Good morning. My name is Kelly, and I'll be your conference operator today. At this time, I'd like to welcome everyone to the Kinaxis Third Quarter Results Conference Call. Thank you. I would now like to turn the call over to Rick Wadsworth, Vice President of Investor Relations.
Please go ahead.
Thanks, operator. Good morning, and welcome to the Kinaxis earnings call. Today, we will be discussing our third quarter results that we issued after the market closed last night. With me on the call are John Secard, our President and Chief Executive Officer and Richard Monkman, our Chief Financial Officer. Before we get started, I want to emphasize that some of the information discussed on this call is based on information as of today, November 9, 2018, and contains forward looking statements that involve risks and uncertainties.
Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward looking statements disclosure in the earnings press release as well as in Kinaxis' 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 into MD And A, both of which can be found on the Investor Relations section of our website and on SEDAR. Participants are advised that the webcast is live and is also being recorded for playback purposes.
An archive of the webcast will be made available on the Investor Relations section of our website neither this call nor the webcast archive may be rerecorded, otherwise reproduced or distributed without prior written permission from Kinaxis. To begin our call, John will discuss the highlights of our third quarter and recent developments, followed by Richard, who will review our financials for the quarter. Finally, John will make some closing statements before opening up the line for questions. I'll now turn the call over to John.
You, Rick. Good morning, everyone, and thank you for joining us today. During the third quarter, we grew subscription services revenue on a comparative base by 19% and delivered adjusted EBITDA of 31 percent of revenue prior to adoption of the new accounting standards that we walk through in detail on previous calls. Current quarter subscription revenue growth was slightly lower than we expected as certain large subscription agreements are taking longer to conclude than we had originally anticipated, most notably in Europe. We're working to close these late stage arrangements as soon as possible, and I see no indication of tempering growth whatsoever, quite the contrary.
Our overall pipeline continues to grow and strengthen given our sales and marketing activity and growing partner participation We have every Giving effect to the new accounting standards, our total subscription revenue was $27,700,000, and adjusted EBITDA was $9,500,000 or 26 percent of revenue. We were pleased to welcome new customers in our 2 largest markets, high-tech electronics and life sciences, and also pleased to see new customers from every major geography we target. We have also made significant progress in Our recent investments in Japan continue to pay dividends with significant new business in that region as well. Our partners continue to influence the majority of new deals and we're pleased to add 2 new strategic partners during queenney in Japan and Global Supply Chain Specialist, Crimson and Co, headquartered in London. We are extremely happy to see a continuing surge in partner consultant certifications more than doubling since the beginning of the calendar year.
This success is built upon the unique concurrent planning capabilities of our Rapid Response platform. Validating that differentiation during the quarter and for the 3rd consecutive year, Gartner recognized Kinaxis as a leader in their Magic Quadrant for Supply Chain Planning System of Record. And in fact, position Kinaxis as furthest overall with respect to completeness of vision.
We were
also thrilled to learn that Ventana research recently honored Kinaxis as a digital innovation award winner in the operations and supply chain category. For our use of machine learning techniques, to create welcoming Andrew McDonald as Chief Product Officer. Andrew comes to Kinaxis from executive positions at technology companies, including Alcatel Luton. Where he led a division generating $1,000,000,000 per year in revenue. As our new CPO, Andrew will leverage his extensive experience to scale product management, software design, research and development, quality, certification and documentation with a focus on further accelerating Kinaxis innovations for the market.
With that I will turn the call over to Richard for an overview of the financials.
Thank you, John, and good morning. As a reminder, all figures reported on today's call are in US dollars under IFRS. Genasys adopted IFRS 15 16 or what I'll refer to as the new standards effective January 1, 2018. We have not restated 2017 financial results. However, to enable comparison with Q3 2017 results, we have presented Q3 2018 financial information on a basis reflecting both before and after adoption of the new standards.
Prior to the new standards, total revenue in the 3rd quarter increased 18 percent to 39,600,000 This performance was driven predominantly by subscription revenue which increased 19 percent to $30,700,000 due to contract secured with new customers as well as the expansion of existing customer subscriptions. As John mentioned, this is slightly below our expectations due to delays in closing business with certain potential new customers. I will comment further on this matter when discussing our guidance. After giving effect to the new standards, total for the period was $27,700,000, of which $27,200,000 related to cloud based arrangements and $500,000 related to on premise arrangements, which by their nature will vary quarter to quarter. Professional services revenue remained strong in the 3rd quarter, growing 16 percent to $8,700,000.
