Good morning, ladies and gentlemen. Welcome to the Kinaxis Inc. School 2018 4th Quarter Conference Call. Instructions will be provided at that time for you to queue up for questions. I'd like to remind everyone that this call is being recorded today, Friday, March 1, 2019.
I will now turn the call over to Rick Wadsworth, vice president of Investor Relations at Kinaxis Inc. Please go ahead, Mr. Wadsworth.
Thanks, operator. Good morning and welcome to the Kinaxis earning call. Today, we will be discussing our 4th quarter and full year results that we issued after the closed last night. With me on the call are John Secard, our President and Chief Executive Officer and Richard Monkton, 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, March 1, 2019, and contains forward looking statements that involve risks and uncertainties.
Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward looking statements disclosure in the earnings press release as well as on our SEDAR filings. During this call, we will discuss IFRS and non IFRS financial measures. A reconciliation between the two is available in our earnings press release and in our MD and A, both of which can be found on the Investor Relations section of our website, kinaxis.com and on SEDAR. Participants are advised that the webcast is live and is also being recorded for playback purposes.
An archive of the webcast will be made available on the Investor Relations section of our website Now that this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed without written permission from Kinaxis. To begin our call, John will discuss the highlights of our quarter year 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. In 2018, we grew subscription revenue by 21% to $122,000,000 and delivered adjusted EBITDA of 26 percent of revenue, all prior to adoption of the new accounting standards. Reflecting the new standards, subscription services revenue was $107,900,000 and adjusted EBITDA was 28 percent of revenue both at the upper end expectations due $5,000,000 prior to adoption of the new accounting standards and $150,700,000, reflecting the new standards. Overall, 2018 overall for 2018, I'm very pleased with our continued delivery of high growth and strong profitability that Kinaxis has become known for.
It's a reflection of the sustained strength in our business and the significant value we that we successfully closed each of the delayed deals that we referenced on our last quarterly results call. While timing of customer wins can fluctuate for various reasons, they do not impact the long term outlook for Kinaxis in any way. The management team and I will continue to focus on doing what's right for the long term success of the business as our investors have come to appreciate. Throughout the year, we executed on a number of strategic investments including the expansion of our global sales team and key product innovations These investments helped drive our strong financial performance in the fourth quarter Our investments in Europe continue to yield significant business most recently with Novartis, Unilever and Dyson. For the full year, approximately 22% of our revenue came from Europe compared to 13% last year.
These important wins also highlight our growing strength in consumer packaged goods and the ongoing strength in our largest market, life sciences and pharmaceuticals. Our partner network continues to expand as demonstrated by the recent announcement Product innovations is in our DNA and remains a key enabler to the success at Kinaxis. 2018, we added many notable features capabilities, including the formal launch of Live Lens, our mobile first executive level view into the supply chain health. Dynamic supply chain network visualizations. New tools to personalize reporting, so users are always looking at the most relevant information for their role.
Who ranked Kinaxis highest for usability out of 13 vendors in their Control Tower value matrix report. Similarly, Ventana research recognized our unique self healing supply chain capabilities with a digital innovation award, in the operations and supply chain category. We expect to accelerate our investments in product innovation even further in 2019. Throughout the year, we continue Officer and has a world class pedigree in supply chain, including spending the last 7 years at Verizon, as an executive director global supply chain strategy, analytics and systems. She will be instrumental in helping to shape and deliver on our strategy towards accelerated innovation and growth.
With that, I'll turn the call over to Richard for an overview of the financials for the quarter and the year.
Thank you, John and good morning. As a reminder, all figures reported on today's call are in US dollars under IFRS. Kinaxis adopted IFRS 1516 are what I will refer to as the new standards effective January 1, 2018. While we have not restated 2017 financial results to enable comparison with Q4 and fiscal 2017 results, we have presented current period financial information on a basis reflecting both before and after adoption of the new standards. Prior to the new standards, total revenue in the 4th quarter increased 15 percent to 39,500,000.
This total is driven predominantly by subscription revenue, which increased 18 percent to 31,800,000 due to contracts secured with new customers as well as the expansion of existing customer subscriptions. After giving effect to the new standards, Total revenue in Q4 twenty eighteen was $38,300,000 and total subscription revenue for the period was 30.6 $1,000,000, of which $28,200,000 related to subscription services and $2,400,000 related to subscription term licenses from on premise or customer hosted arrangements, which by their nature will vary quarter to quarter. Professional services revenue also varies quarterly, reflecting a number of factors, including the size, timing, and scheduling of customer engagement as well as the level of partner led engagement. Given the timing of some of our new customer wins in Q4, and the higher participation of partners in delivering engagement services, professional services revenue for the fourth quarter was lower than expected. With this modest PS growth of 3 percent to $7,400,000 for the revenue, for the quarter under both centers was just below our expectations.
The level of sales activity in the quarter fully met our expectations. In particular, we are very pleased with the amount of new subscription bookings closed in Q4 from both securing new customers and landing expansions from existing customers. As a number of these multiyear subscription deals closed late in the quarter, their influence on Q4 revenue was limited. However, the value of these commitments is disclosed in our December 2018 backlog and is reflected in our guidance for fiscal 20 19. Prior to the effect of the new standards, gross profit grew 9 percent to 27,000,000 This represents 68% of total revenue compared to 72% in Q4 2017.
