Good morning. My name is Julie and I will be your conference operator today. At this time, I would like to welcome everyone to the Kinaxis, Inc. 1st Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise.
Thank you. Mr. Webster, you may begin your conference.
Thanks, operator. Good morning, and welcome to the Kinaxis earnings call. Today, we'll be discussing our first quarter results, which we issued this morning. 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, May 10, 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 closure in the earnings press release as well as in Kinaxis' SEDAR filings. During this call, we will discuss IFRS result 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, kinaxis.com and on SEDAR. Participants are advised that the webcast Relations section of our website.
Neither this call nor the webcast archive may be rerecorded 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. Kinaxis delivered very strong results in the first quarter of 2019. We grew total revenue $27,300,000. We grew subscription term license revenue by 87 percent to $8,400,000 and we delivered adjusted EBITDA with our existing customer base during the quarter including significant business with our longstanding on premise customers.
While we added new cloud based SaaS customers during the quarter, other large and active deals are taking longer to finalize than expected. And as a result, Q1 bookings did not meet our expectations. However, given current activities and the state of our sales funnel, we remain very confident in delivering strong SaaS bookings in the coming quarters. In fact, we have begun and we will continue to Based on our Q1 results and general outlook, we are reaffirming our full year revenue guidance with a slightly higher contribution from subscription term license revenue and related support. And given that timing of deal closure affects SaaS revenue contributions for the current year a slightly lower SaaS revenue target.
Further, we are increasing our guidance for full year adjusted EBITDA. Richard will provide you with details Thanks to our ongoing strategies and increasing investments in sales, particularly in Europe, our funnel remains healthy in both volume and diversity and is much larger than it was during the same period last year. Our expanded and more focused marketing activities are increasing brand awareness and have resulted in quarterly unsolicited inbound inquiries growing for almost 2 straight years. In fact, This leading key indicator for Kinaxis jumped more than 30% in Q1 2019 compared to Q4 2018. 60% compared to the same period last year.
I remain very confident that our growing sales team, many of which been with us for less than a strength of our competitive positioning through marquee new customer announcements, including Lenovo this past quarter and Unilever Novartis and Dice the quarter before that to name a few. With respect to our growing consultancies, including E Y, Deloitte, Accenture and Barkawi, now under the ownership of Genpact. In Q1, we announced that EXSA Corporation in Japan formally became part of our partner enablement program. Every court, more partner practitioners are getting trained to deliver rapid response. Over the past year, the number of practitioners has more than doubled and now several 100 individuals have collectively, collectively earned over 1100 training certifications.
Our global alliance strategy is working and these key indicators are proof of it. Along with the significant work critical to our ability During our Investor Day this past March, we shared details behind a number of new product initiatives that are well underway and I wanted to highlight some of them again for you today. We will be expanding our capabilities to include production planning and scheduling. Which we're seeing demand for across multiple market segments. We are also expanding our machine learning and automated intelligent offerings to include demand sensing capabilities.
The release of our
This significant leap forward in architecture and functionality will continue to ensure our dominance in concurrent planning. And provide the foundation for what I believe to be our most significant innovation, rapid response as a development platform for planning. Similar to Salesforce's force.com and other leading platforms, our vision is to enable our strategic partners and customers with the means to build cloud based extensions and solutions attached to RapidResponse. This will ultimately further leverage the value of will create significant opportunities for our partners to expand their Kinaxis practices. In short, I remain firmly confident that our core strategies including sales team expansion, targeted global marketing, partner enablement and product innovation are working.
These all take time to fully develop and yield results, but I'm convinced these are the right investments to ensure long term sustained success for the company. 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 noted otherwise, all figures reported on today's call are US dollars under IFRS. Total revenue in the first continues to be driven by SaaS revenue which increased 17 percent to $27,300,000. This growth was due to contract secured with new customers as well as the expansion of existing customer subscriptions. Another key contributor to total revenue growth was subscription term license, which grew 87% over the same quarter in 2018.
If you recall, for customers that have the right to host RapidResponse in their data centers, subscription term license revenue represents the economic value of the right to use component for the entire multiyear term. Regardless of the length of that term. The remainder of the subscription revenue contract is then allocated to maintenance and support and is recognized ratably over the full multiyear subscription term. So while the subscription portion allocated to quarterly maintenance and support revenue is relatively smooth. The right to use portion allocated to subscription term license revenue will vary significantly quarter to quarter depending upon subscription renewal schedules or the signing of new arrangements.