Professional services revenue reporting is not impacted by the new standards, but will vary quarter to quarter due to a number of factors, including the size, timing and scheduling of customer arrangements as well as the engagement level of 3rd of our partners. Prior to the effect of the new standards, gross profit grew 16 percent to 27,600,000 This represents 70% of revenue in line with the 71% in Q3 2017. Slight change in gross profit margin reflects increases in headcount and related compensation costs and higher depreciation costs associated with the expansion of our data center capacity. As previously reported, we have invested in new data centers in Europe and Japan to support our ongoing global expansion. Under the new standards, gross profit for the third quarter was $24,600,000 or 67 percent of revenue.
Prior to the effect of the new standards, profit for the quarter was 5,200,000 or $0.19 per diluted share compared to $6,000,000 or $0.23 per diluted share in Q3 2017. The change reflects an increase in operating expenses made to support our global expansion and ongoing product innovation net of increases in revenue and gross profit. Largely due to the investments we have made in personnel and facilities to support our global expansion. In addition we incurred legal fees related to our ongoing arbitration with $2,700,000 or $0.10 per diluted share. Prior to the effect of the new standards, adjusted EBITDA for the third quarter grew 14 percent to $12,300,000 or 31 percent of revenue, which reflects the growth in revenue and gross profit in the period partially offset by operating expense growth.
Under the new standards, adjusted 6% of revenue. For Q3 2017 due to the lower profit before depreciation, taxes, and share based payments. Our cash balances was $176,100,000 at September 30, 2018 compared to $158,400,000 at December 31, 2017. The nature of our ongoing long term contracts provides us with a high level we are now disclosing As at September 30, 2018, the total backlog of subscription services was 197,800,000 and reflects an overall increase for the 2019 future period. Of the total backlog amount $26,300,000 will be recognized in Q4 20 this quarter.
$86,300,000 will be recognized in fiscal Kinaxis' success is driven by our unique ability to deliver concurrent planning, which enables large enterprises to transform their supply chain planning processes. Our sales cycles are often 9 to 18 months as prospective customers complete comprehensive analysis and assessment prior to adoption. We have considerable experience managing these conditions, and as we've consistently communicated, our efforts remain focused on driving high revenue growth through multiyear subscription arrangements. Accordingly, we have adjusted revenue guidance to reflect revised timing estimates. On a pre standards basis, we expect that total revenue will be in the range of $155,000,000 157,000,000 and subscription services revenue will grow between 21% 22% over 2017 levels.
Giving effect to the new standards, we now expect that total revenue will be in the range of $152,000,000 $153,000,000, Subscription revenue will be in the range of $107,000,000 to $108,000,000, subscription term licenses will be between $9,000,000 $10,000,000. Our business model and operating margins continue to remain strong as reflected in our consistent adjusted EBITDA performance. We are pleased to update our already strong will be between 23 percent 25 percent of revenue. Net R and D expense will be in the range of 17% to 19% of revenue, and adjusted EBITDA for 2018 will be between 25% 27% of revenue. Giving effect to the new standards, We now expect that sales and marketing expense will be between 22% 24% of revenue R and D between 17% and 19% of revenue and adjusted EBITDA between 25% and 28% of revenue.
As we've noted, we remain very confident in our future prospects. Specifically, we are very confident that our 2019 guidance will reflect accelerating revenue growth And with that, I turn
of spending time with over $2,000,000,000,000 of revenue was represented at our event. Customers shared the myriad and often unexpected ways that they are realizing being achieved using competing conventional approaches. I am more confident than ever that we are the only company truly transforming supply chains via concurrent planning. The benefits of our highly differentiated technique are undeniably real. We heard repeatedly how the ability to detect and react instantly to constant change has helped our customers improve customer service, reduce costs, and manage their business more effectively than ever before.
