Good morning, ladies and gentlemen. Welcome to the Kinaxis Inc. Fiscal 2022 Q1 results conference call. Currently, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for you to queue up for questions. I'd like to remind everyone this call is being recorded today, Friday, May 6, 2022. I'll 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 earnings call. Today, we will be discussing our Q1 results, which we issued after close of markets yesterday. With me on the call are John Sicard, our President and Chief Executive Officer, and Blaine Fitzgerald, our Chief Financial Officer. Before we get started, I want to emphasize that some of the information discussed on this call is based on information as of today, May sixth, 2022, 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 results and non-IFRS financial measures.
A reconciliation between IFRS results and non-IFRS financial measures is available in our earnings press release and in our MD&A, both of which can be found on the IR section of our website, kinaxis.com, and on SEDAR. Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive of the webcast will be made available on the investor relations section of our website. Neither this call, excuse me, nor the webcast archive may be re-recorded or otherwise reproduced or distributed without prior written permission from Kinaxis. To begin our call, John will discuss the highlights of our quarter as well as recent business developments, followed by Blaine, who will review our financial results and outlook. Finally, John will make some closing statements before opening the line for questions.
We have a presentation to accompany today's call, which can be downloaded from the investor relations homepage of our website, kinaxis.com. We will let you know when to change slides. I'll now turn the call over to John.
Thank you, Rick. Good morning, everyone, and thank you for joining us today. I'll be starting on slide four. I'm pleased to report that Kinaxis had a very strong start to our fiscal year, both in our financial results and key operating metrics. For Q1, we achieved SaaS revenue growth of 22% to $49.3 million, total revenue growth of 70% to $98.1 million, and an adjusted EBITDA margin of 34%. Blaine will provide all the specific details momentarily. Moving to slide five. Momentum in winning new customers continues to accelerate as more companies consider replacing inflexible legacy cascaded planning techniques in favor of a more agile concurrent planning approach. In Q1, we matched our all-time record for new customer wins that we set in the previous quarter.
This is particularly noteworthy as the last quarter of any year is typically the strongest for Kinaxis. Matching that performance means this was an all-time record for any Q1 in our history and serves to boost our confidence in what is to come for the remainder of 2022. We are honored to be selected by a growing number of global companies that put their trust and confidence in Kinaxis and RapidResponse to bring about transformative improvement in supply chain planning performance. For example, leading health science companies like Siemens Healthineers and Bayer CropScience. In the consumer products sector, we added the iconic brands Kimberly-Clark and Carlsberg, and we secured another major expansion with one of our many flagship customers in the automotive sector.
Complementing our ongoing success with large enterprise companies like these, we continue to see success in the mid-market, with over 35% of our new customer wins in the Q1 coming from this category. We are thrilled with our ability to serve such a broad universe of companies and verticals with a single SaaS offering. It is a testament to the universal value of concurrent planning and validation of the strategic product decisions we've made in the past. Record-breaking new customer wins in Q1, coupled with expansion from our install base, has resulted in continued growth in our annual recurring revenue. At March 31st, our ARR grew a healthy 24% year-over-year to CAD 236 million in constant currency. Behind that, our Q4 rolling pipeline continues to grow stronger still and shows a healthy balance across all key geographies and vertical markets.
In Q1, we experienced a sharp growth in the number of unsolicited inbound leads, in fact, an all-time historical high, which in turn helped to support an all-time record number of direct prospect engagements for the quarter. These are distinct signs of momentum in the business. Together, these leading indicators provide us with the confidence to grow SaaS revenue by 23%-25% this year and to increase other aspects of our annual guidance. I'll now ask Blaine to discuss the results for the Q1 and share more details about our improvements in guidance for 2022. Blaine?
Thank you, John, and good morning. As a reminder, unless noted otherwise, all figures reported on today's call are in US dollars under IFRS. Move to slide six. Total revenue in the Q1 was up 70% to $98.1 million, reflecting strong SaaS revenue growth, particularly strong subscription term license revenues, and a high level of professional services activity. SaaS revenue grew 22% to $49.3 million, driven by record new customer wins in recent quarters and the expansion of existing customer subscriptions. Subscription term license revenue was $23.5 million versus $2.1 million in Q1 of 2021. Fluctuations in this revenue item are generally tied to the normal renewal cycle of our customer-hosted software subscriptions, and will vary period to period as a result. Q1 2022 represents the peak of that cycle.