In Q1, we renewed a number of these contracts with total subscription expansion above the level we expected when we provided our initial guidance. One customer with an expanded expanded subscription renewal together with their related professional services and ongoing maintenance support revenue represented approximately 14% of our total revenue of our revenue in increased to $6,900,000. Professional services revenue varies quarter to quarter based upon a number of factors, including the number, size and timing of Gross profit grew 26 percent to $33,600,000 or 73 percent of revenue compared to 72% in Q1 2018. This increase resulted from the growth in SaaS and subscription term license revenues partially offset by an increase in third party costs, our expanding global support organization and the higher depreciation costs associated with the ongoing expansion of data center capacity. Profit grew by 53 percent during the quarter to 7,000,000 or $0.26 per diluted share compared to $0.17 per share in Q1 2018.
Adjusted EBITDA for the first quarter grew 29 percent to $16,000,000 or 35 percent of revenue compared to 33% in the same quarter was due to an increase in Additional investments in research and development and sales and marketing, including new headcount and higher marketing event activity, are reflected in the operating expense growth. Cash from operating activities grew 81 percent to 18,800,000 due to the collection of trade and other receivables and higher Cash and short term investments were just under $200,000,000, growing by $18,300,000 in the quarter. Our minimum contracted revenue backlog as at March 31, 2019 was $234,500,000 as detailed in note 12 to our financials. This amount includes future SaaS revenue streams, maintenance support, and subscription term license revenue. The vast majority of this amount of 2.6 $212,600,000 relates to future SaaS revenue.
The total backlog amount will be recognized over a number of periods as follows: $88,200,000 will be recognized in the remaining 3 quarters of 2019, of which $77,300,000 relates to SaaS business. $73,100,000 will be recognized in fiscal 2020, of which $67,100,000 relates to SaaS business, and the remaining $73,200,000 will be recognized in fiscal 2021 and thereafter of which $68,300,000 relates to SaaS business. While this future backlog remains strong, as John noted, this performance did not fully meet our expectations regarding the timing of new customer SaaS contracts. Total bookings were $35,900,000 of which SaaS bookings were $17,700,000. Based on these results and our business outlook, we are updating our of between $183,000,000 $188,000,000.
We now expect full year SaaS revenue to grow between 20% 22% over 2018 levels. We now expect subscription term license revenue guidance to be between $22,000,000 $24,000,000 for the full year, or between $13,600,000 $15,600,000 for the remaining 3 quarters of the year. And approximately 40% of the full year amount or roughly 2 thirds of this remaining amount will be recognized in Q4 with the remainder split between Q2 and Q3. We now expect maintenance support With respect to operating expense line items, we of revenue reflecting the planned increase in sales capacity that John referred to earlier. Research and development expense will be in the range of 18% to 20% of revenue and G and A expense will be between 13% 15% of revenue.
We are increasing our full This reflects both Q1 to support our planned ongoing strategic investments. Regarding full year capital expenditures, We expect value will be in the range of $11,000,000 to $13,000,000 with approximately 40% of this investment occurring in Q2, representing planned data center expansion in R&D Investments. Want to take this opportunity to address the common question we received from analysts' investors regarding the outlook for subscription term license revenue beyond 2019. As I noted earlier, subscription license relates to our on premise or customer hosted contracts and is immediately recognized in full during the first quarter While we only provide guidance for the current year, we thought it would be helpful to share some high level commentary on the renewal of existing on premise customers. Assuming no material changes, we expect that subscription term license revenue in 2020 will be approximately half the level we have guided to for 2019.
Using the 3 year average, it would also be reasonable to expect the 2021 subscription term license revenue will be approximately in line with the 2018 amount and then the 2022 amount increasing approximately in line with the current year level. Factors that could cause our outlook to change would include a conversion of a customer hosted arrangement to the cloud, a non renewal or a renewal on a shorter or longer term basis and entering into a new subscription arrangement on a customer hosted basis. Consequently, while we're not providing specific multiyear subscription term license revenue gains, we hope this general commentary provides further insight into our expectations. Thank you for your continued support of Kinaxis, And with that, I will turn the call back over to John.
Thank you, Richard. In summary, we are pleased to have delivered very strong first quarter results. Our updated guidance reflects a company that continues to I am encouraged by the ongoing and the exciting opportunities for chosen to work with Kinaxis and those who are actively engaged with us to join them. On behalf of Kinaxis, I would like to thank you for your support. And as always, for taking the time to join us on this call.