The change in gross profit margin reflects investments in additional headcount with related compensation costs and higher depreciation costs associated with the expansion of We also established new centers in Japan in 2018. We will continue to invest in our global infrastructure to support new and ongoing customer engagements. Under the new standards, gross profit for the fourth quarter was $25,900,000 or 68 percent of revenue. Prior to the effect of the new standards, profit for the quarter was $3,000,000 or $0.11 per diluted share compared to $5,500,000 or $0.21 per diluted share in Q4 2017. The change reflects an increase in operating expenses resulting from our expanding European and Asian operations, increased sales compensation, expansion of the product innovation team together with other planned investments.
Under the new standards, profit in the 4th quarter was $2,900,000 or $0.11 per diluted share. Prior to the effect of the new standards, adjusted EBITDA for the 4th quarter was $8,700,000 or 22 percent of revenue compared to 11.2 percent or 32 percent of revenue in the same quarter 2017. As previously noted, This change reflects an increase in operating expenses net of increases in revenue and gross profit. Under the new standards, adjusted EBITDA for the 4th quarter was $9,000,000 or 23 percent of revenue. Full year 2018 results included total revenue of $155,000,000 prior to the new standards and $150,700,000 after.
Subscription revenue of $122,000,000 prior to the new standards and $107,900,000 thereafter. Subscription term licenses revenue of $9,900,000 or total subscription revenue, together with the subscription services, of $117,800,000 after applying the new standards. Adjusted EBITDA margin of 26% prior to applying the new standards subscription contracts provides us with a high level of visibility into future revenue. While the vast majority of our subscription arrangements are cloud or SaaS based where Kinaxis hosts the solution. We also support a limited number of customers through on premise or hybrid arrangements where the customer host or has the opportunity to host rapid response and their environment for the term of the subscription arrangement.
Under these customer premise arrangements, rather than recognizing the subscription revenue ratably over the multiple year subscription term, The subscription revenue is split into 2 elements based on the economic value. The majority of this economic allocation being to subscription term licenses, which represents the right to use rapid response for the term of the subscription. This is fully recognized upon the commencement of the term The remainder of the subscription fee is then allocated to maintenance and support provided over the subscription term. This maintenance and support revenue is recognized ratably over the underlying subscription term. For fiscal 2018, We reported description services revenue of $107,900,000, which consisted of $97,200,000 in SaaS subscription revenue, and $10,700,000 of subscription term license maintenance and support.
To provide enhanced insight We have begun separately disclosing these 2 recurring revenue elements. Currently, we separate the small amount of maintenance support related to our legacy perpetual license business, which contributes less than 1% of our revenue. Starting with 2019 reporting, we plan to combine this maintenance and support revenue stream with the subscription on premise maintenance support stream into one single line item. Again, to provide enhanced insight, we have begun to separately disclose the minimum contracted revenue backlog of these various revenue elements and will be providing 2019 guidance on this basis. As detailed in Note 14 to our financials, as at December 31, 2018, total minimum backlog $500,000, of which the vast majority or $222,300,000 related to SaaS subscriptions.
The total $237,500,000 of backlog will be recognized in the following periods. $109,900,000 will be recognized in fiscal 2019, of which $100,400,000 relates to this year's SaaS business. $65,500,000 will be recognized in fiscal 2020, of which $62,100,000 relates to the SaaS business and the remaining $62,100,000, of which $59,800,000 relates to SaaS business will be recognized in fiscal 2021, and thereafter. Following the calculation we have used in previous quarters of 2018, for the blended subscription services, we booked $66,500,000 of multi period business in Q4 compared to $26,200,000 in the third quarter. Virtually all these bookings were SaaS or cloud, with that amount being $65,600,000.
In summary, we believe our expanded disclosures will help you better understand the strength and growth of our core saas subscription business as well as the dynamics of other aspects of our business. Last year was an IFRS transition year given our adoption of both IFRS 15 16 on January 1. To support that transition, we provided guidance and supplemental reporting on both a pre and post IFRS basis. IFS IFRS only permits this expanded disclosure during the 1st transition year. Consequently, effective 2019, our guidance and reporting will be only on a post basis reflecting the adoption of IFRS.
1516. We are pleased to provide the following guidance for 2019 on that basis and reflecting our expanded revenue disclosure note the following. Total revenue will be in the range of $183,000,000 to $188,000,000. We anticipate that software SaaS revenue will grow in the range of 22 percent to 24 percent over the 97,200,000 base for 2018. We expect subscription term license revenue, which is that right to use portion of the long term subscription term license revenue stream will be between $20,000,000 $22,000,000 for the full year.
Approximately 1 third of this amount being recognized in Q1. We further expect approximately half of this amount will be recognized in Q4 with the remainder This significant increase over 2018 reflects the timing, number, and term of these underlying subscription arrangements. We expect that Mason support revenue in total combining the streams from both the subscription term licenses and legacy perpetual licenses will be relatively in line full year gross margin will remain in the 70% range again with some variability depending upon the timing of the subscription term license. We expect full year adjusted EBITDA engineering team to provide further product innovation and continued expansion of our global sales and marketing and other support organizations. Please note that as subscription term licenses fully recognized in the quarter in which the customer renews or commences a new arrangement, quarterly gross profit and adjusted EBITDA will vary correspondingly.