Our professional services activity was strong again, resulting in $21.5 million in revenue, or 78% growth over the corresponding quarter of 2021. The rapid growth reflects accelerating new customer wins in recent periods, higher professional services capacity and utilization, and expansion of our service offerings. Generally, this revenue item varies from quarter to quarter based on the number, size, and timing of customer projects underway, as well as the proportion of work assumed by partners. Maintenance and support revenue for the quarter was $3.9 million, up 26% from Q1 2021, reflecting overall growth in the subscription business with a small group of customers who have chosen to deploy RapidResponse on-premise or who maintain the option to do so. We continue to be pleased with the diversity and strength of our total revenue base.
For the quarter, our 10 largest customers account for 40% of our total revenues, compared to 27% in the comparative period. As I just mentioned, the higher proportion is an outcome of being at the peak of our normal subscription term license revenue cycle. The value of one such on-premise subscription renewal was large enough to account for more than 10% of total revenues. Now, if you go back to Q1 2019, at the same stage of our approximately 3-year renewal cycle, you'll see the same pattern occurred. First quarter gross profit increased by 87% to $69.6 million as a result of revenue growth.
Gross margin in the quarter was 71% compared to 64% in Q1 2021, largely reflecting the greater proportion of high gross margin subscription term license revenue in the mix, and a very strong 20% gross margin on professional services revenue due to high utilization of the team. Adjusted EBITDA was up 267% to $33.1 million, for a margin of 34% compared to 16% in the Q1 last year. Our profit in the quarter was $12.5 million compared to a loss of $1.5 million in Q1 of 2021. The significantly higher revenue and gross margin resulted in greater profitability despite increased investment in key operating areas. Q1 cash flow from operating activities was up 7% from the comparable period at $22 million.
At March 31, 2022, cash equivalents, and short-term investments totaled $252.2 million compared to $233.4 million at the end of 2021. We remain pleased with our outstanding track record of cash generation. Let's move on to slide seven. Turning to some key metrics. Our annual recurring revenue grew $42 million or 22% year-over-year to $232 million, including currency impacts. Currency movements mask even stronger underlying growth. In constant currency, our ARR grew 24% year-over-year to $236 million. This improvement reflects the unprecedented strength we have recently experienced winning new accounts and the success winning incremental business from our installed base. I'll remind you that the growth rate for the SaaS portion of ARR is higher than for total ARR.
Moving on to slide eight. Our remaining performance obligation remains strong at $479.1 million, up 25% from March thirty-first, 2021. Of that total, $445.2 million relates to SaaS business, which is up 22% year-over-year. Further details on our RPO can be found in the revenue note to our financials. Recall that growth in RPO reflects both incremental business won and renewals of existing subscription amounts, which are subject to the normal schedule of existing customer contract renewals and their duration. ARR only reflects incremental changes, up or down, in new or existing customer subscription amounts, and as such, is a better indicator of future revenue growth. On to slide nine. With respect to our outlook, we are pleased to be able to provide you with increased guidance for fiscal 2022.
We now expect total revenue for 2022 to be between $345 million and $355 million. SaaS revenue is still expected to grow between 23% and 25% over our 2021 level. We now expect subscription term license revenue to be between $32 million and $34 million. The balance of the incremental increase in total revenue guidance will come largely from professional services. Finally, we now expect our adjusted EBITDA margin to be between 16% and 19%. Overall, our results for the Q1 were strong, and the key metrics we watch as indicators of future business growth are trending very positively. We are thrilled to be investing in this exciting and developing opportunity. With that, I will turn the call back over to John.
Thank you, Blaine. Just over a month ago, I celebrated 28 years at Kinaxis. I can honestly say that I have never been more energized about the future than I am now. We are, at this very moment, experiencing what I call supply chain renaissance, a generational shift in how supply chains will operate for decades to come, and setting a new foundation for future generations of supply chain practitioners. We're moving away from legacy cascaded, lethargic, and siloed planning techniques and moving towards modern, hyper agile, immersive, inclusive, concurrent planning techniques. I believe Kinaxis is uniquely qualified to accelerate that reality. Finally, a quick commercial about our upcoming customer conference. I'm thrilled to share that we're having a sold-out in-person event happening next week in San Diego. In fact, I'm told it's significantly oversubscribed at the moment.
The good news is that we are going to simultaneously stream virtual content through the Kinexions '22 event. I encourage you all to participate virtually in our premier global conference for supply chain planners, innovators, and thought leaders. You can register under the financial analyst category for the virtual event track at Kinexions.com. During the conference, you will have the opportunity to hear from supply chain executive practitioners and experts from leading companies such as Amgen, Honeywell, PQ Corporation, and Qualcomm, to name a few, on how they are meeting today's challenges and building their roadmaps for the future. Certain sessions that aren't initially available virtually will be made available later on demand. As always, thank you all for taking the time to join us on the call. With that, I'll turn the line over to the operator for Q&A.