I'm thrilled with the health of our continue to develop our sales team and our partner network. We continue to innovate and extend the capabilities of RapidResponse. We continue to build our As I mentioned in my opening remarks, I have every confidence in our long term growth, including our ability to achieve accelerated revenue growth through 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,
Your first question comes from the line of Richard Cee from National Bank Financial. Please go ahead. Your line is open.
Yes. Thank you. Gentlemen, just curious if you could maybe give us
a little bit more color on the nature of the deal slippage here in Q3?
Yes. So, as I mentioned, and we've talked about in previous calls, our sales cycles tend to be 9 to 18 months. And, on occasion, they can take longer. On occasion, they can take less time. And, in this particular case, over the summer months, you know, we had anticipated these deal closures occurring and and they just slipped.
It's just a question of timing and nothing more.
Okay.
So you've made a lot of changes to the org structure here over the last little while and made a bunch of investments. Is it sort of fair to sort of make this assumption that that's kind of providing the sort of new foundation of this sort of accelerating growth. And I guess related to that question, are we pretty much complete when it comes to those org structure changes and you're happy with where you are today?
Well, that's a it's a great question. And absolutely, we've been, I've been personally focused heavily on on improving the overall management, talent as we scale to the next plateau. And so in every case, whether it's Paul, Jay, recently Andrew, bringing on people who have, not only been part of, but witnessed the scale up to a $1,000,000,000. And so, not only am I thrilled with the talent that we've been able to attract, you know, this is an incredibly sumpatical, team. You know, the the culture is is phenomenal.
So I'm I'm thrilled with it. Whether or not, there's an opportunity to increase that. There may be. I'm always looking for talent. But the motive is entirely focused on preparing for that next plateau.
You hear about companies who don't think about it soon enough, and they get crushed by success. That won't be us. So this has been a part of the philosophy of strengthening the overall management team.
Great. And just this one last one for me, in regards to the partner channel, is there sort of a target number partners you want going forward here? Are you sort of at peak or capacity there? Just trying to understand directionally where you're headed there. That's it.
Thanks.
Thanks, Richard. So, the answer to that is a resounding, no, there's no limit. In fact, we've learned depending on geography, depending on market segment, depending on geography and market segment, you can sometimes get, different partners engaged with these large organizations. And so, you know, we have no exclusivity whatsoever. In our partner program.
It continues to grow. We've added 2, this, this last quarter. We have others in the funnel. You may you may be learning about. So, there there is no limit whatsoever.
We're, we're highly focused on that as a key leverage point.
And I think maybe we could share that to show an indication of the success of that partner network, we have there's actually a greater, a professional services base of practitioners outside of Kinaxis and our partners and they are generating, at a revenue level higher than Kinaxis. So This is the absolute success that we were seeking and we're very excited by that acceleration as well.
Thank you.
Your next question comes from the line of Daniel Chan from TD Securities. Please go ahead. Your line is open.
Just wondering if there's any change to your revenue retention rate for the quarter?
We continue to thank you, Dan. We continue to have over 100% net revenue retention, which is, which is great and just shows that that block of revenue from existing customers is carrying forward. And, we continue to also expand with our customer base. So that that business model continues to drive forward.
Okay. So just to confirm, there aren't any customer losses?
Well, occasionally, we do lose a customer. It's, it's, you know, there are different reasons as we've noted in other calls. Everything from financial issues of liquidation, to consolidations. But the focus here, Dan, is that you know, as an overall cohort, that, that revenue base is extremely stable and continues to grow.
Okay. And then if I take a look at the midpoint of your full year guidance now on the on the old accounting standards, it suggests that EBITDA for EBITDA margin for Q4 will come in at about 21%. We haven't seen that low in EBITDA margin about 2 years. So kind of wondering why the implied Q4 margin is expected to be that low. Is it from a customer acquisition costs you're expecting in the
quarter? Well, there's a there's
a number of factors. You know, prior to the standard, we have, you know, we today, even still, we we do primarily a very conservative, expense model where everything is taken as a period cost. The exception to that is deal customer acquisition cost is a variable component only that is capitalized. But, you know, we are in essentially both instances, guiding to that 25 to 28 or 25 to 27 depending upon the standard. So very, very strong, EBITDA performance.