With that, I'll turn the line over to the operator for Q and
Your first question comes from the line of Richard Sight from National Bank Financial. Your line is open.
Yes, thank you. Either John or Richard, I was wondering if you can maybe give us
a little bit of color on terms of 14% customer and why they decide to sort of go with this, the term approach as opposed to subscription SaaS?
So we support a number of companies in different industries and also with with different outlooks. And and Richard, right from the start of our conversion in, which was cold turkey in 2005, we have really focused on that business with the visibility of the subscription. And we haven't, as focused much on whether it's cloud or or on or customer hosted premise, if you will. The vast majority of arrangements are cloud. And, however, depending upon again, the industry or in some instances, the specific customer of their data policies require, their ability to host.
And So this is one of those customers. And and I just wanna emphasize that 14% was, a combination of this customer renewing, this is a longer term customer, renewing their subscription, arrangement, increasing that arrangement as well as then we had professional services. So it was really a mixture of the 3 revenue sources that resulted in the 14%. The cash flow, as you can understand, doesn't vary. The way we support the customer other than we're not hosting it in our cloud, it doesn't change.
And, and it's, it's again, it's it's a minority, the vast minority of customers, but in some instances, that's, what's going to occur.
Yeah. I might just add some color, to that. There are the larger the corporations that we deal with and in some cases, there are firms that are well over $100,000,000,000 in, in revenue. And And those firms often have very, very sophisticated data centers and a CIO that that just demands the, you know, the, the use of their environment, which is, is fine. We have a bias towards good business and that's, I would say the rare, the rare condition.
The other thing I would say is there are, as Richard said, certain market segments that require heightened security, I will say, where, the environments are are very closely guarded by the customers themselves.
Yes. And I thought
I wouldn't because it's just on the security. I mean, we have a world class security. We're continuing to upgrade that. And we have a number of new initiatives actually, we're, from our European customers in particular It's just a matter of it is a it is a it's just a outright requirement of certain industries that data is not outside of their premise.
I don't suppose you want to share the vertical this customer is in with you?
We, you know, we are privileged to host a number of customers across multiple verticals. And, I don't want to, I mean, just our process is not to comment on any specific customer. And, and so, you know, by doing so, I would, I think, maybe, you know, shortlist that customer and, and, you know, it is a long term, great customer. They've been, it's been an extremely successful relationship. And, it is in our one of our core, 6 verticals.
Okay. And John, I was sort of curious about your comments about the 3rd gen in memory update. I think you talked about it at your recent Investor Day. What I sort of picked up, I don't know if this is a nuance, but you talked about it as planning, a rapid response. And when you say planning, you don't really sort of refer specifically to supply chain.
Does that mean or should I read that to be that you have aspirations to taking that platform beyond supply chain?
Well, here's how I would answer that question. First, you know, we have exactly one product and that one product is currently, supporting supply chain planning for very different verticals, whether it's, aerospace and defense, automotive, food and beverage, life sciences, these are all wildly different supply chains. And yet, we're able to solve them with 1, what I call mass runtime configurable environment. And so this 3rd generation, platform is, I'll say extended, the ability to configure planning applications that, yes, can be outside of traditional supply chain, and attached to Rapid response is why I use the the analogy of force.com, you know, what force.com did for Salesforce, it allowed, I mean, companies were born because they were building on top of and connected to a very, very powerful platform. So today, we're looking at it as an opportunity to potentially enter new markets.
There, you know, we're not in every market segment that that we could be in. And I often have said it's really only a matter of time. It's not an if. It's a when. And and so the speed at which we can enter new markets, I believe, is directly related to the speed at which individuals with the right pedigree could, could leverage rapid response to build solutions.
And so this is why we're so so excited about this. It's been a long process. Obviously, as I mentioned several years in the making, here, for this 3rd gen engine. And, I look at it as a, it's a giant leap forward in flexibility.
And the release is that expected this year?
Yes.
Your next question comes from the line of Daniel Chan from TD Securities. Your line is open.
The, sales cycle seems to be lengthening beyond your expectations. I think this is the 2nd quarter that we've seen this happen. So do you have a good feel for why this is happening? Is it because the deals are larger and more complex? Maybe that the new team is coming at the learning curve.
Anything to shed some light on this? And if we should expect sales cycles to continue lengthening.
