners, but in terms of where you are with respect to onboarding them, relative to the geographies where you're closing some new deals, has that deployment capacity been able to scale, to support the growth, or has there been any bottlenecks that you need to address
Yes, there's it's a great question. And some of this I would say is, region specific. In Asia Pacific, we are hyper focused on growing that particular area. We're seeing a lot of activity and So we're very focused on maturing and growing the talent pool available for deployments as it relates to partners. Now we have hundreds of people with certifications now outside of Connect There are hundreds of people that have gone through certifications.
There's certification, the certifications that we have that we have given out now are measured at well over 1000. I don't know the exact number panned here, but I know there are hundreds of there's hundreds of consultants out there already, across our customer base. And there's never a there's never a month that we're not doing, training. All the training is done digitally. Certifications are done digitally.
So we've we've prepared for, for scale. And if anything, it's, it's, region specific, as deals crop up, in certain theaters, making sure that we have enough coverage from the partner ecosystem to do the deployments We're also involved in our own, in our own deployments. There are occasions where we have customers who prefer to use us as prime and certainly we have projects today where we're the prime deployment agent and we'll continue to grow professional services to make sure that our customers are receiving the service levels that they're looking for.
And our next question comes from the line of Robert Young of Canaccord Genuity.
In the comments earlier on the funnel, I think you said it was as strong today as it was a quarter ago. Of course, this quarter, you converted a bunch of the funnel into backlog. So were you making that comment specifically to say that there's activity in the funnel in the near term that could continue this this kind of growth in backlog we've seen?
Well, we're continuously monitoring what I would call unsolicited inbound leads, which continues to be strong. We're involved in a lot of events in supporting a lot of events today. And we're also building the AA team and building the sales, our sales capacity. And those have, a direct impact on the number of prospects that we have to work. We still have well over 2000 in our TAM And we haven't tapped the mid market, for example, yet.
So we continue to look at at opportunities to grow the TAM as we grow the sales team. And so I would say I'm very happy with the I'm very happy with the pipeline today. I'm happy with the diversity in geography and the spread across all of the market verticals. It's just plain very healthy.
Okay. And I think a lot of people are trying to understand how the timing of the investment in the channel and the expansion in sales, how that's going to benefit the financials. And so if I think about the strategy, you added a channel over the last several years to take pressure off of Pro Services to get in front of more deals, to expand your capacity. And then now you've expanded sales to improve Europe specifically, but in to convert more of that activity that you're seeing out of the channel. And then so what's the next step?
Like, when do some of the activity, the sales force, when does that start to fall into, actionable deals? Is there any kind of timing you can help walk investors?
Yes. Obviously, when we hire, an A. E, and I think about A. E. Coverage right?
I look at the pipeline. I look at the, I look at the maturity of the pipeline and where they are in the funnel and, and, we've been at this a very, very long time. So we feel like we have some science behind how, what I would call deal flow and velocity, deal velocity. So when we we stated last quarter that we were investing, accelerating our investment in sales and marketing ahead of even where we are, where we were on January 1. Okay.
So we were not far end of the year and we realized that we were seeing, what I would call forward momentum in the market and making those investments in sales and marketing. Now, again, I go back to what is the average deal cycle? And we still see it at the 18 month, kind of a range. Some are a little sooner and some I mean, some are measured in years, quite frankly. This summer just staggeringly long, but, but, you know, some are fast.
And, But in any case, the reason for us making those accelerated investments is, noted measurement of momentum that causes us to say we if we don't make these investments now, we'll have coverage problem 18 months from now. Think of it that way. So we're making the investments now knowing, the need for coverage. And we continue to monitor those a call forward looking measurements, as it relates to making our and placing our investments.
Okay. That's helpful. And you said that you had activity in every major theater, every major geo. I assume that's the same. Is that Should I assume that's like North America, Europe, and Asia, or would there be something more granular?
And then it seems as though that North America seems to be lagging a little bit now. It may be that Europe and Asia have been accelerating it. So North America just doesn't look as good, but Is there investment in these happen in North America and the sales force? And then I'll pass the line.