Yes, thank you. As mentioned, we will now begin the question and answer session. To ask a question, you may press star, then one on your touchtone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble the roster. This morning's first question comes from Richard Tse with National Bank Financial Markets.
Hey, thank you. Congrats on the really big quarter here, guys. Listen, it sounds like the pipeline's getting a lot bigger. Can you maybe talk about how much is that due to, you know, your marketing investments in recent years, or the expanded partners or just the broad market tailwinds? Trying to get a feel for where that's coming from.
Yeah, Richard, it's a great question. I think, you know, I've probably had 90 conversations now, at least 90 one-on-one conversations in the last 15 months or so with chief supply chain officers, and the narrative is really unified. Every board is asking every CEO, "What will you do next time?" There's an appreciation that, you know, that uncertainty is the only constant, and agility is becoming the new competence that people are looking for. The pipeline, you know, continues to grow, you know, quite strongly I will say, quarter-over-quarter. More importantly, you know, I mentioned earlier the unsolicited inbound leads, which saw a very sharp increase quarter-over-quarter.
I think it's a reflection of what I'll call an appreciation that we're at a crossroads in this craft, in this discipline, that incrementalism is dead. That, you know, there has to be a fundamental shift in how supply chains are governed. I think, you know, this is what this global pandemic has done. It's created an opportunity for the practice, not just for companies, but for the practice of supply chain to reflect on, you know, what matters most going forward. You know, there was a time, Richard, where we would be competing with CRM projects or competing with MRP upgrade projects. Those were, I would say, very strategic. Not anymore. Supply chain, I think, is probably my.
Well, at least in my estimation, the most strategic endeavor, and I think it'll last the next 5-10 years.
Okay. This is a related question here. If you look at the landscape, you know, it's certainly been fairly active the past few years from an acquisition standpoint. You know, you had Blue Yonder, now you got Anaplan. Like, I'm not gonna ask whether you guys are a potential target as well, but how is the competitive landscape changing in the midst of those acquisitions? Does it sort of strengthen your position as those companies regroup, or what do you think about that?
You know, there's been no meaningful change, honestly, in the competitive landscape for us. You mentioned Anaplan there. I think they're, you know, predominantly focused on the office of finance coming in through the CFO's office. Supply chain is altogether a completely different function and significantly more complex, I would say. We very rarely will bump into them. I can't remember the last time, frankly. It continues to be, SAP is the predominant incumbent. We will bump into Blue Yonder and o9 from time to time, you know, as typical. You know, honestly, I would point you back to the Gartner Magic Quadrant, which I recognize is the old one.
I would encourage you to keep an eye out for the next one, which I think will be imminent. I think they really get it right. You know, I have a lot of respect for the process they put everyone through. It is very detailed. I think they really get the competitive landscape right. You know, maybe the next week or two will tell us the story.
Okay. The last one for me, you know, the services number is actually, you know, continues to be quite robust here. Can you maybe just update us on the nature of those services versus the ones that you hand over to your partners?
Yeah, you know, we've been looking at that. We were anticipating getting this type of a question. You know, these last Q2 , in fact, I wanna say five of Q6 in a row, we've been experiencing record-breaking net new wins. As a side effect of, you know, bringing on that number of customers, it's a natural side effect that we would be starting more projects. That said, we are doing fewer projects, fewer engagements directly, like where we're the lead, versus when our partners are lead. We're still seeing, you know, the vast majority of deployments that are occurring today, where our partners are taking the lead.
We might have a secondary role, but we are taking on the minority of lead, you know, what I'll say the professional services lead position for net deployments. I think what we're seeing is a side effect of a very rapid, successful net new customer acquisition, you know, over a very short period of time. You know, the last Q2 , you know, we announced in Q4 the record number net new accounts in the history of Kinaxis, and Q4 being typically the strongest quarter of the year as long as I've been here, and then replicating that yet again in Q1, which, you know, I think is a sign of momentum in the market. I don't see this as a systemic situation.
It's really just a side effect of our recent acceleration of net new accounts. You asked about the type of service. That hasn't really changed, either. You know, the deployment services, whether it's you know, starting with RapidStart and expanding from there or I did mention, as a result of our acquisition in India, we are doing some sustainment services for some of our largest customers. Overall, we haven't seen a real shift in the type of service that we're offering.
Okay, that's great. Thank you.