In, in Q4, marketing costs traditionally are higher, given the, given our customer conference as well as other key marketing activity that we participate in. We continue to invest. And so there is a bit of an uptick in some other op costs, but, that strong EBITDA performance is what we're guiding to for the year.
Okay. And I guess related to that question, since we're already almost halfway through the quarter, those deals that slipped, have you already closed any of those?
We don't comment, you know, until we close the quarter, we do have this long term experience of of this, of working with large enterprises. And as John noted, over the 1918 month cycle, we are very confident in, in these late stage discussions. And, and, I would say, comfortable with, regards to the way they are tracking. We do continue to close business throughout the quarter. And I think that's reflected in our confidence and our guidance, not only for this quarter, but in terms of the messaging for the future as well.
Great. Thank you.
Your next question comes from the line of Thanos Moschopoulos from BMO Capital Markets. Please go ahead. Your line is open.
Hi, good morning. John, in terms of the deal slippage, does some of it have to do with the fact that you have less historical experience, with respect to selling in Europe and the new is predicting sales cycles there or would you characterize it as more of a random event?
I would characterize it as more of a random event, quite frankly. And, and, you know, we've we've been at this a very, very, very long time. You know, I intonated there that, you know, most notably these are in Europe and, you know, I also intonate to some extent you pass over summer months and things don't necessarily move as quickly. So it's nothing more than a random event and a timing event in my estimation.
And certainly speaking, it seems like you're selling in some cases to larger companies never before. And so that being the case, can you comment on whether sales cycles have been changing at all or whether they've been consistent in that 19, teen month range? And also whether deal sizes have been changing on average?
Yeah, not so much. In fact, you know, when I look at deal closures, it was actually quite, quite even through the through the quarter. In terms of large and small, we can small large and medium, I'll call them. In this particular case, And I would say, it's almost uniform that the larger, the opportunity, it will tend to a longer sales cycle They tend to be much larger opportunities requiring, signatures at a significantly higher level, sometimes at a board level. And so these, you know, these tend to take longer, but I wouldn't necessarily say that, there's any askew between them.
Great. And then one last one for Richard. Could you provide us with directional color on term licenses in 2019? Or is it too early to do that? And, when you provide guidance next quarter, will you provide pre IFRS 15 guidance as well or just post IFRS 15 guidance?
Thanks.
So we will, thank you, Dennis. We will be, in our next call, we will be providing guidance with regards to the term subscription license. This is the the right to use component for the rest of the, audience. And what we do is we recognize that at the, commencement of the term. So that is the one that will vary quarter to quarter.
And so absolutely, to provide transparency, we'll provide that guidance when we do for when we do that for 2019. However, this is a transitional year, and that's why just to help, you know, investors track our long term growth. We have been providing both, free and post IFRS. But come 2019, we will, just be only, providing guidance and and reporting under the, the current gap, so post IFRS. And, but that will still provide the full quarter to quarter comparison.
Maybe just to clarify your commentary in the press release about accelerating growth in 2019, would that refer to total revenue or, subscription revenue specifically?
It, it really focuses on the engine of growth, which is a subscription revenue, but that does tell you that both total revenue and subscription revenue, we see accelerated growth.
Thanks. I'll pass the line.
Your next question comes from the line of Robert Young from Canaccord Genuity. Please go ahead. Your line is open.
Hey, good morning. A while ago, you were providing medium term targets for sort of the targeted business model of, of subscription revenue growth of around 25% and adjusted EBIT margin of around 25%. And so is that when you look at the model, not looking at guidance for 2019 or is that still the model that you're looking at? And is the acceleration in growth that you're talking about, is it relative to that targeted business model or is it relative to the results you've seen in 2018?
Well, we are we clearly we're delivering in the mid to upper 20% range. For, for, for EBITDA performance. And our aspirational goals, continue to remain strong in that mid-twenty percent range. And and, you know, as we see the partner take up, you know, our goal, quite frankly, our longer term goal is to further accelerate above that.
Okay, great. And then maybe a mechanical question. The current deferred revenue, not longer term deferred revenue, but the current deferred revenue has dropped in Q1, Q2, and now it's dropped again in Q3. And so I can understand why the longer term, because longer duration contracts, but I I don't understand why the deferred revenue in the current has been dropping. And if you could explain the mechanics around that, I'd that'd be helpful.