Yes. So Rob, we're making investments in every theater. North America, Europe, and Asia in sales. And, as you can appreciate, not every customer would allow us to make a selection announcement. We're obviously pleased to have Johnston Electric, pleased to have Yamaha and today announcing Guardian Glass And there's others.
And some will allow us to make a, an announcement. And as press releases are approved. We ship them out. The moment press release is approved, you'll hear about it. And in some cases, We have customers who won't do a press release until, they're live.
And in some cases, they won't do a press release at all, period. They don't want any of their competitors to know that they are transforming their supply chain with Kinaxis. So just to answer your question, every theater is active. Every theater is seeing a very healthy pipeline, and every theater we're investing in sales and marketing. Okay.
Thank
you.
And your next question comes from the line of Paul Treiber of RBC Capital Markets. Please go ahead. Your line is open.
Thanks very much and good morning. Just wanted to focus on product innovation for a second and the impact that it's having on your customer wins pipeline. In the past, a couple of announcements you made is on the machine learning, like self healing supply chain and then the next generation platform, that allows apps on top of rapid response. Are you seeing is that having an impact on your on your funnel? Are you seeing customers interested specifically in those new innovations?
Absolutely. We're getting a lot of interest in these, in these areas. And as it relates to our platform initiative, The ability to extend rapid response without the need of Can access R and D provides our customers the ability to extend rapid response with unique what they would consider unique to their business capabilities. More importantly, it'll allow partners to engage in producing extensions to rapid response for their customer. So it's we're heavily engaged in that area.
We're certainly, and I made this point in the last earnings call as well, and we're making significant investments around the CPG space. And, every time we enter a new market, we have exactly one product and that one product serves all markets. And it's a great leverage point. As we expand into CPG, we continue to make investments in R&D as it relates to that specific, market segment. They have, specific analytics needs, specific math needs, and we continue to make investments there.
And certainly, those investments are paying off in a strengthening pipeline.
In regards to the platform and the ability for customers and partners to build applications. Are you at the point now where the customers and partners are building the applications and investing in the capabilities to do that?
Well, it's early days. We have not made any formal announcements on the platform product and the platform readiness It is at a mature state. Today, we are engaged with partners in that initiative. It's not just a lab exercise today. We have existing partners that are engaged working alongside R&D.
And and I'm anticipating some rather, you know, I'm I'm anticipating some rather exciting news by at least the Connections conference, which I know you may be attending. So, stay tuned.
Okay. We'll wait for that. Just one last one. Just trying to bridge between backlog and then guidance specifically on SaaS. If you take a look at the first half revenue combined with the backlog, it looks like you only need about $4,000,000 in new bookings for the year to reach the midpoint of your SaaS guidance.
What's some of the moving parts that we should think about as you progress through the year?
Well, Paul, thank you for, for noticing that. And that really is one of the key strengths of our business is that visibility and the ongoing base of subscription revenue. But keep in mind that while we will close a 3 year deal, we look at the timing that that revenue is in the current year. So you're right. We are in an extremely strong position and it's not unusual though to have deals closed later in the quarter.
And so therefore, we're factoring that into, into our revenue guidance. But, and by the way, that backlog is just the minimum committed backlog. So part of the remaining 4% or so to hit the midpoint of our guidance is not only new name customers and expansions, but it's also those customers that are scheduled for renewal in the remainder of the year.
Great. Thank you. That's helpful.
And our next question comes from the line of Stephanie Price of CIBC. Your line is open.
Good morning. I'm hoping you can talk a little bit more about the reinvestments in 2019 and where we are in the process and how we should think about investments kind of scaling in the back half of the year?
Well, thank you, Stephanie. So the focus is, 1st on sales. And the sales and marketing. And as we noted earlier, we are in the process of accelerating beyond our original growth plans. And so those, primarily are an increase in not only the account executive is selling, representative, but then also the team that supports the AE.