Yeah. So we're still seeing sales cycles, you know, we often talk about that 9 to 18 month window. And if you recall, it was about a year ago, we we put the foot on the gas on sales. And so, and again, we're doing it now, above and beyond our plans as they were even 3 months ago. And so, yes, to some extent, it takes time to get the sales force, up to speed and and, you know, working the pipeline.
I'd say there's nothing, systemic here at all, other than, yes, larger, the larger the deal. The larger the corporation, the longer the sales cycle. That is definitely something that we have witnessed. But then again, then the larger, the contracts ultimately are. Okay, thanks.
That's
helpful. And then, Richard, in the past, you've said that 80% of your next of next year's revenue was usually booked does this still hold given the sales cycle as well as the change in accounting? Well,
yes, that's a, it's a, thank you for recognizing that. And in fact, the guidance that we have provided, if you take a look at that, the the the the the 12 months. So in other words, the 4 or 12 months as at December 31st, was right in that, in that range. So the publicly disclosed backlog that we had just for the SaaS component that was being recognized. Was in that 80% range for, at the start of this year.
And then again, the remainder of that, is really coming from 3 sources. So it's coming from renewals. So, you know, again, if the customer at, the 3 year term was ending on June 30th this year, we would only had a half a year in that backlog. And then the other 2 drivers are the new name acquisition as well as then the expansion with the customers. Okay.
Thanks for that color.
And just one final one for me, a clarification
Did you say that 2020 term license revenue is expected to be half of twenty nineteen? And if it is, then what are the implications for EBITDA margin?
Well, we, you know, we're we're we're trying to get some color in in that regard. And so you know, the other drivers are going to be the, subscription revenue growth and the level of investment and innovation that we continue to drive. John spoke to, you know, the increased in sales capacity. So there are actually going to be a number of of elements, and it's a little early to, to comment on, on 2020. Just because this this number, again, from a cash flow, it's remained unchanged, but because of the way we have to recognize the revenue, it can vary.
And just as we provided, you know, quarterly guidance of that timing range, this year, we thought it would be helpful for for you and your colleagues when they're when and and and our key investors, when when modeling to give them that insight. Now again, that, that is just more a directional statement. We have converted customers from customer hosted environments to the cloud. In fact, in some cases, is 2 stage process where we'll actually start hosting them with them still retaining a right. And then ultimately they realize it's, it's, it's it's a much enhanced performance and we'll go that way.
And as John said, we are always looking at growing the business and And, you know, there may be, we'd we'd we'd I would think it'd be, you know, not that common, but there may be, situations where there is a new, customer hosted arrangement signed. And so you know, we it's just, you know, that's a directional statement and, you know, the EBITDA and the other factors will, will comment at the appropriate time.
Okay. Thank you.
Your next question comes from the line of Thanos Moschopoulos from BMO. Your line is open.
Hi, good morning. Richard, maybe to ask Dan's question a different way. Can you remind us our subscription term license gross margins typically in the 90% plus range?
Well, from a pure accounting variable, accounting, they're they're essentially a 100% because, what what's happening is, you know, we're very concerned on our costs. Our costs are taken to the extent that we can. I mean, the only variance really being customer the variable in other's commission or referral fees that are capitalized. So we're going to be, you know, our team that's supporting them, the way we're supporting them, they're those costs are generally fixed for the period. And, then that, the economic allocation, if you will, will come in that, the lump period.
So it, you know, take it at virtually 100%.
Okay, great. Gartner recently released their new S and OP quadrant, you're once again ranked the leader, which is great. Although there were more vendors in the leaders quadrant than in prior years. Can you talk about the competitive dynamic? Is it still the case that you're primarily up against SAP, the vast majority of the time, or are you starting to see some of the other emerging vendors increasingly in the mix?
Yes, Thanos. Thank you. Yeah, for sure, we the competitive landscape continues to shift. In fact, when you look at at one quadrant over another, between years, you can see quite a lot of variability in players moving about I'd say the usual suspects for us, continue to be dominant in the field, if you will, in terms of addition. We don't, we're not seeing necessarily, you know, you know, many, many new players, I'd say.
And so, you know, and for us, we, when we look at 1 Magic Quadrant, it's a piece of it's one side of the coin that has another side, right? There's 2 MQs that we care about, the system of record and the system of differentiation. So, we're obviously pleased, we're obviously very pleased position well in both of those. And in fact, when you look at the sum of the 2, it tells an even brighter story. So, again, we continue to focus on current planning as our our prime value proposition and our prime differentiator.