Sure. So we we have 2 measures that we report. 1 is bookings, and that deals with the subscription. So this is you sign a contract, you make the commitment, and the minimum term commitment is reflected in bookings. And that's what gives us the longer term confidence.
Deferred revenue is as a direct financial measure, and is really based upon the level of invoicing. So depending upon everything from the customer issuing that purchase order to the timing of the invoicing, the deferred revenue will vary. So we'll obviously book the deferred revenue upon the on the invoicing and then draw down as we recognize revenue. So we are going to see this fluctuation and it really depends upon the term. The better indicator of a go forward view is really, from our general guidance that we've been, providing.
As well as then looking to the bookings. And as you've seen, the bookings for the relevant period, I mean, the future period have to continue to increase.
Okay. And then maybe one last broader one for John. I've heard Kinaxis mention some aspirations in the mid market a few times. And I was wondering if you could talk about some of recent channel partners and whether that's preparing you for the mid market and whether that's something that's an emerging piece of
the business? And I'll pass the line.
Great. So, yes, I have made those statements that, I'll call it the fitness of rapid response for mid market is ever present. And our when we look at the entire cohort of our customers today. There are mid market, customers in that mix. So we know that there is a fitness It's a question for us, it's a question of focus on when to and how to harvest That specific market segment, it's a different sales cycle.
And, at the moment, it isn't a an absolute focus of ours. We still tend to focus for focus on extremely large, complex supply chains. However, as I said, we do have some that are in the in the mid market. At this time, we're not focused on it. When we do, it'll very likely be through a partner channel.
Your next question comes from the line of Stephanie Price from CIBC. Please go ahead. Your line is open. Could you talk a bit more about the current sales environment and whether you're seeing any clients moving slowly just given trade and Brexit concerns, etcetera?
It's a great question. And honestly, we're not. We're not seeing, necessarily a slowdown and in some cases, we're seeing an acceleration. We've had cases recently where, individuals were looking for what I call a tariff management simulator, which, you know, we have been using rapid response to identify opportunities there. So I wouldn't necessarily classify it as as slowing down.
It's a it's it's you know, I wouldn't necessarily call it accelerating either, but I'd say that the use cases, are are changing somewhat. And overall, our pipeline, has never been stronger frankly. It just hasn't. And it's remarkably evenly distributed not only by geography, but by market segment.
Great. And you also mentioned earlier about partner uptick in the partner enablement program. Maybe you could touch a bit more on that?
Yes. So we are seeing, you know, the majority of new named wins continues to be partner influenced. So the program is absolutely working. We have seen a doubling of of certified consultants across the spectrum of our of our current partner ecosystem. And so everything that we envisioned as a leverage point from customer, from these partners, and influencing new names and in assisting in in the deployment of those projects is actually occurring.
There are far more consultants outside of Kinaxis certified to deploy than there are inside. And that is exactly the model that we're aspiring to.
Great. And then just one last one for me. Last quarter, I think you provided a bookings number. I wonder if you could provide that this quarter as well.
Well, from a if you take a look at the bookings and the drawdown is $26,000,000, just over $26,000,000.
Perfect. Thank you. Your next question comes from the line of Paul C from Scotia Capital. Please go ahead. Your line is open.
Yeah, morning. John, it's been a while. We've done a little update on the competitive market landscape. Can you give us your take on what the industry is looking like at there and any changes you may or may not have seen? And then I got one quick follow-up for Richard.
Sure. So, you know, we continue to see, you know, I'll call it the large essay incumbents, if you will, as the primary, you know, competitive threat At the same time, we look at the Gartner positioning and they still, identified us as number 1 from an innovation standpoint. And we, I will tell you, as I said in the past, we don't necessarily compete on product capability. We compete on technique. We walk into these accounts, whether they're SAP or otherwise, and talk about the potency of concurrency.
Right? It's a different way of thinking about the problem. It's not we have a better planning solution than someone else. We have a distinctly different technique. It's, you know, here's the equivalency.
It's like it'd be like the difference between flying from New York City to London versus taking a boat. 1 is a clearly differentiated technique that, that provides a significant breakthrough. And that continues to be the way we're winning. Great.