And so these are industry principal people that under Dan, the specific verticals that we're in, as well as increased technical people. So that whole team is scaling in tandem. We've also, with the recruitment of Andrew and team, we are accelerating our product innovation And so we have made significant new hires on the product team and in fact, are accelerating and bringing in some of the planned growth from 2020 and product into 2019. So those are the two key areas. We made significant investments in the data center infrastructure, allow year in the early part of this year.
And so we're very comfortable with that capacity. And, but we will be also expanding our global support team into the theaters further. So it's really investments across the board but primarily focused on the selling and on the product side of things. Now one thing that's very exciting is that, and we just, we just announced that with the growth in particular in our Ottawa headquarters, We have come to an agreement on a new facility. And so we will be moving into that facility in 2021.
So we're in the early stages. That's not going to have an impact on the the material impact on the financials this year. However, it has demonstrated our commitment to Ottawa as well as the rest of the other theatres and is creating quite a bit of excitement in the community.
Great. Thank you very much. And then in terms of the Infosys partnership, wonder if you could expand on that a bit more about the regions and verticals that the partnership is going to be initially focused on?
Yes. So there, I mean, this is Infosys is at a tremendously mature firm as it relates to supply chain. And as I mentioned, they operate in 45 countries. And frankly, they operate in every market segment that we do. So there'll be no restriction, in terms of what theater we will work with them on, and there'll be no striction whatsoever on which market vertical they wish to engage and they're quite strong in every one of them.
Perfect. Thank you very much.
Thank you.
And our next question comes from the line of Paul Steep with Scotia. Your line is open.
Great. Could you talk a little bit about, you talked about upsell into existing accounts, maybe talk about what you've seen in terms of one module adopt and further uptake in those clients? And then maybe secondly, the trend in net revenue retention, how that's trending in terms of both, not just expansion of the client, but also maybe price uptake? Thanks.
Sure, Paul. Thanks for the question. So, so let me, I'll start with the net revenue retention again, it remains over 100%. That's one of the depths that we have and the stickiness, if you will. With our customers.
And yes, it is generally the case that there is an increase on on renewals in terms of the pricing. But the primary growth vectors, if you will, for expansion. And it's still about a third of our incremental revenue comes from customer expansions. Is just a deeper penetration within the customer. So that includes everything from additional users or seats, if you will, to, if you'll recall, one of the key elements of support that we provide is the ability to model site.
So manufacturing, sorry, distribution center. So, you know, customers securing additional sites, as well as on the application. So we're fortunate that we have a number of those drivers for the expansion. So, absolutely, it's a focus. In fact, we now have dedicated salespeople just on, focused on the customer base.
And we expect that stickiness and the expansion to continue.
And our next question comes from the line of Daniel Chan of TD Securities. Your line is open.
Hi, good morning guys. I just wanted to expand on Paul's question a little bit on the, on the guidance here. Richard was hoping if you can give us a little bit of color of how you build it up, obviously, with the number of marquee closures that you had in the quarter, guidance remains the same. So when should we expect some of these announcements in these marquee or these big deal announcements to kind of make you drive some of that guidance up higher for the
year? Well, the as we as I noted in my prepared comments. And I think in one of the sort of indirectly one of the questions earlier is that, Dan, it's not uncommon to see deals later in the quarter, which really means that their contribution, even announced deals, it was not significant in the quarter. And therefore, be seen in the out quarters. But this is a trend that continues.
So for instance, Q1 closure deals really started tracking revenue, which often would start tracking Q2 and so on. I think if you go back to the mechanics, so one of the things we've been known for ever since as a public being a public company is that when we do provide subscription guidance, we have in the order of 80% of that in backlog at beginning of the year. So in other words, in the 4 12 months. And then the 3 elements to close the remaining 20 percent of the guidance, our new name wins, expansions and those renewals. So in our minds, it's very logical that as you move through the year, you're going to see a tightening of that percentage, you know, moving into the, into the 90% range, being at, you know, essentially sort of 96% or so of the, of the full year number mid year, is is the strong basis for our confidence, I'll say.