Thank you. Next question comes from Thanos Moschopoulos with BMO Capital Markets.
Hi, good morning. John, I remember at the time of your IPO, you'd said that the biggest constraint to growth was customers needing to realize they needed software like this. As you alluded to, clearly, that's not the case anymore. They all kind of get it. At this point, what would be the constraint to growth? I mean, you're obviously putting up very strong growth, but in terms of accelerating it beyond that, is there a constraint in terms of sales and marketing capacity or in terms of deployment capacity or what's the dynamic there?
It's a great question, and there is something that keeps me up at night, obviously, that, you know, we think about as we absorb success. You know, obviously, there isn't a day we're not hiring across the board ourselves as a company. But more importantly, there isn't a day where we're not recruiting partners and system integrators. I believe we added another 15 or so in Q1. We're up over 90 signed agreements with partners. Not all of them system integrators, of course. Some of them are solution extension partners, some of them are VARs. That all said, we're investing quite heavily right now in the onboarding and, you know, the training required to make sure we can accelerate the readiness of our partners.
We're, you know, obviously looking, as I said, to these leading indicators. I've talked a lot about this in past earnings calls about unsolicited inbound leads, which is essentially when somebody rings your doorbell with, you know, they come to your store without any solicitation, they just come to you. We monitor that very diligently with our partner network to certify as many third parties as we possibly can so that we can be ready to absorb the momentum and the success we see in front of us.
Great. Kind of partner-related question. I think in the past, you've alluded to the opportunity of leveraging resellers to perhaps tackle a market segment, even if it's smaller than mid-market. Is it very early days on that front or anything to report?
You know, I'm happy to report that we actually had our first successful VAR sale. You know, that initiative isn't very old. It's quite in its nascent state, but we have signed many VARs already. I don't know the exact count. Do you know it?
I believe we're up to over 20 at this point.
Yeah, over 20 VARs, and one of them has successfully closed a deal on their own. Well, you know, with our support, obviously. You know, so we're thrilled with that. You mentioned the mid-market, and I talked about this in the opening remarks, that we're thrilled to be able to to satisfy the needs of such a broad spectrum of customer sizes and verticals. You know, our smallest customer does under $100 million in revenue. Under $100 million, and they're using exactly the same software as companies that are over $150 billion. It is a testament, as I said, a testament of the power of concurrent planning as a technique.
Obviously our VAR program right now is really focused on expanding our sales footprint outside of the geographies that we're already in, and certainly tackling a much broader pipeline of potential. I think we used to talk about targeting 3,000 accounts. In previous earnings calls, we've talked about that growing to 6,000 or 7,000. I can tell you today, with the VAR engagement that we have, we're probably closer to 20,000.
That's great. Just a quick one for Blaine. Is it safe to assume that the 23%-25% SaaS revenue growth would be a couple of points higher in constant currency?
It's a great observation and great question. I will say that our numbers are being held back a little bit from because of FX issues. I'm looking forward to the euro and Japanese yen and British pound, all that to make a recovery during the year. I'll say I'm very confident in the 23%-25%. I will also say that FX is part of the reason that we're in that range right now.
Okay, great. I'll pass the line. Thanks.
Thank you. The next question goes to Daniel Chan with TD Securities.
Hi, good morning. Another question on the guidance seems to be coming from ProServe. You guys are talking about a lot of net new customers coming in, so I'm just wondering why this increased ProServe outlook doesn't correspond with a substantial increase in software guidance, whether that's from term license or SaaS. I know you increased the term license guidance, but that seems it could be mostly related to the strength from this current quarter.
Well, may I just jump in with the professional services and why we're seeing the increases. A number of reasons, but the biggest reason goes back to, again, the customers that we're seeing coming in. As you can imagine, the professional services revenue comes in at the upfront for any of our software agreements that we have in place. So that revenue is right now hitting the front of that ramp that we're gonna have with the subscription amounts that come in over a longer period of time.
We are in a position that we're very fortunate to have, you know, very big numbers that are coming from professional services, but we are working very diligently to make sure that our partners are getting the bigger bulk or the bigger piece of the pie when we do that work. This is just a symptom of the fact that this is the upfront fee that a lot of customers will take on to deploy our software into their environment.
Is it fair to say that the professional services that you're deploying this year then, and the upside that you've guided to, is it fair to say that maybe some of the software revenue you're gonna see would fall into 2023 then?
Yeah, definitely. I mean, our software revenue, we generally have contracts between three and five years. Other than subscription term license revenue, which, the majority of it's recognized upfront, our SaaS revenues will be recognized over that three-year, three- to five-year period. We do have some ramping deals that are in place as well. We do have some committed ARR that will be landing over the next two to three years.