With respect to operating expense line items, we expect that Research and development expense will be in the range of 18% to 20% of revenue and G and A will be between 13% 15% of revenue. Overall, we are very pleased to provide this guidance for accelerated investments in the business and continued its strong profitability. Thank you for your continued support at Kinaxis. And with that, I will turn the call back over to John.
As Richard just highlighted, and given the strength of our backlog and pipeline, we are very confident in achieving accelerated revenue growth this year. But we're also in the enviable position of making some very important investments for our future without compromising strong profitability and cash flow. Europe and Asia Pacific continue to show great potential for us and we will continue to invest in these regions to drive new business. In addition, we will continue to make significant investments in our product organization in order to deliver the platform capabilities necessary to succeed in penetrating new market verticals. Has maintained a very healthy distribution across each of the market verticals we serve and across each geography in which we focus.
With our growing partner alliances and strengthened management team, we are well prepared to support the accelerated growth we expect to realize in 2019. On behalf of Kinaxis, I would like to thank you for your support and as always for taking the time to join us on the call. With that, I'll turn the line over to the operator for Q And A.
Your first question comes from Richard Tse with National Bank Financial. Your line is open.
Thank you. With respect to the full year guidance, I was wondering if there's any way of providing us a bit of color in terms of how that's gonna scale through the year? Is it sort of back half loaded just to kind of get directionally where that's going here?
So the different elements, Richard, so subscription, SaaS subscription in particular, We fully anticipate seeing a, just as our past quarterly trends have continued to compound, we'll see that compounding, we anticipate that compounding carrying on. With regards to the subscription term license, that's the $20,000,000 to $22,000,000. We anticipate about a third of it coming in the 1st quarter. And 50% in Q4.
Okay. That's helpful. So on the term licenses, it's going through the MD and A and What I noted was that some of your existing customers are taking on term licenses and kind of wondering if you can provide some color like is it a trend like why is that happening? Just a bit of color would be appreciated.
Sure. And by the way, these are just for I think you understand and just for the other listeners, For instance, if we had a 3 year arrangement, the majority of that 3 year revenue is going to be booked on day 1 of the subscription term. So if we signed it or if the renewals was up on January 1, in Q1, you'd have all that revenue and then the residual would be taken over the next 3 years. It really is a function of the timing. The vast majority, as we've noted.
And if you actually look at that, if you can run some of the math, you'll see it's the 80% range of our subscription long term subscription arrangements are fast. Or the cloud based. It's, we go back to this model in 2005 and back in 2005, it was more common to, for companies back then to want to host. And of late, it's a rarity. And so We don't anticipate that as really an area that's going to be growing anywhere close to what we have.
With regards to the SaaS side of things. We're very pleased in a lot of this. Our long term customers that are renewing their customer hosted arrangements. And it's really a function of the cycle in that, if it's a 3 or 4 year period, what will come up. So this year, it's a higher amount.
And going forward, we'll provide annual guidance as well as to the timing and our expectations of that revenue.
Okay. And just one last one for me. With respect to 2018, you clearly made a bunch of investments on the channel side sort of building up the sales org. Obviously those things take some time to scale. So would you say from a sales channel perspective, you're kind of fully ramped now or there's still some capacity to sort of get those investments fully at the scale?
Yes, I would say, we continue to invest particularly in Asia and Europe to meet the demand. And as I mentioned, the pipeline itself continues to grow. It's a function in fact. I look at it as a function of the investments we made in 2018. Where we substantially grew, the sales engine.
And so, yes, I look at it now is quite a mature engine with a very, very mature and robust and large pipeline in front of it. But again, as we see potential, whether it's potential in the major markets we serve, I mentioned life sciences now, again, our largest, but it could be in other market verticals. We're going to continue to hire and ramp to make sure that we take advantage of the potential.
That's great. Thank you.
Your next question comes from Robert Young with Canaccord Genuity. Your line is open.
Hi, good morning. I was hoping you give me a little more context into how you set the guidance. When I look at the SaaS guidance of 22% to 24% just on the math from the 97 report that would give a range of 118.5, 120. But the backlog for SAS that you're reporting as of December 31st is 100.5. And so that's a significant component.
And so when you look at the backlog today, could you potentially share the coverage of that guidance that you have now and maybe just revisit how you set the guidance?
Sure. Thank you, Rob, for that question. And as we've noted in the past, one of the strength of this forward visibility and the consistency And what we have talked about and now you are seeing it firsthand is that when we look to set the annual guidance, we take a look at what is the minimum committed, the contracted amount, minimum contracted amount, in our backlog. And we, we tend to base that guidance on, on about an 80% level. And so as you noted, what we currently have, the 100 point $5,000,000 does represent actually just over 80% of that, that extrapolation that you presented.
And with our view then that remaining 20% to meet that level of expectation for the full year. Will be derived from renewals. So for instance, if we had a customer that was up for renewal on on July 1st, there's only 6 months of contracted revenue and backlog as of this time. So it'd be renewals, it would be new name wins and it will also be expansion from existing customers. And so that has been, an art trend for the last while and and that's the math behind the equation.