But, you know, we know that deals can be lumpy. And so therefore, we believe that this is the appropriate guidance at this juncture. And of course, we will revisit it at our next conference call.
Okay. Thank you. That's helpful. I also want to drive in on to your margin guidance. The first half margins have been really strong.
Are there a number of, investments that you expect to ramp significantly in the second half? If my math is correct, 2nd half EBITDA margins would have to come in at around 21% for you to get to the midpoint of your margin guidance. And then we haven't seen that kind of level H2 since you've been a public company. So, are you expecting outsized investments in the second half coming in? To drive that market size to be seen?
Yes, John, there's a few factors there. So, yes, sort of, as a public company, but remember, it was 2018 that we were required to adopt IFRS 15, which changes the timing of the revenue for the customer hosted arrangements. That is primarily driven by the subscription term license. And we've noted that the subscription term license will be considerably stronger in Q4. In fact, that's the 40% to 45% of that total $20,000,000 to $24,000,000 number that we guided to will be in in Q4.
As such, mathematically now when you've got the when you have the first two quarters and you've heard this guidance on the fourth quarter, you will see that our expectation for subscription term license in Q3 is, at a lower level. And as such, that is one of the key drivers for, EBITDA performance, gross profit as well as EBITDA performance. So It is that is a factor that you're going to see a lower EBITDA performance in Q3. But the other key driver is obviously our investment and our spend. And we've talked about the increases in across the board, but in particular in sales and marketing and product.
And so these are actually well underway and given that they're heavily focused on people, are going to be sustained through the next two quarters. So yes, we are signaling that we are accelerating our, we'll continue to accelerate our investment in sales and marketing and you'll see that uptick in the next two quarters. Great.
Thank you.
And our next question comes from the line of Deepak Kaushal of GMP Securities. Your line is open.
Hey guys, good morning. Thanks for taking my questions. John, Richard, I wanted to, just go back to a question, from Rob earlier on revenue by geography. When I look at on the U. S.
Market in particular, for the last 3 years, it seems like you guys have been stuck for lack of a better word between $100,000,000 $120,000,000 in revenue. What do you, what does it take to unstuck this market? Like, does that require a refocus like you did in Europe or sales and marketing spend above 25 percent of revenue? How should we think about that?
Yes. And I can appreciate, you know, from the information that you have that you you may come to that conclusion, but that's not really the characterization lease certainly that we would see because first off, this is total revenue. So it's not just subscription revenue, it's professional services revenue. The second element is, at least prior to 2018, it included the ratable level for the subscription term license. In fact, you may recall that on our adoption to IFRS, there was approximately $20,000,000 of revenue related to subscription revenue that we had to retroactively put into our books.
And so that is revenue that would have, you would have seen in the, in the future periods, And given our legacy, that was significantly weighted to, to the North American market. So it's a combination of factors, but that professional services revenue is down. It is down for the, for the North American customers, in particular, given the strength of our partner network and in our encouragement of the partners to, to pick that up. So, but We are also increasing our investment in North America and the sales team from a relative basis that it was significantly higher given in Europe and you could see the results of that already and in Asia.
Okay. So, thank you for that. That's helpful. So if we think about a 20% or plus overall corporate growth rate, going forward, is that going to be equally balanced between North America, Europe, and Asia PAC, or do you expect a more outsized contribution from from international markets?
Well, we do believe it's going to be across all theaters, but given from a mathematical base, given the current level of Europe and Asia, one would expect a higher relative contribution in terms of percentage there. As John noted and we've discussed before, our long term goal is to see essentially equal contributions across the, the 3 core theatres. And so, yes, for the, at least for the midterm, I would anticipate that we will see a higher level of sustained growth in Europe and Asia.
Got it. Thanks, Richard. And then for John, more of a actual question. We're seeing some fallout in the supply chain from the 7 37 MAX grounding with Boeing. Just conceptually, how does an event like this impact your business?