I think I've said this before. We often start with that as a premise, not so much a technology, comparative. So, I'd say, yes, there's there continues to be, dominance in terms of, competition from SAP. And, you know, our recent wins they sort of speak for themselves. You know, SAP, I'd say our customers by and large, the vast majority of them are, are, you know, we share with SAP.
So they continue to be, primary in that position. Great.
And then finally, you talked about expanding sales capacity beyond your prior plans. Just to clarify, will that incremental investment be directed at specific regions or market segments? Or will that be sort of more broad based across all your markets?
It'll be broad based. I mean, the, we're seeing terrific We're seeing absolutely terrific activity, out of Asia right now and Europe, through the investments that we're making. And as well as North America. So it will be quite broad, across the spectrum. We're seeing a lot of partner activity in Europe.
As a result of our investments there as well. So those, you know, I would say Europe and Asia are growing faster from a rate perspective, but they were significantly smaller than the United than the North American sales. Team to begin with. So all regions are going to get an infusion, of capacity.
Great. I'll pass the line. Thank you.
Your next question comes from the line of Stephanie Price from CIBC.
Wondering if you could talk about the recently announced contracts and how you see them scaling through the year and how we should think about the implementation process here?
Well, Stephanie, that's a great question. So from a financial perspective, let me, address it from that perspective. When we do engage with a new, customer, there are generally 2 revenue streams. There is the subscription and that subscription arrangement starts immediately. And so, you know, the deployment itself might be 9 months a year or some cases a bit longer.
There is the, the subscription revenue through that as well as carrying on on the SaaS basis ratably over the term. The other element then is the actual deployment services. And You know, in the case whereby Kinaxis is providing those, that would be our professional services revenue for that, you know, 9 month or 1 year period. In, in other cases, it will be, dealing with, you know, with, with partners if they're enabling it so that you know, our role there will be, more on the the overall assurance side of things. And so in that case, our revenue is, is going to be just on the subscription side of things.
Does that address your question?
It does. Thanks.
And then in terms of the partner channel, you mentioned, Exa and E and Y last month or last quarter. I was wondering if you could characterize kind of the maturity of your partner relationships and kind of talk a bit about that channel?
Sure. So I would say that the partners that we the strategic partners that we have that also have Kinaxis practices for, for deployment are obviously going to drive more activity with us. You know, they're they're influencing in a couple of different ways. 1, they often have a management consulting practice that is designed to advise. And so where appropriate and when appropriate for projects, they're advising to of concurrent planning type of a solution.
And secondly, we're seeing more and more, as I mentioned, we're seeing more and more of those SI type partners lead deployments, not play the secondary role, but lead as a result of their relationships. They've established and as a result of of, you know, of their involvement in, in the process of closing the deal. So we're definitely seeing, as I said, some great, you know, some great uplift there. The numbers of certifications now over, 1100. There's hundreds of people involved, in this, in this training, what we call the partner enablement program.
Is very formal. It's done online. We have proctored exams. It's, these certifications are quite meaningful for the consultants And so we're thrilled at the uptick.
Great. Thank you very much. Your next question comes from the line of Paul Treiber from RBC.
Just on the subscription term license, you did mention expanded business with some of your on premise customers and maybe that 1% 14% customer. Can you just elaborate on that in terms of how they are expanding their usage?
Sure. When we go in, it's very much, as you know, a land expand model. In fact, for the last while it's we've pretty consistent that approximately 2 thirds of our incremental subscription revenues have been new name customers and then one third from the expansion. And on that one third from expansion, there are, a number of factors because you know, again, our can, can manifest itself in many ways. Sometimes it's a matter of seats or users.
So as they expand their number of users. In other cases, it's dealing on the operational side of things. So as they bring extra factories or or your distribution center sites, if you will. In some instances, what we've done is we, because we, again, we we go into typically a business unit and keep radiating, we'll move into a sister, business unit you know, it could be, you know, some and and in a few cases, product lines. So there really are a number of ways, but essentially what they all come down to is a deeper penetration and a broader expansion in their operations and realizing that ROI.
And then in regards to land and expand, I think in the past, you've mentioned that revenue from an existing customer typically or historically doubles over 3 years. Is that a similar trend with term subscription term licensed customers as it is with SaaS?