Okay, thanks. Just another question on ProServe's strength. You mentioned that your engagements with your partners haven't changed. Just wondering to what extent your move into the mid-market is driving stronger demand for ProServe as well, considering some of these smaller customers may not have the resources to deploy it themselves and may want to leverage your services.
Well, yeah, absolutely. As I mentioned, you know, just the sharp increase in net new customer wins in a very tight window translates to a sharp number of project starts, you know, all at the same time. Now I will say, obviously, mid-market companies will tend to have smaller overall projects than, you know, our enterprise class customers. But there's definitely foundational work there. So that comes back to, you know, working very diligently with our system integrators to make sure that they're well prepared to absorb those projects alongside them, those net new wins. But again, I wouldn't classify them as being substantively different. They might be smaller in scope, but not different from enterprise class accounts.
Great. Thank you.
Thank you. The next question comes from Robert Young with Canaccord.
Hi, good morning. Just looking back over the years, it struck me that you hadn't really raised guidance in the Q1 very often, certainly not the quantum you're doing with this quarter. Given a lot of that's coming from professional services, as others have pointed out, I'm just curious, is there an implication there around, you know, the speed of growth here at the beginning of the year faster than other years? Is there anything that's, you know, creating a dynamic where you see a higher level of professional services here in the short run? Yeah.
Yeah. I'll answer that. We're in a fortunate position obviously that things are ramping really quickly, and professional services are gonna be the first group that are gonna be touched by this rapid growth that we're seeing. You're right. We generally haven't, we've been pretty accurate in terms of understanding what our opening year forecast or guidance would look like. I think we're in a situation where we're in a again fortunate situation where things are happening faster than we anticipated, and professional services is the first area that we're seeing that increasing a lot quicker than we expected. We're also seeing on the retention period, like our customers are extremely happy with us.
Some of the reasons why you're seeing this increase in guidance is that we've gotten to a position with a lot of our renewals that we're seeing for the rest of the year that are looking really good at this stage. I mean, I would say on a retention perspective, especially on gross retention, this will be one of the milestone years that any company out there would ever have. We're very fortunate to be in that position at this stage. We're in one of those situations that I think every CFO wants to be in, where things are rolling in our favor in a lot of different respects.
We're able to increase the guidance at this stage, and we'll keep you up to date for the rest of the year.
Just to be clear on the comment on gross retention, is that expansion that you're trying to highlight there, or it's just the high level of expansion that you're expecting to drive the gross retention?
No. Good comment. When I talk about gross retention, I talk about our customer retention. We've always talked about that we're in the mid-90s% to high 90s%. I think we're closer to the latter at this stage for 2022. Net retention has continued to be over 100%. We're still very, very happy with the expansion that we've seen on our current customers. What we're doing right now is we're in the process of, with every new customer we bring in, that's more powder to be able to allow us to expand that revenue over time. We're situated pretty well on both those retention figures.
Okay. The comment made on the unaided inbounds. I'm curious how you're handling those because as far as I understand, you're not covering all of the verticals out there as yet. Are you seeing a lot of inbound outside of your target markets, target geographies, and how do you handle those? Are most of these going to your partners? I mean, maybe if you talk about that and how it informs your, you know, your planning.
Yeah, absolutely, Rob. So we're certainly seeing inbound leads from mid-market accelerate as we show evidence of success in supporting that sector and that. Certainly across all the geographies. Of course, we're taking inbound leads in geographies where we're not necessarily directly present. With a growing list of VARs, that gives us an opportunity to, you know, to make allocations, if you will, on those opportunities. That is continuing as we go. Of course, that is fueling, as I said in the earlier comments, you know, it's one thing to have somebody ring the doorbell and just be browsing. It's another when they say, "No, no. I have a project. I am...
You know, I have a process I'd like you to go through. That is, you know, fueling not only the pipeline, but active engagements. We're, you know, for me, these are leading indicators. You know, the other thing I can tell you, I think maybe, you know, you and I have known each other a long time, Rob, and I've always said our cycle times tend to be on average 18 months. Well, you know, I've been monitoring that very closely, and that is now. There is evidence to suggest it's closer to 12-15 now. I'm confident enough to say that I think that will sustain for some time because this is becoming so crucial for so many companies, you know, to tackle.
We're obviously thrilled with that momentum and, you know, the bets we made on, you know, on our global alliance initiative and growing that team are really paying off.