Okay. I got a few questions. Maybe I'll ask about the term license, the $20,000,000 to $22,000,000 that you're expecting. Could you break out how much of that would be new customers and how much of that is renewals?
It is predominantly related to really existing customers and renewals. Some of which, as I noted earlier, go back to 2005 or even pre-two 1005. The market, from both can access is focused. And quite frankly, from our customer's perspective, is very much cloud orientated. They understand the value of that.
They understand how we could continually monitor the environment, how we can scale it for them rather than them investing. And, and, the vast arrangements, vast majority of current arrangements, cumulatively are as you can see from a revenue perspective, our SaaS. And, it's not really anticipated that we'd have those types of arrangements, are they customer hosted on premise? It's not something that we'd actually would forecast at this juncture. But should that change then we would reflect it in future quarter.
Okay.
So that's consistent with the way you do the guidance for the SaaS business. You wouldn't include a prospect customer that's in the pipeline until they're signed in that guidance for the term license component, correct?
Correct.
Okay. And then, it would be helpful to understand where you think the professional services business will go over 2019. I think we can get to it by math just by subtracting the pieces of guidance, but it's been flat for the last couple of years. Do you expect it to grow just see growth over the next couple of years? Or is that a line of business that we should expect to stay flat or maybe decline a little bit as you move that over into the, the channel?
Yes, absolutely. It was relatively flat last year. And that, as we noted, really reflects a couple of things. It predominantly, it's really related to the level of partners that are coming in and majority of our new name customer wins have been partner influenced. And so it's natural for the partners, especially now given the very strong base certified partners to, to, to take up that, that activity.
We are though, with regards to 2019, we are anticipating growth. And I would our expectation is that's going to be in the mid teens. So it will be stronger this year based upon activity related to new business. But it's not going to be growing at the high growth rate of the SaaS side.
Okay. Last question for me. You've announced a lot of deals from with big companies. One, if you could talk about the size of average deal, is that continuing to grow? And if you could help us understand whether any of those announced deals would not be in the backlog that you reported.
I think in the financial statements as of December 31st. But if you could clarify if any of those announced deals were not in the backlog you reported today, that would be helpful. And I'll pass the line.
Yes. So obviously, we're quite humbled with the recent announcements. And I mean, we're thrilled at the pickup in Europe. And as you know, Rob, part of our DNA is to land and expand and there's really no difference, with those large deals. And, we're anticipating obviously there's potential for future expansion in every case.
In terms of actual numbers and average sizes and things like that, it's not something that we disclose. As you know, we'll have customers that pay us 5 digits and some customers pay a 6 digits a month. And so it varies depending on the vertical varies depending on the size of the company. It varies to depending on the scope of the deployment. But we're obviously very, thrilled with the pickup, particularly in Europe.
I think you said you closed the deals, all the deals were delayed, but were there any deals that would have fallen into Q1 that wouldn't be in the backlog that you reported
We continue to absolutely. We continue to close business. So what the statements reflect our our transactions, commitments from customers that were closed prior to December 31, And now it is not uncommon for just the nature of the business, but deals will close late in the quarter, but deals do close. Throughout the quarter. So, and that's about the color we can provide at this stage.
Any activity as we move through the year, it would be appropriate as to update the guidance as we as we move through those transactions. But, what we have noted also in the case of of Q4, that pattern did prevail. And so that's why there was a relatively little revenue from some of these arrangements in Q4 because again, it's these are SaaS arrangements. So they're ratable over there 3, 4, whatever year term. And because of that was also what was below our expectation was the level of professional services activity related to that deployment.
So that will be coming this year.
Okay. Maybe I have to try one last time, but like some of the deals that you announced were in the beginning of 2019, but you did add a lot of backlog in Q4. And so I'm just trying to avoid misunderstanding around where some of those deals might have fallen? Like should we assume that those deals you announced should we assume that they would have been closed in Q4? And then I'll pass the line.
Well, again, we don't, as John noted, we don't talk about customer specific arrangements. We can tell you again that we were very, very pleased with the level of business activity. We have noted before that there was continue disruption in the supply chain. And last year, in particular, with market conditions, with trade and so on, that did, we believe, result in delays of some arrangements. And we're pleased to see that the value of concurrent planning, the value of the self healing supply chain.
And these companies came to the realization that that is the type of value they need to deal with this disruption. And so they closed. And Rob, we'll continue to close arrangements throughout the quarter. And again, as appropriate, we will update the guidance.
Just for further color, when we announce anything, especially the larger the company, the larger the company is there's often a very significant delay in getting all of those words approved through comms And so the actual announcements we make don't necessarily reflect the actual close of that deal. Sometimes weeks or months in between.
Your next question comes from Thomas Moschopoulos with BMO Capital Markets. Your line is open.
Thanks. Just a couple of follow ups on the term licenses. But you'd be able to comment on whether the base of on premise contracts coming up for renewal will be higher or lower in 2020 as compared to 2019?