And then the follow-up for Richard, just you guys do have a long track record of forecasting large lumpy deals. Any changes or thoughts about how you're going about forecasting maybe with some of this, I guess, more unusual behavior you're seeing out of Europe or at least it sounds like maybe 1 or 2 accounts. It's hard to hard to tell there. Thanks.
Sure. I mean, we, this is our heritage, Paul, and that, you know, we solve complex problems for large enterprises. And that means, working with those large enterprises We are going to the very fabric. They're typically, this is a rip and replace. They are not, succeeding, or driving the value that they need.
And So, they work with us. It typically will go through the, you know, the proof of concept they want to ascertain. And then because they're going to for them. And so this, this model, it's gonna, I, you know, until until we are really through that, across the chasm, if you will. We do anticipate that it's going to take 9 to 18 months.
What has happened, is a significant increase in sales capabilities, both in terms of individuals as well as geographies. We've talked multiple times about the ongoing health of the funnel and health really describes a number dimensions, including geographic coverage, vertical coverage, just the names of the Marquis. So that continues to build. I wouldn't characterize this as an unusual, sorry, as sort of a as a trend. This is this is, you know, this is just the way that, you know, some of the deals have happened.
I mean, you almost want to think think of activity, almost, you know, some waves. And this just is a bit of a, you know, some days you have a crest, some days you have a bit of a trough. But it doesn't change the long term view. I mean, I think, people understand that, you know, if you sign a 3 year significant agreement, starting in September, that's obviously going to generate more revenue than one that's signed December 15th in the current year. But in terms of the 2019 revenue and the overall value to the company, it doesn't matter.
And it's really better to focus on ensuring that that initial deal is the right deal for the company longer term. So this is we're just trying to communicate that, you know, our focus remains on the long term. Our confidence remains on that long term. We are extremely excited about what's in front of us, both from, you know, John commented on the quality of the team. As it continues to build and the quality of our partners and the growing realization of a need to fundamentally transform your supply chain.
So that's where our focus is.
Sorry, I should have been more pointed around how I asked you. You're not seeing anything systemic that requires you to change your contracting or to try to sort of chunk down deal size to prevent some of these issues. It sounds like it's more isolated to 1 or 2 clients. Is that fair to sort of walk away with guys? Thanks.
We we we are, responsive to the market and we do, work with our customers, to align. But our goal is not to go short term in that, and quite frankly, neither is their view. You know, they are going to be making significant changes. And as John commented on changing their technique, you know, I would love, I mean, I will tell you, it'd be great to have, you know, applications of that would be directed to, say, the CFO's office as opposed to the supply chain. Now with the ability of the platform and with the, experience of our partners, that maybe something that, you know, can be addressed in the future.
But, we, you know, we don't really foresee major changes to the model and the reality is we are just going to continue to, directly and through our partners work with these organizations.
Yes. Just to be clear, there's nothing systemic that we see whatsoever. Nothing.
Great. Thank you.
Your next question comes from the line of Paul Treiber from RBC Capital Markets. Please go ahead. Your line is open.
Thanks very much. Good morning. Just in regards to the increasing side of the company, the greater number of partners involved in more geographies that you're in. How do you think about, I guess, managing the complexity or increasing complexity of the sales operations in the processes around that?
Yeah. So so, Paul, for me, it's about, repeatable rigor. Those two words are really important to me. And and so, you know, Paul has extensive experience in running extremely large sales forces. You know, he's had a very long pedigree of 1,000,000,000 and above, revenue target, on on his back.
So he knows what that looks like, feels like smells like. And You know, we have a very repeatable, rigorous sales operations team that that basically governs the entire planet and and how sales cycles are are monitored, how they are, know, how they progress through the, through the sales cycle. We have a rigorous education program as we bring on new talent. We have a very consistent partner enablement program that is a capital E capital P, capital E, capital P, PEP, that PEP program, is consistent for all partners. And it's that kind of repeatable rigor that gives us confidence that, when we're looking at data and we're looking at progress of the business that, we can rest assured that, that it's accurate.
And that's the way we've, we've prepared ourselves for scale.