The cycle time, that's a whole can of worms. Hope others expand on it more. What's the key driver? Is it the rapid value? Is it the shift to mid-market? Is it customers pushing, you know, you to go faster through the sales process? I mean, if there's one or two key drivers, you know, the compression of that sales cycle, what would it be?
I'll tell you that, you know, based on my conversations, if I had to pick the number one, it's. I describe it this way, when I'm talking to a chief supply chain officer, they tell me, "I have a 104 fever." Like, the symptoms are so horrible, and so they're looking for a really rapid prescription. Like, can you lower my fever? And then we can talk about, you know, transforming for the future. I think that is the one catalyst that is really driving this. The other, I think I mentioned this before, that boards are all over this topic. You know, supply chain isn't something that's tactical or a cost center, it's an absolute strategic weapon.
Even just recently, I wanna say yesterday, this might be the first time this happened, where Cardinal Health specifically mentioned Kinaxis as a partner in their press release, in their earnings call script. This is becoming more and more typical, where supply chain is becoming hyper strategic, and the need to transform away from, you know, the legacy lethargic approach, the cascaded approach, to one that is hyper agile, is becoming urgent. I think those are those would be the two things I would say, Rob.
Okay. Thank you.
Thank you. The next question comes from Stephanie Price with CIBC.
Hi, good morning. Just following up on that last conversation there, I was hoping you could talk a bit about the pace of RapidStart sales cycle and conversions to maybe more full rollouts?
Yes, Stephanie, I can certainly speak to that. You know, in fact, RapidStart was very much born out of many conversations I was having with chief supply chain officers that told me exactly that. "You know, you need to deal with symptoms first before I can deal with cure. I need to be strong enough," you know, if I can use that analogy. RapidStart continues to be, what I believe, unmatched in the market, the ability to shake hands and go live inside of a 12-week period. In fact, you know, for one recent life science customer, I wanna say it was 6-8 weeks to their initial go live, which I think is revolutionary right there.
We are seeing continuation of a pickup on that theme. Although, depending on the size, it's not uncommon for an enterprise class customer to say, "Look, I love this RapidStart. I need to go live as fast as possible, but I need to embellish the starting point just a bit." We might see something in the sort of four-month time horizon for that initial go live. It continues to be very, very strategic to us. It's something that we lead with. Obviously for mid-market, it is extremely well received.
Great. Thank you. Then one for Blaine, just on the Q1 margins. They're obviously very strong. Can you talk a bit about the decision to raise margin guidance for the full year by 10 basis points, and the investments that you're looking at for the rest of the year, maybe?
Sure. Yeah, it actually came down to just math at the end of the day. Going from 15% to 18% to 16% to 19%, with a slight increase in subscription term license, which generally brings to us a 100% margin. But as you can imagine, with professional services also being a large part of the increase in total revenue, it has less of an impact on the margin at the bottom line. It does have obviously a big dollar impact for us, but the percentage impact is less so because what we expect, and we came in around 20% for professional services at the end of Q1. We expect we're gonna be somewhere in that 10%-20% range for professional services.
One of the things that we're noticing is that the utilization of our team is extremely high, and we wanna manage that utilization throughout the rest of the year. We're gonna ensure that although we see revenues continuing to ramp, we're gonna try and ensure that we have enough resources to support a slightly lower utilization, which will then mean a slightly lower gross margin. We're pretty happy with that margin in any case. At the end of the day, it's a spreadsheet. It's a math formula. It works out to 16%-19%, so we're happy there. Your second part of the question was asking, like, where do we see investment?
Our biggest investment is gonna be headcount and dealing with the increase we're seeing. We will have to add people on the professional services side. We are continuing to look at the sales side to try and meet the demand that we're seeing. The fact that we have this great inbound funnel that's coming in is amazing, but we've also need to make sure that we're finding all those potential customers that haven't picked up the phone and haven't emailed us. We're in a position right now where we know there's a lot of open field, and we're doing our best to get as much of that to continue to ramp our revenue over time.
Right now, what you should expect from us is ramping revenue for the next little while.
Great color. Thank you.
Thank you. The next question comes from Paul Treiber with RBC Capital Markets.
Thanks so much, and good morning. Just wanna focus on scalability, you know, longer term and big picture. You know, you mentioned that the gating factor is securing partners and also capacity. You know, with RapidStart, is that. You know, I know it speeds the time to market, but then also does it accelerate or improve scalability in terms of reducing some of those constraints in terms of, you know, professional services like yours and third party? Is the attach rate lower? Is it obviously it's faster to deploy.
It sort of reduced that gating factor.