Yes. So let me and I'm sorry if I'm repeating things here, but I think it's important to understand there is a subscription arrangement. And what's happened is recent, changes to, IFRS accounting, in this case, IFRS 15 in the U S, ASC 606, have required companies to go beyond the commercial terms that have been established to try to, you know, I guess from an economic theory, you know, attribute to the revenue streams. So in both cases, our subscription agreements, whether it's a customer hosted, or, on our cloud or Kinaxis hosted basis, stipulate very similar models. It's you know, the number it's the configuration of those users, those sites, those business lines.
And typically it's an annual payment. So that's the cash flow. And so, as businesses grow and expand and we partner with them in both instances, that's those are the growth factors. And what what is required now is just because, you know, let's say a customer increases their, I'm gonna keep this math is sort of simple if they increase their subscription 50,000 a month. So 600, a year under, for the and they renew for 3 years, you know, under, under prior IFRS and certainly now for cloud, that's We just pick that up as, you know, 150 a quarter, 600 a year.
With, ifrs, we, we have to take that total new commitment over the 3 years of the $1,800,000 and allocate it and maybe half of it goes to the, or more to the subscription term component. And the other is done ratably. So cash flow, business perspective, drivers of the business, all that remains unchanged. This is just the artifact, if you will, of, of, of the accounting. And that is the and and that's one of the reasons why we we just provided a commentary a few minutes ago to try to help understand the, you know, the paper, the papering and timing of that, of that stream.
Yes. That's helpful. And just lastly to sort of tie it all together, the comments on like the term license revenue in 2020 and beyond, that's only assuming renewals in no expansion. Is that correct?
Yes, that's correct. I mean, we are delighted to service, you know, a number of very long term customers. In some cases, those customers are pre-two thousand and five and have converted, now on a, on a customer hosted basis, And, and so you are correct. That is, that is, you know, what's, you know, it's basically based on, on renewals. And that's why I commented, that amount could be reduced, for customers that we subsequently convert to, cloud because then you're going to be, in most instances, reverting to a ratable basis.
There may be a non renewal, which would have that impact. But we could also continue to span further and possibly even sign a new arrangement. But you're right. This is based upon our stable of customer hosted arrangements.
And sorry, just one last one for me. The are you from a business point of view, are you encouraging customers convert to SaaS or are you indifferent?
Well, I would say we believe strongly the experience for a customer that we're hosting is is is better. I mean, our people are going to be just as dedicated, but what we can do in our environment not only do we have the security standards and other benefits that I mentioned earlier in recovery, but we can actively monitor their environment as opposed to working through, I mean, their highly qualified customer personnel, but so we believe it is better. And absolutely, we would encourage it. I think we all appreciate the again, coming back to 'five, the smoothness of the model. And, and so we encourage that.
But there are, as is, again, as we mentioned earlier, it's it's it's sometimes it's just, it's, I won't say personal preferences, sometimes more of a just a corporate direction. And, you know, we are dealing with this is not, you know, b to b sorry. This is not, you know, b to c. This is not, you know, a small little businesses. These are sophisticated deep customers that have certain capabilities and certain perspectives.
And and we're going to our goal is just to have that long term subscription business with them.
Your next question comes from the line of Deepak Kaushal from GMP Securities. Your line is open.
Hi guys. Thanks. Good morning. John, just on the Gen III interim engine launch coming up later this year, is that invisible to the customer or do they have to actively upgrade to that. And maybe you can talk about how you're mitigating the technical and commercial risks around that, launch.
Yes. So Yeah, that, that, engine comes across as an upgrade. And it's, you know, the upgrade burden is obviously on us. They customers won't even realize that it's happened. And so there's the compatibility equation is sacred I'll say, you can't survive in the SaaS world if you compromise, that kind of compatibility across releases.
So the answer is yes, it's transparent.
Okay. Excellent. And so, and then when you when you're adding new features like production planning, scheduling, demand sensing. Do you have to change your sales approach or add to your sales approach, or are you selling to the same teams here how should we think about those added features in terms of sales process?
Absolutely. There, you know, these are, when you think about concurrent planning, as our key differentiator, these are all about it's all about connecting all of these chain links together, right, whether it's inventory optimization, capacity planning, master scheduling, sales and operations planning. These are all functions of running a supply chain and things like demand sensing are just extensions of the exact same, the exact same process, if you will. So these are, typically sold again through the same communities that we sell to. They're just a continuation of concurrency.
Okay, great. And do you kind of have a target penetration you hope to get to in terms of rolling those add ons to your customers over the next 12 months or 24 months?