That's helpful. The, looking at guidance in regards to the implied number around professional services, it looks like the professional services revenue is would be unchanged. Now how would the professional services relate to the slip deals Is there no change in the outlook for professional services regardless of the deal timing? Now how do you think about that?
Well, yes, so, because the focus is obviously on enablement of customer success, the level of professional services, is related to the timing of deals. And when I say the level of professional services, that's both our partner revenue and our own revenue for the deals that we're working on directly. But, our typical arrangements, it's not unusual to have a 9 month to maybe even a 15 month deployment cycle. And so as such, there is ongoing activity. We are very comfortable with the bookings.
That we have in, professional services. And, but yes, professional services revenue would have been somewhat higher, but it is still we are still forecasting as you noted in our guidance strong sustained professional services revenue.
Okay. Thank you. I'll pass the line.
Your next question comes from the line of Topeka Kushal from GMP Securities. Please go ahead. Your line is open.
Hey, guys. Good morning. Thanks for taking my question. And my follow-up. I just wanted to go back, Richard and John to the long term vision here.
You guys have identified 2000 large enterprise, customers as a target market, excluding the mid market. As you contemplate, you know, hitting your $500,000,000 $1,500,000,000 revenue goals, What kind of penetration of this market does that imply? And what's your sense of at what point the market starts to become price sensitive?
Yes. So it's difficult to predict sort of a number, if you will, on, on, at what point would we see crossing over the at $1,000,000,000 versus $1,000,000,000 mark And so, you know, I would tell you over, as we progress through market segments, that number continues to grow. You mentioned 2000. Some have noted, that we have also entered into the food and beverage space, for example, which is a subset of the consumer packaged goods. When we announced Pulmawon, the largest tofu manufacturer on the planet So as we continue to progress, we're also looking at expanding our market, our market verticals that we would be tackling.
And, and that just further expands the TAM, which again further expands the market opportunity. I will say that, when we look at the speed at which we will achieve those levels of growth, I do look at it as a function of market maturity. And at some point, you start to see momentum in market maturity. And that can sometimes happen in one vertical and and not happen at the same rate in another. So life sciences is an example in our, you know, for our, our targets continues to be quite warm.
There's a lot of, activity and maturity in that market segment to put a date out there that says we're gonna hit this number at this point. You know, people will say, have you hit the inflection point? Well, it won't be Monday. It, you know, it's not a point in time. You sort of it it just happens quite naturally over a period of time.
The things that give me great confidence, and the things that I look at very, very carefully, and scrutinize is the size and health and distribution of our extremely rigorous sales process. And, as I've intimated, previously on the call, it has just frankly never been, this large. So it's a very we're quite excited for the potential.
Thanks, John. I know none of us have crystal balls, and it's hard to bring precision around these long term things. So I appreciate the the thoughtful answer. My follow-up is is on the continued theme of new sales and marketing executives. Can you talk about any kind of change in thinking that they brought into the organization, are you guys ready to start talking more about reference customers in certain markets and naming more of your customers?
What kind of new thinking have have the new executives brought in on a sales and marketing front? Thank you.
Yes. So both, I would even say sales marketing and what we're starting to experience now even on the product side. And it really goes to preparing for scale. You know, if you have, if you have, a sales team focused on, you know, you have 5 people focused on 1 micro geography, well, everyone knows each other. When you when you when you have hundreds of people, for example, spread all over the world where people don't know each other, you need different process.
Right? This is where this repeatable rigor comes into place, and how you can how you can sustain growth. And so the types of thinking And the preparation that is going on right now, within the management ranks is preparing to scale and it's preparing the sales to scale sales. We're already seeing that. We described that at the beginning of the year where Paul came in and dramatically increased the size of the overall sales engine, inside a very short period of time.
And so, you know, preparing a larger group of strangers to follow us a consistent process that operates at scale is what is, you know, I'll call it the learnings that we're gaining from the experience of folks like Paul. And Jay, Jay is the same. You know, his experience in global marketing. You know, we're starting to see a significant improvement in those areas as well. And and focused on the R and D center.
It's the same thing. You know, we've we have a rapid response serving, 6 6 different market segments today and 3 geographies. The team is growing and running an R&D shop with twenty people versus, you know, a thousand people, for example, is quite different. And this is what I'm looking for when we're scaling the management talent.