That is a wonderful question, Paul, and very astute in that it does actually. It was very much designed to, as it's a prescription. The idea behind a prescription is that it's the same medicine for everybody. The thesis there is that we can teach you know, we can teach our partners how to you know, how to administer that very same prescription 'cause it's the same for everybody. It's the same starting point. This comes back to the training and onboarding and readiness of our VARs and our system integrators for that matter, to be able to rapidly deploy and replicate RapidStart as a starting point for every customer.
That's definitely the thesis, and it is working in our favor, especially in the VAR area where, you know, we're seeing more mid-market activity than enterprise class activity. Absolutely. The answer is yes. We do see RapidStart as being a vehicle, you know, to reduce the friction, if you will, of getting VARs started and successful in deploying RapidResponse.
Taking that and looking out and sort of extending RapidStart, ultimately is it a possibility of moving more towards something that's more self-service, maybe even along the lines of, you know, multi-tenant from an architectural point of view, so your partners, it's much more, you know, hands-free for them to deploy it for customers or eventually get to the point that customers can just deploy it themselves?
You know, the part of the beauty of RapidStart is it uses a prescribed set of data that is very typical, and I would say uniform across the customers that we serve. There may be some industry-specific nuance, you know, between say, you know, high-tech electronics and life sciences and CPG. There'll be some certain data elements that exist in one market vertical but does not exist in the other. Those are completely encapsulated in the, you know, what I'll call the dosage of RapidStart. In terms of self-serve, I would say, you know, the systems that incorporate a customer's supply chain data, you know, is typically not a what I would say walk up and use.
There's typically some, you know, I'd say some IT work that still has to happen to integrate the data sets between, you know, even a mid-market player and our cloud platform. You know, obviously I would love to see a, you know, press a button, copy's yours, you know, log in and use your credit card kind of a process. Maybe we'll get there someday. I will tell you that, you know, supply chains are kind of like people, almost all the same, but just different enough to be meaningful. For the time being, I think we're still gonna have some need, you know, to have human beings involved in the deployment.
That said, we are seeing a continuous reduction in the amount of effort it takes to go live. I mean, I will tell you conversations I have with executives, and I said, "No, no, you can be live in 12 weeks." There's absolute disbelief until we prove it. You know, I've always said it, you know, you can only earn someone's respect after doing what you promise. We promise. You know, I think we're gonna continue to improve on that. Not sure that we'll end up with a walk up and use anytime soon.
That's helpful. Just one last one. Just in terms of the momentum of new wins. You mentioned that mid-market is 35%. If you exclude mid-market, you know, how do you characterize the momentum in large enterprise? Are you also hitting, you know, record highs or quarterly highs in terms of large enterprise wins?
I don't know that I've actually measured it that way, but you know, my intuition tells me that the answer is yes. In fact, conversations we've had recently, you know, on the management team, it felt like Q1 was a return of enterprise class customers coming back, you know, slower boats to turn. You know, we're looking at the pipeline, and we're seeing very healthy activity in the enterprise class. Obviously, we're thrilled with you know, being able to announce Bayer and Siemens and obviously Kimberly-Clark and Carlsberg and you know, these are all very large enterprise class accounts. You're going to see a continuation of those based on what I see in the pipeline.
At the same time, with our adoption of leveraging VARs, we're going to continue to see success in the mid-market as well.
Great. I'll pass the line. Thank you.
Thank you.
Thank you. The next question comes from Kevin Krishnaratne with Scotia Capital.
Hey, good morning, all. Thanks for taking my questions. Congratulations on the quarter. Can you comment on how the disconnect between private and public multiples is affecting M&A pipeline, and if you had any negative conversations with potential targets there?
Well, I think as I said earlier on our earlier calls, anyway, we're being a lot more thoughtful when it comes to M&A. We concluded a very small tuck-in in Q1. You know, obviously our pipeline, we continue to look at a pipeline of M&A potential. It is motivated, you know, around filling white space in our technology, like accelerating white space in our technology. It's not so much, you know, looking to buy revenue, but looking to accelerate white space and technology. You know, I would say that there may be some other potentials throughout the year as we go through that process.
We're exceptionally diligent to ensure that anything that we look at is technically accretive, that anything we look at has a strong use case fit for the markets we currently serve. Stay tuned, I'd say, on progress there. You know, that's, I guess, my commentary on the M&A front.
Great. Thanks. Has onboarding the BP customer last quarter helped actuate any conversations in that vertical? Are the wins there, you know, similarly greenfield or more competitive displacement?