We certainly have a rollout plan, you know, for them. And, you know, things like demand sensing and production planning, tend to be quite ubiquitous. And so, you know, obviously, our our plans would be to, to have them penetrate every every vertical that we're in.
Okay. Thank you. Last question, if I may, for Richard, you guys have quite a bit of cash on your balance sheet. How much do you need to really support your organic growth and what else can you do with the cash you have?
Yes, we do. And in fact, it's a mile So I I kinda kidded with our team. Like, you know, couldn't we collect another 100,000 to get it to the, you know, the the 200,000,000 US even? So but all serious. No.
This this model clearly, we've and we have a long history of generating cash. So, and, you know, our customers absolutely are delighted by the resiliency that this company has and the level of investment it can sustain. You know, we continue to, to be focused on on the growth. So this cash is, available for not only the organic growth that you noted, but you know, it's something whereby, you know, we will continue to, consider, M and A. We have not found, an opportunity that's met our, our requirement to really, in a scalable, effective way, support accelerated growth.
But, That's where we are right now. There are no broader specific plans, Deepak.
Okay. Okay. Thank you. Thank you for taking my questions. I'll pass the line.
Your next question comes from the line of Robert Young from Canaccord. Your line is open.
Hi, good morning. The data you gave on unsolicited inquiries is encouraging you talk about how you're handling those? Are they not being handled? Are they being pushed into the channel? Is this part of the reason behind the sales expansion?
And then if you could also comment, if I can write a bit on, Richard C's question, are you seeing any unsolicited queries that are outside of supply chain? Are you getting customers that are encouraging you to look at applications of your platform outside of supply chain?
So, great question, Rob. So first of all, that's what I call key leading indicator, unsolicited inbound increase. As I said, 30% increase quarter over quarter, 60% increase from the same period last year. And those are against our existing targeted TAM. These are when we, we only measure it as qualified, as a qualified inbound lead, if it's in our TAM.
So there is There's a placeholder in our salesforce.com, list of targeted opportunities. There's in and around 2000, slightly over 2000 names in that list. So that's, that's what it compromised. That's what it it's made up of those, those 30%. They're not outside of supply chain.
They are clearly in the targeted pipeline. And so this is another reason why, exactly right. We are, seeing that as a leading indicator and reason to, to start pushing on the gas once again as we did last year on the sales capacity front.
And then on those opportunities outside of your targeted verticals. What are you doing with those?
Well, I think I've mentioned this during the Investor Day, we talk about being in 6 key verticals, but we have accounts that are outside those 6 And, you know, we are, our approach is to build success around those new verticals around usually a bellwether account, before we formally announce and formally target on purpose that particular vertical. We feel like, having recently entered the CPG market and and the obvious success that we're having, I mean, the name brands that we're, that we're winning in that segment are quite exciting. And they span, you know, what you might typically see is, as large CPG such as a Unilever, but it includes companies that are in the food and beverage industry as well. And so you know, I'm I'm always going to be razor focused. I'd rather not bifurcate, our energy here and we'll, we'll go fight the fights that we know we can win.
Before we start being overly opportunistic into market verticals that are just not our main wheelhouse, I would say. That said, again, I would say we are already expanded outside those 6 our our strategy to get beyond, is certainly going to be through partners. For example, you know, you haven't necessarily heard
us talk
about forestry, I'll say. Just as an example, well, we have partners that have forestry type, practices. They already have a pedigree. There's many, many, you know, areas that are yet to be penetrated and, and, and, you know, leveraging partners is going to be key to that strategy.
Okay. And non supply chain, any bike there?
None of that
or no, I would say, I think with the 3rd gen engine here, and, I'm obviously very excited passionate about the flexibility of concurrency for planning, not just concurrency for supply chain planning I really do believe it is a revolutionary technique. But obviously, right now, we are hyper focused on the existing TAM We're hyper focused on, the targeted markets and the 3 geographies and there's significant business for us to work on there.
Okay. And then my next question was around the larger deals that impacted SaaS revenue. Last time you saw this, I think you attributed it to Europe expansion and summer doldrums, not that's not the case in Q1. And so I was wondering if you could talk about the difference? And is there any worry if these haven't already been closed or if you don't expect them to close in near term?
Is there when did you start to worry that they may bleed into the summer and this will be delayed over a long period?