We only provide guidance for 2019 Thanos and And the one of the earlier questions was, are we going to be closing any new customers on this basis? And this juncture, that's not determined. And so, this is a this is obviously a higher level of just the way the cycles of those multi year arrangements compound. Just the renewal is higher. In some cases, as we do with our SaaS customers, there is a land to expand.
And so, and some of our guidance does reflect expansion of these, of these customers. And so that gets included. But we're not in a position right now to comment on 2020 or 2021. These arrangements, I will expand that. In backlog as the subscription term component again is recognized at the very start of that arrangement.
And so unless it was an arrangement that we signed on a renewed again on December 31st with a renewal and in January 1, for instance, I know you wouldn't see the subscription term component in backlog. In other words, it's going to happen right away. And by the way, you won't see revenue because the way we have to accelerate that portion of revenue, there's no, you know, deferred revenue on the balance sheet. You will though and as we have disclosed in the financial statements, you will see the recurring subscription term license related to those deals. And that's the revenue that we said that we will anticipate being in line with substantially in line with 2018.
And just to clarify, was there anything for 2020 guidance per se, but rather an understanding of what the expiry timing looks like of the current contracts. But maybe to ask a different question. In terms of the current on premise base, you mentioned some of them are expanding. Is the opposite also happening where some of them are moving to cloud or are you not seeing that trend?
Oh, we have. Absolutely. We have, converted a number of customers And that actually happened, we had a number of customers, you know, several years ago moved to the cloud. In some cases, whether it's because of their their industry or whether it's just because of the their own, you know, significant investments and data centers. They prefer to remain as custom hosted.
In our case, I know obviously we've got this revenue element, but underlying this is the ongoing cash. I mean, if it's a 3 year deal, they typically are paying us over those 3 years. We are engaged. We have that broader visibility with them. And so that's really our focus is we want to be a win win with the customer, but absolutely, we do, and we are open to looking at converting customers as it makes sense for both parties to the cloud.
Okay. And on a different topic, can you update us on your thoughts regarding future operating leverage? Clearly, you're guiding some margin compression this year due to higher investment. As a general principle, should we expect operating leverage over the next 2, 3 years or given the very large market opportunity in your competitive position, our operating leverage and margin expansion just going to take a backseat and be far less of a priority relative to positioning the business for strong revenue growth?
Yes. So ever since we went public in 2014, our focus has been and our message has been one of growth. And so we do view ourselves as really as a growth. We do view it with a long term. As you know, Thanos arrangements often take 18 months or so to close.
Just because what we do is so unique in the market and people want to work through that process with us. And at the same point in time, this model, as we've seen in other quarters, has a significant leverage potential. And in fact, we have, as just this past year, 28% EBITDA performance, is with the growth that we had is we believe a very powerful investor view, but it's opportunity, but it is very much one of long term growth. And As John noted, we've been extremely pleased with the return on our investment in the sales and operations team expansion in Europe. In fact, if you take a look at the segment and information, you'll see a growth even when it's 2017 is the pre IFRS, you'll see, growth in Europe and Asia.
We are very excited about the innovations that our teams continue to develop such as the self healing supply chain. And with now, not only the addition of Andrew and Anne to the innovation and product team, but the expansion of our of our engineering base. We believe that it's now the time to continue to drive that innovation. And, and, so yes, we're going to do an increase in those areas. So we don't view it as a compression of the operating.
I mean, it may obviously it manifests itself as less than the 28% or 30% EBITDA performance. But I think people do see the potential that we have. And quite frankly, having these long term subscription agreements and where we are in terms of not only our backlog, but our view of the funnel allows us to continue to make these investments with confidence knowing that we will be driving out these long term sustainable returns for the company.
Well, and clearly you've demonstrated that with the recent European win I guess I was just wondering more from a longer term modeling perspective. But then finally one last one for me. If I look in the financials, it seems like your U. S. Full year revenue was flat year over year.
I'd imagine that that's just, an apples to oranges comparison due to the IFRS transition, or is there any other dynamic
Absolutely. It is, that's these, if you recall, we had to basically as at January 1, 2018, forward advanced approximately $21,000,000 of revenue. So this is $21,000,000 of revenue that will not be recognized in 2018 or in the future years. So we had to, for those subscription term arrangements that had commenced, the renewal terms had commenced prior to January 1, 2018. We had to basically put in the rearview mirror And, as such, and given the, I share with you that a lot of this was related to longer term customers who were predominantly, US based.
It's, it really was focused on that segment. Information. So it's absolutely apples to oranges. We continue to grow in North America. We're not, it is a different growth rate than Europe, Europe, as you'll see has been a very, very strong as well as Asia.
And we anticipate continued growth based upon where we are with regards to deals in the funnel across all segments.
Your next question comes from Paul Steep with Scotia Capital. Your line is open.
Good morning. John, could you maybe talk just a little bit about how we're thinking about selling back into the base and in terms of new module uptake from those existing clients? Been a while since we've chatted about that. Thanks.
Yes, so absolutely things like live lens and self healing supply chain Those types of things, those types of investments are geared precisely for that. Our customers are constantly looking for innovations and expansion, of the platform. And, and so that's what driving that particular investment. We don't comment on the exact penetration of new modules like that. I will say that in both cases, we're seeing some success.