Is it business as usual? If they're your existing customers, does it raise a crop of a bunch of new customers or new product opportunities. How does it impact your business? How are you taking advantage of this to expand your opportunities?
Frankly, our business is always impacted by volatility in the marketplace, whether, it's supply shortage or demand spikes or, tariff wars, all of these types of things lead to either margin erosion or revenue erosion in both affect our customers. They care deeply about both of those sides of the equation. So So, I would say, as a general statement, I can't say that the max 8 or tariffs or any of those things. We don't necessarily track, the pipeline growth associated with specific events like that. I can't say that we are seeing a general, uptick in market interest in digital transformation.
That, I would say, is undeniable based on the measurements that we have in place monitoring the market and monitoring the pipeline. So I guess that's the best way I can answer that question. I don't know that there is a specific correlation between a singular event like a max 8 or a tariff change in tariffs, with the growth of the pipeline.
Okay. Okay. That's helpful. Thank you for taking my questions. I'll pass the line.
Thanks, Yukar.
And our
next question comes from the line of Kevin Krishnamati of Paradigm Capital. Your line is open. Please go ahead.
Hey there. Good morning. Kind of another question again on the sales cycle. Now again, I can appreciate the complexity of these transformations in 18 months window is still there. But I'm just wondering what more on the front end you can talk about maybe the proof of concept stage are as you're getting more mature, as you're bringing more partners on, are you seeing any change in how quickly you're able to do the POC the initial conversation with the customer.
How's that going?
Yes, I'd say we're not I haven't seen sort of a remarkable acceleration in the sales cycle. As you as you can appreciate, our customers tend to be very large global complex, manufacturers. And so their environments are equally large, complex and global. And so running through proof of concepts often involves testing testing environments and testing concurrency across different geographies. It's not just testing one product line in one geography often we'll have prospects wanting us to ensure that, our philosophy will span their entire, ecosystem.
So I'm not necessarily seeing a, a, an acceleration in that process. What we are seeing is more interest in concurrency. I mean, there was a time people didn't believe it was possible. Frankly. And now we are seeing a lot more interest in the merits of that technique versus what I would call the legacy technique, where you study 1 supply chain function at time.
In our world, we deal with concurrency, right at the base and we're, we're pioneers in that field and that's always been our philosophy. So So if anything, we're seeing a lot more interested in this technique and our prospects are asking us to, to, expose them to it and to educate them on what life is like for them once they transform and move into that into that philosophy.
Okay, great. Thanks for that, John. 2nd, we're moving over to partners. Can you just remind us, or just confirm where you are with partner led engagements more on the initiation. Is it now mainly the case that a new customer, potential new customer's first exposure to rapid responses from a partner they're already in engaged with and then partners suggesting that, or are there still cases where customers coming to you?
And then depending on the vertical or complexity. I know you mentioned, your desire for more boutique type of shops where you might them a 2 appropriate partner. Just how do we think about the sort of initiation stage of these eventual partnerships?
Yes, the answer is quite frankly both. There are definitely cases where, we'll have a customer engaged with us, either it's unsolicited inbound interest or a meeting at a large supply chain event, where we initiate the engagement, but rest assured, one of the first questions we ask is, who do you work with? From an SII partner perspective. And so it's quite common for us to engage collaboratively with our partners as we go through sales cycle. And frankly, there are cases where, we'll sign a partner and they already have engagements.
They have interest existing customer of theirs and they are pulling us in. I'd say just about uniformly, the the deal, the progression of a sales cycle happens collaboratively. And that is pretty uniform.
Okay, great. And then just last one again on partners. Just if you can remind us how we should think about pricing like like I completely understand that on pricing that you're very firm on that given the great value that you provide. But do you see any instance where, say, a partner might, you know, in a way to sort of eat some of the costs as a way to win that end customer as part of a much bigger supply chain. I mean, I'm just trying to think about how how you think about pricing on a customer's point of view with a partner?