Yes. So these are in a very active state. And we're not necessarily subject to quarterly pressures, if you will, that the old model of perpetual sales, might suffer. And so so we really care about good business, not just winning any business. And, and so, you know, when you're dealing with very, very large multinationals, it can take often weeks and on some occasions months to negotiate a good contract to both parties.
And so obviously, you know, our focus is to, you know, is to, is to win good business, not just win business. Have to win good business that's sustainable. That's good for shareholders, and good for the company. I certainly don't see any, as I said, we're very confident that we'll be seeing some significant SaaS bookings in the quarters ahead.
And I think, Rob, one of the things that we did we talked, about was just the more on the geopolitical sort of the, of, of late with regards to whether it's tariffs or changes. And so, you know, the decision makers that we're working with are also on the front lines of those. It's only natural that, you know, while strong proponents, you know, it's sometimes, you know, they're dealing more with, you know, for, you know, some, some more urgent problems. And as John noted, you know, our view is for the long term. And mathematically, you know, whether that deal closes, you know, June 1st or, you know, April 1st matters for the current year.
Doesn't matter on the, say over the, really over the 3 year term, certainly for, you know, the 2020, 2021.
Okay. So just to clarify, is this more about staying steadfast on your terms and more importantly your pricing or is this more about delays that are being created by other reasons within the target customer?
It's a highly competitive place. So we're not going to comment further on that. But I think what you should take from John's view John's common are that we have rigor, we have discipline, you know, the classic, well, you know, it's it's, March 31st. If you, if you can see it in all these things, we'll do a deal where, you know, that's the old cross the line with perpetual. You know, we, we look at this as a, as a meaningful partnership long term with the customers and, and If it takes a little more dialogue, it's going to take a little bit more dialogue.
There are other areas that, I think it's just a matter of front of mind. That's what I was mentioning with regards to other other elements. And as John said, these are active and moving along, companies we we deal with a broad set of companies and and, their procurement processes, will vary. And, So we will act as expeditiously as we can, but we will do so within that, framework of their procurement practice us.
Okay. Maybe if I ask you just a little bit differently, do you have confidence in your ability to control the process and bring these deals in in the near term?
Yes.
Your next question comes from the line of Suthan Sukumar from 8 Capital. Your line is open.
Good morning guys. Just a question on your partner ecosystem. Could you could you speak to what your current pipeline looks like for new partners, curious to know if you're seeing a similar lift in interest given what you're seeing on the unsolicited customer side?
Yes. So what we've said is the vast majority, of opportunities are, have partner influence associated with them. And over the last several years, we've we've been really happy with the names and the stature of the companies that we're working with. And so that's been the model. Where we work in lockstep with those customers.
We don't speak specifically about the size of opportunities on a given for one partner over the other, it's quite competitive. We also don't share scorecards of, you know, how many consultants are certified from one to the other. So we were, we're sharing in aggregate today, because obviously we're quite pleased with the numbers, when you have significantly more professional services revenue being generated for our partners than it's been than it's generating for us. That is exactly what we want see. We want to see a very prosperous, environment for the partners, and we want to see a lot of engagement.
And the engagement is is coming through, through training and certification. It's a number that is changing every month. And it's just getting better and better as the months they want. So we're, that's how I would categorize the activity with partners.
Okay. Thank you. And then just one last one for me. Can you touch on, kind of the level of maturity and involvement you're seeing with your partners in your newer growth markets like Europe and Asia?
Yes. So in Europe, as I mentioned, we're definitely seeing a lot of activity there. It's not unlike what we see in North America, frankly. You know, last year, we saw a significant opportunity to invest in that region and, and the results manifested in the same calendar year. With some terrific names, many of which were were made public, which I mentioned.
And, you know, companies like Unilever Dyson BASF and other And so we're extremely pleased with, with the level of involvement from the partners. We signed partnerships with MSC, for example, which are European based partners that were extremely involved with. So yeah, that it's it's,
you know, I had deep, deep, long term relationships in Asia.
Yeah. Asia has, yeah, we've, you know, Asia is very much a partnership influenced type of, of deal, structure just about 100% of the deals there are are done through partnerships.
Okay, great. Thanks for taking my questions guys. I'll pass the line.
And there are no further questions at this time. I will turn the call back over to the presenters
Thanks, operator. Thank you everyone for participating on today's call. We appreciate your questions as always. As well as your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we report our Q2 results.
Thanks very much. Goodbye.
This concludes today's conference call. You may now disconnect.