And we're pleased with it. I mentioned on the in the earlier part of this call, that we continue to make investments in the platform. And what we're seeing and I've made these comments in the past that creating a platform like strategy where we have partners engaged in potentially expanding rapid response and assisting us in expanding rapid response to serve new markets is also a very important investment for us. When we think about, you know, you know us to be in 6 verticals. And you, I have said in the past that we are in other verticals other than those six today.
We haven't necessarily announced exactly where and how we're progressing, but I would tell you that it's very likely you'll hear that we're entering new markets. And obviously, those are very purposeful. So our investments in R&D will continue to be focused on new modules as you've heard. And obviously, we're thrilled in both cases on the Control Tower and self healing supply chain to be recognized, for those investments. You'll hear, more and more of this investment towards platform, and just basically allowing our partners to assist in expanding new modules and expanding into new market verticals.
Great. Can you also maybe comment a little bit? Obviously, there's an implied big jump implied in the HR and the number of staff you're going to bring on in 'nineteen. You gave us a good little description at the beginning and then the release about what functions they'd be in. How should we think about what geographies you're going to add that staffing to?
And maybe the other twist to that is has there been thought of doing a small tuck under acquisition to actually help accelerate you achieving those headcount goals? Thanks guys.
Yes, great question, Paul. Thanks. So, in terms of the, yes, we are investing across the line. The investment in support and sales in particular though is going to be predominantly weighted to, Europe and Asia. We have strong teams in place already in North America.
And so It's been in the last couple of years that we've really further strengthened those theaters. So that would be a key focus there. Yes, there'll still be growth in North America, but more so in those theatres. R and D, I mean, we have, as John noted, we view it as the platform. It is a one product currently one team
and that is based in
Ottawa. And so we're going to be continuing to expand the R and D team in Ottawa. And so that's where that waiting will proceed. And then part 2 of the question and Yes,
in terms of the acquisition strategy, obviously, we're we are an organic growth company. We're a growth first. Every day we think about it, we think about how we accelerate that growth. And as it relates to tuck ins and things of that nature, we're always looking for things that are technically accretive, right? Could something out there bring us into a market vertical or provide for a solution that is white space for us.
It's really important to be what I call SaaSable, okay? And there's a lot of technologies out there that that frankly are not. And so non SaaS type products are poisonous for us. And so we're going to be razor focused on making sure we don't inflict any pain by accident. So we are you know, we are looking at, at various, opportunities.
I wouldn't project anything in the imminent future here. Again, we're hyper cautious about things like that and focused on organic growth. But if something were to manifest itself, that passes those gates, we'd certainly look at it.
Next question comes from Stephanie Price with CIBC. Your line is open.
On the back of the Unilever announcement, I was wondering if you could update us on the line in the consumer goods industry and maybe what stage of adoption you're at right now?
Yes. So we're the when I look at the pipeline right now, as I said, it continues to grow. And what's really what I'm really excited about is there's no signs of of concentration. I mean, it is very well distributed across all, all 6, even looking at Aerospace And Defense, We're seeing some growth there that we hadn't seen in previous years. And more importantly, we're seeing some great growth in the I'll call the newer verticals of focus, right?
So the CPG space continues to be a great area of focus for us. And obviously, winning some great logos in that space is certainly, driving what I might call trust by association. So we're quite excited about it. We continue to see strength in life sciences. And high-tech electronics.
Those 2 tend to be, our largest with life sciences, again, overtaking as the number one vertical for us. But the ones that are accelerating the fastest right now, when we look at acceleration, in the pipeline. It tends to be CPG And Automotive. Those are the 2 that we're seeing acceleration in terms of opportunities.
Great. Thanks. And then hoping you could touch on the competitive environment that you're seeing, and if you're seeing any change to the cost customers out there?
Yes. So we continue to focus on what I call a unique technique, a breakthrough technique in how we solve these problems. And, and to be frank, we're not seeing a competitive threat as it relates to that technique. And I guess that I would tell you that some of these marquee wins, these are enormous corporations that could they can buy whatever they'd like to buy. And I look at it this way.
They if they didn't if they could find a solution with their incumbent ERP system they would. And part of the reason why we've been successful is they simply cannot. And so they have to find they have to find the solution, elsewhere. At the same time, I'm not going to tell you that we are without competition. Competitors out there find all kinds of ways to cause delay, install.
I'd say that's one of the primary tactics that we see, okay? If you can't win on product, then you try to delay or poison the opportunity. So So we're used to that obviously and we're used to seeing those tactics. But in terms of a competitive threat, again, I'd say we're not experiencing it so much from, I'll call it the main ERPs.
Great. Thank you very much.
Next question comes from Gus Pepper Georgia with Macquarie. Your line is open.
Hi, thanks for taking the question. I'm just going to follow on what on Stephanie's line of questioning. So you announced a new leader in the quarter So by my estimation, estimation, you have probably the top 2 consumer packaged goods, good companies in the world. And in life sciences, you probably have 2 of the top 5. How important is winning these key customers within a vertical?
And once you announced Unilever, do you do you know that the call activity within consumer package, vertical, does it increase, or is it, or do other companies just not care? I mean, so I guess the question is how, you know, how much of a catalyst is winning these big names and penetrating further into these verticals?