Okay, great. Thank you. That's very insightful. I'll pass
the line. Appreciate taking my questions.
Thank you.
Your next question comes from the line of Seth Zukumar from 8 Capital. Please go ahead. Your line is open.
Good morning guys. At Connections, you guys announced an expanded relationship between yourselves and Deloitte. Could you touch on some of the goals for that and how that could help accelerate sales and deployment timelines?
Yes, sure. Not only Deloitte, but in general, our partners are very keen on on producing their own intellectual property, if you will, associated with, either market segments or geographies that they are targeting. And rapid response as a platform is wildly flexible. It's very adaptive As witnessed with the fact that, you know, we we serve companies that make tofu and companies that make rockets So everything in between. And so, you know, company like like Deloitte and other partners are looking at rapid response in this this unique technique of concurrency, not only as an opportunity to grow their business and deployment, of supply chain transformations, but quite frankly, it create, new and unique, IP which they could then subsequently sell, to their customer.
So this, you know, isn't just, a Deloitte specific endeavor or a Deloitte specific desire. We're seeing this across the board with every partner.
Okay, great. And on the R and D front, I know there's a number of technology initiatives underway at Kinaxis. But just curious, what are your R and D and product development priorities heading into 2019? And how should we think about R and D spend going forward?
Yes. So we continue on our path to innovation. Last year, we were quite excited about the invention of the self healing supply chain and even more thrilled that Ventana recently, honoring us with an award. And if you if you look at the cohorts, it's it's just a very, we're quite proud of it. We think it's a very innovative tech technology And it's also, extremely practical and powerful.
So we're going to continue along those lines and investment in, in machine learning and what we call augmented intelligence. So the ability to, you know, I often describe it as taking the robot out of the person. And so you'll see some significant investments along those those fronts. I've I've just mentioned this notion of rapid response as a platform, and I've talked about it in the past as well. How flexible and adaptive the platform already is.
Well, we are currently not in oil and gas. We're not in retail. We're not in cut and sew. We're not in forestry. There's many, many different market segments available, for rapid response.
And my belief is, in the hands of our partner ecosystem with this potent platform, We will And so there, you know, we're we continue to apply investment in RapidResponse as a platform.
And as the going forward, you know, that level of investment and and and innovation, we would anticipate that, you know, the the the spend, if you will, on R and D would as a percentage of revenue remain in the same, the same band as it is now.
Okay, thanks. That's helpful. And just one quick last one from me. We noticed some changes to your premium customer support tier. Can you speak to what some of those changes are and how do you expect that to enhance your post sales revenue opportunity with the expansions and such?
Well, thank you for noting that. And, what's, what's, what we're doing is we're continuing to evolve the level of of support for all our customers, not just, you know, our core customers, but, we are, because we are mission critical and a number of growing cases, we are advancing the level of premier support for our customers. Then yes, as you noted, that is an additional revenue opportunity. And, and it's just as, as you would expect in the industry, this is, more of a direct touch a dedicated people, a higher level of response, above that, which quite frankly, is already very high, but, it is, it is a growing area and something that we'll, we anticipate, we'll extend in the, in the future and as part of the confidence of our, of our revenue growth.
Yeah, in fact, I'll add. I didn't mention Mike Major, who's, who's heading our global customer support who has extensive experience running large scale global operations, for support. And again, using the terms repeatable rigor, we are looking at, we're always looking at investing in new ways to provide, you know, high degree of of support and care, for customers regardless of where they are. Rapid response once deployed is, is seen by our customers as part of their business fabric. Is mission critical.
And, you know, under those circumstances, the degree of repeatable care as you scale becomes vital. And so what you're seeing is the influence of a guy like Mike Major applying it to that function.
Great. Thanks. I appreciate that color guys. Thanks for taking my questions and I'll pass the line.
Thank you.
And there are no further questions at this time. I will now turn the call back over to Rick Wadsworth for closing comments.
Thanks, operator, and thank you everyone for participating on our call today. We appreciate your questions as always and your ongoing interest in support of Kinaxis. We look forward to speaking to you again next time when we report our Q4 results. Thanks for now.
This concludes today's conference call. You may now disconnect.