It's not a model whereby it's a it's a it's a it's sell them a resell. It's a partner influence deal. And And in most instances, the partners are really focused on the, on the long term professional services level of engagement, they may be the ones already leading that digital transformation. And so see us as the key factor in affecting that change. And in some cases, partners are prohibited, for instance, the accounting related from taking any type of contingency fee.
So it's not really a factor. And quite frankly, the our pricing is really driven more on the ROI. And so what we work with the partners is is to demonstrate that, that return on investment. And so it hasn't really, we haven't really seen an erosion from that perspective. So we can be extremely competitive and drive that ROI.
And so it's not a it's not something whereby we, we just sell on a resell it. It's done, but it's not done on a large scale basis.
Thank you. And our next question comes from the line of Sudan Sukumar, Gate Capital. Please go ahead. Your line is open.
Good morning, guys. You've been quite active in adding new channel partners. Are some of these current partnerships already positioning you for the mid market or would you be looking to expand your partner ecosystem further when you do make a push down market?
Yeah, that's a very interesting observation and question. I would say Yes. We are engaged in certain, certain theaters and certain verticals where the prospects you might consider them to be more of the upper end of mid market. I wouldn't say there's any partners specifically that are focused or directed to focus on mid market. I made that statement a little bit earlier that when we talk about our current TAM of just over 2000 that tends to be the elephants, the extremely large complex global in theater in the 6 verticals that we published.
That's what the current TAM is. But I would say we have existing customers that I would consider to be mid market. And in some cases, we have partners that are I would say, working on opportunities that are both in the, I'd say the elephant category, the global enterprise category and in the mid to upper mid market category. But again, I wouldn't say that we have any partnerships that we have signed where they are either directed nor individually focused on mid market.
And just to give a bit of a bounce, so typically when we focus on customers, they generally need to have sufficient as John would say pain. To really use rapid response. And so that typically is not unusual to be sort of a $1,500,000,000 or large in many cases, multiple 1,000,000,000 of dollars in revenue. So for us, mid market is really sort of $500,000,000 to $1,500,000,000. And there are significantly more, I mean, by a factor of
3 to
4 accounts in that in that total addressable market.
Okay, great. No, thanks. That's helpful. And I also just want to follow-up on your upcoming next gen engine launch and and rapid response as a platform strategy. I'm curious to see, curious to know, what are you guys seeing, if any, from an industry and competitive response to these product and tech enhancements and more broadly, what are you guys seeing overall from the competitive environment?
Well, we continue to see, primarily SAP, as a competitive in the competitive landscape, they are typically the incumbent, which is why we typically see why we typically see them. Now, you know, they've long, I believe, anyway, I would say, you know, followed a different philosophy in how to solve, supply chain planning problems. And this is why I say we often lead with technique first, not technology. We lead with technique. And we bond on technique first.
And when we, get to the point where a prospect says you need to tell me how to do that. Well, then that's where the technology comes in. The notion of, rapid response is a platform and we have been working on for many years. This is not some new initiative we started last year. And this next gen engine has been 3 to 4 years in the making.
So that you can appreciate quite a this will be a very major, release for us. A major technology boost. It's going to allow us to more rapidly, enter new markets. So partners obviously be very interested in getting us beyond the 6 core verticals. This allows for what I call mass runtime configurability, that we've just never seen before.
And this allows us break into new market verticals through partner leverage much, much faster than it was ever capable. And we're also seeing a lot of pull from customers. So it's a response to what customers tell us, they're looking for in being able to apply unique capabilities to rapid response, what they consider to be, company differentiators for them and looking to apply that apply that directly to rapid response. So we're pretty excited about it. We're right around the corner.
I think I mentioned this at our connections event will be a very interesting event for us as it relates to rapid response as a platform. So stay tuned.
There are no further questions in the queue. I turn the call back to our presenters for closing remarks.
Thanks, operator. Thank you, everyone, for participating on today's call. We appreciate your questions as always and your ongoing interest in in support of Kinaxis. We look forward to speaking with you again when we report our Q3 results. Bye for now.
And this concludes today's conference call. You may now disconnect.