Well, it's absolutely, a catalyst, obviously, for many reasons. 1, it's a I'll call it a statement in confidence that we that we are able to drive value in those verticals. And And secondly, it's a statement of confidence that we're able to do it at scale. That's critical. And This is not uncommon for us.
I think we might have talked about this in the past and how we enter new verticals. We find bellwether accounts. We find really, world leading corporations in the space, whether it was life sciences or whether it was in automotive, and we prove ourselves out and then we push forward with that account, into the vertical. So obviously very critical to us We've done exceptionally well in CPG. All the names that you might know are a clear subset.
Not everybody is allowing us to use their name, but it's a clear subset. And we're thrilled. As I said, continues to be The CPG space continues to be 1 of 2 that are accelerating for us and we're thrilled.
And if you look forward, I mean, let's say 2 or 3 years. So life sciences has surpassed technology do you think CPG and auto could rival those 2 other life sciences and technology or do you always do you think that life science and technology will always be your biggest verticals?
Well, yes, so Gus currently, you know, and it really is, almost, back to back on, in the quarters as to life sciences and high-tech. And high-tech was absolutely, our initial focus many, many years ago because these are the companies that had to had to change their supply chains. We're now seeing that as John noted in not only CPG consumer packaged goods and automotive, but other areas. And so absolutely, we do anticipate seeing those those markets continue to take up a bigger share. So right now, high-tech and life sciences are about 30% each.
So mathematically, our expectation would be yes, they will diminish, still grow in absolute, but as a a relative mix, diminish with, expansion in CPG and, I mean, it's got to add up to 100%. So TPG And Automotive. And so, not only will, we're, we're excited about that, that balance. As you know, we do not have we believe we do not have customer concentration. We have this nice balance across the verticals, which we anticipate will grow as well as in theaters.
So, it's on purpose, if you will, how we're really targeting to not only grow the business, but to grow it in a sustainable, pattern.
Great. Thanks for taking my questions.
Your next question comes from Deepak Kosha with GMP Securities. Your line is open.
Guys. Good morning. Thanks for taking my questions. First one I got on sales and then I'll come back to follow-up on another question. John, you know, I would have expected with increased partner influenced sales that you'd be getting some operating leverage on your Salesforce.
But you continue to invest. Can you help us interpret that and maybe how you're building your sales team differently now that you've got partners involved?
Yes, absolutely. I mean, again, we continue to see anywhere from 12 to 18 month sales cycles. And so, we're still going to invest in our sales function, whether it's to break open a new vertical or break open into a new geography. And as last year, you saw us making pretty substantial investment in sales. And we said it's heavily weighted towards Europe And then you obviously, it's yielded for us.
We're thrilled, to see, to see the uptake in great names, great business, and, it's definitely yielding. And I would tell you, we're, as I said earlier, we're growth first we're going to when we see opportunities to grow, we're going to invest. And, as it relates to sales, We are going to continue to invest perhaps not at the same rate as we did last year. And that is reflective of partner influence. Again, this in 2018, the vast majority of net new name wins were partner influenced and that remains today a core tenant, a core process for us.
That does not mean, however, that our sales teams are not engaged with those partners. So it's not a situation where partners are off necessarily without our assistance, selling direct because they still need to our talent. We still need access to the environments and so on. So it's very much a collaboration. Obviously, we get great leverage by through that partner alliance, but we're going to continue to invest in sales and marketing as the opportunities present themselves.
Okay. And just a follow-up on that. Are you able to kind of characterize your wins with customers, large customers as a mix of top down versus bottom up types of sales? I mean, are you at the stage where now the majority of your new customer wins are sales to the CEO or CTO level and are being driven down through the organization, or are they still kind of at a division level and have to be sold up? Into the management?
You know, they have actually been predominantly, you know, I'd say top down or middle up and down, types of sales. I mean, our solution becomes mission critical for these corporations. We become part of their business fabric. So these are this is one of the reasons why sales cycles tend to be in the 12 to 18 month. Timeframe.
These are very, very serious and long term decisions that these corporations are making. So I would tell you In fact, I simply cannot recall, a sales cycle where either myself or Paul Carreiro wasn't in direct conversation with the chief supply chain officer or the CEO or the CIO. Of these corporations. They're quite significant investments on their part, not just financial investments, These are significant process investments for them. And so I would tell you the vast majority of these opportunities We'll have direct interaction with the C suite.
Excellent. Thank you. That's very helpful. Last quick one. Richard, can you guys give an update on the number of customers you guys have at this stage given you have year end?
So, we don't, we're not disclosing that. And so, it is over 100, but we're going to just keep it in that range right now, Deepak. So we're continuing we are growing the customer base, but
I mean, but it's been over 100 for the last couple of years. So can you say that it's meaningfully changed in the last couple of years or is it kind of the same?
We're not going to comment further, but as John noted, the reason why we're not trying to be overly coy. It's just that we could sign a multimillion dollar arrangement initially with the customer. We could sign something that's maybe sub-one million. And we believe right now, given the nature of our customer base, given the nature of the competitive landscape, It's we're focused more on the absolute revenue growth as opposed to that level of disclosure. And at some point in time, we'll we will provide that that number, but it's, it's a growing base and we're very pleased and, and, you know, continue to welcome Marquee names across the globe and across the verticals.
Next question comes from Paul Treiber with RBC Capital Markets. Your line is open.
Thanks very much for taking my questions. Just in light of 2019 guidance that you can't give under the old accounting, Could you help, provide maybe what the SaaS revenue growth was in 2018 just to provide a help with comparability?
Well, it's, the short answer is, Paul, I we cannot. We cannot because, of the IFRS, you know, these are audited. These are are are numbers. And so, as a management level, we're very pleased with that sustained growth, but we can't publicly disclose a number You will, as you've seen here, that when you look back, you'll see that, 80% range. So the vast majority of the subscription revenue when we revert back is SaaS or the cloud base.
And we've indicated that as the, I know this juncture, our expectation of growth of 22% to 24% per year. And this is a part of our long term sustained growth. So it's we're not position and why we purposely provided this level of additional insight is to help you and others model that compound base going forward.
Okay. That's fair. The in terms of term license revenue, when you mentioned there's a number of questions where you mentioned that 2019 is towards the high end of the range. How would you characterize 2018? Is that the low end of the range or is it more towards an average type of year?
So again, this is a, you know, IFRS is a new construct and so you have to be coupled. What I think you can gain some insight in that, as of January 1st, we had to again push back into the rearview just over $21,000,000 of revenue and then that is predominantly, related to the subscription, the equivalency of that subscription term license that would have occurred in years prior to January 1. And I think you understand that most of arrangements centered around a 3 year mark. And so, but as I had noted in the call, we do also expand on renewal and in some cases. So it's, there is going to be, you know, it is going to be Unfortunately, there's going to be some, you know, it's going to be back and forth lumpy, but we're going to provide this guidance not only for the full year, but as we have here on the, on a quarterly basis.
Okay. And one last one from me. Just to sort of eliminate all the noise around the accounting and IFRS, in the past you've given sort of long term growth aspirations, I think in between the 5% and maybe in the 30% range. How do you see that either if it's subscription or SaaS? How do you see that those long term growth aspirations?
Well, I think we're still very comfortable with a mid-twenty percent growth for the SaaS component. And again, that's why we've now really on a laser beam basis provided that information. I think that, while professional services as a key part of the business, just given the support and uptake of partners, excuse me, we're going to see that at a lower growth rate and that's what we indicated sort of in the mid teens this year. The on premise customer hosted, if you will, maintenance support component, that is the ratable component of those longer term prescription arrangements. I think that is going to be relatively stable.
It really will be a function of our success on renewing those customers over the years ahead, as well as if there is a mutual agreement to subscribe with that customer on that basis. So I think what I'm saying is I want you to focus on the listeners should focus on the SaaS engine and where our goal is absolutely in the mid-twenty percent range. And then ultimately with partners, to further accelerate it beyond. But as John noted, it's a 12, 18 month sales cycle. So you have to sort of factor that out and as we factor in those longer term growth rates.
For taking my questions.
Your next question comes from Suthan Sukumar with 8 Capital. Your line is open. Sugan, your line is open.
Good morning guys. Just a quick question for me just kind of on the on your product on the increased investments on the product side of the business. Can you kind of speak to what your current focus is for your mid to long term product roadmap and how that might change given these recent investments and if that direction is being influenced by customers and partner input?
Yes, so we obviously it wouldn't be appropriate for us to share product roadmap information in any great detail. I will tell you, as I said, we continue to invest in new capabilities that we can, that we're getting feedback from our own customer base as part of our expansion opportunity. And some of the things that we've announced like Live Lens and, and we call network, network visibility, supply chain network visibility and visualization, the self healing supply chain. Those are all things that we've announced and they're sort of driven from practitioners who were driving our initiatives. As previously stated, this year and in past years, we've been very focused on the platform.
And, obviously, the more flexible rapid responses, the more likely we'll be successful in entering new markets and driving, having our partners drive new new capabilities on our behalf. And so we're in terms of, I'd say, strategic direction, that's where we're going to see some investment
Okay, great. Thank you for the color guys. That's it for me.
Okay. And we have a question from Chris Martino with Laurentian Bank. Securities. Your line is open.
Thanks for taking my question. With the Genpact acquisition of Barkawi, I was just wondering, do you have any insight into how that integration is coming along? And is that translating into a potentially more significant channel for you than it was in the past? Are you seeing any interest from Barkawi's clients in the solution?
Yeah, Barkawi has been a partner of ours for many years. They are very mature They're a great partner of ours and I personally met with Genpact's CEO. I've been involved in I'd say at a high level, the relationship building there and Genpact I think as they highlighted in their own earnings call, recently, has a real focus on supply chain. So we're obviously thrilled to be working to be working with Genpact and the fact that they exceeded their practice with Barkawi, I think, is it's going to be beneficial.
Okay. Thanks for the color.
We do not have any questions at this time. I will turn the call over to Mr. Wadsworth.
Thank you very much. Thank you everyone for participating on today's call. We truly appreciate your questions and your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we support our Q1 'nineteen results. Bye for now.
This concludes today's conference call. You may now disconnect.