It's a great observation, in fact, you know, that we were able to pick up BP in the, you know, so the oil and gas sector. Not the first, not the only. You know, there are some that we have not announced. Obviously, you know, very complex supply chains in that space. Very complex. Of course, Kinaxis does complex really well. You know, I wouldn't say that we're at a stage where we would announce that vertical as, you know, one of our primary ones. I think I've said this on previous calls, you know, while we, you know, we announced seven that we're actively engaged in, we certainly have customers and many more than that.
It's really one of, you know, an area of focus for us that we tend to be guided by. We are really happy with our progress, you know, not only with BP, but in that sector. Stay tuned for more news, as things progress.
Okay. Very good. The next question comes from Martin Toner with ATB Capital Markets.
Good morning, everyone. Congrats on a great quarter. Would like to talk about what needs to happen for EBITDA margins to move into the twenties and then higher. When I strip out subscription term licenses, it looks like you're pretty close. Can you talk about that?
Sure. I'll jump in. You know, first I'll just say that it's one of those situations where you have a company that, like ourselves, that we believe we're very balanced in terms of growth as well as profitability. A lot of you are obviously aware of the Rule of 40, and we've tried to invent the rule of 100 this quarter, so we're pretty happy with the direction it's gone. What we've done on the profitability side is we've been cognizant of the fact that there is a lot of growth still in front of us. We are trying to manage that growth with accelerating revenue streams that we're seeing right in front of us right now.
Definitely, I think I said the last call, if we wanted to be, we could continue to be at a 30%-35% adjusted EBITDA margin company right now. We are consciously making a decision to stick in that range of, well, right now we're saying 16%-19%. We want to be over 20%. We could easily do that this year. I think we are gonna be very, very close to that range. Obviously 19% is not too far away. But we also don't want to under-invest for the opportunities in front of us because we do think that this is this is an accelerating revenue stream. I want to come back to you one day and say again, "Hey, guess what?
This is the second time we've had a Rule of 100. That potentially could be in our future.
That's great. Thanks so much. The RapidStart cohort of customers, they're still fairly new. Just wondering how can you talk about the success you've had growing with those customers at this early juncture?
Yeah, absolutely. Exactly as the thesis had, you know, predicted, you know, lowering somebody's fever and making them feel stronger leads to them doing more, you know, adding more value. Expansion is a very natural side effect, I would say, of getting to that stage. We have already seen significant expansions across multiple accounts that have already started with RapidStart. It's where they start. It's definitely not where they expect to end in their transformation journey. It's been very, very successful. We're thrilled with the initiative.
Great. Thanks, John. Can you say that your pipeline is still growing faster than ARR?
Yes. That's the short way to say it. Yes, it's our pipeline is growing faster than revenue. It's growing faster than ARR. So it's given us the confidence to be very, very confident in this call because we see the projections and where our conversion rates are, but pipeline growing faster than revenue or ARR is a good sign.
That's a great answer. Thanks so much, guys. Last one to San Diego is Ramneek.
See you there.
Thank you. The next question comes from Suthan Sukumar with Stifel Canada.
Good morning, guys, and congrats on a strong quarter. One question I had left here was more on the RapidStart versus RapidResponse piece. Kind of curious here, what considerations are enterprise customers making today when they go with the flagship RapidResponse platform versus the RapidStart program and the go-to-market benefits that that brings today?
Sure. It's a great question. First I'll just clarify that RapidStart. Think of RapidStart as being a blueprint, a prescription of the RapidResponse platform. There's nothing the software itself isn't different. It's not different at all. It's the configurations, the starting point, the starting configuration that is different, but it's not a watered-down version of RapidResponse at all. It has all the full power and potency and concurrent planning and end-to-end transparency. It's fully immersive and inclusive, you know, from tip to toe. You know, in terms of the software platform itself, there's zero difference. Zero.
The only difference with RapidStart is we're coming in with our 25-year plus experience and saying, "This is the starting blueprint that we can leverage to get you live, to get you concurrent, to start adding value inside of a three-month horizon." From that point forward, we can grow the configuration to become more, you know, what I'll say is, tailored to your own specific use cases. That's why this has been so powerful. You know, we've been at this for so long that, you know, our customers are relying on our own intellect and our own experiences to blueprint very valuable starting points. That's what RapidStart is. It's a blueprint. It's a prescription. It's a starting point.
From that point onwards, well, then they tailor it to their own specific use cases and expand it from that point.
Got you. Okay. Just to follow up on that, John, the customers that are comfortable with making kind of that full-blown purchase decision with RapidResponse, are they looking for an expanded set of capabilities right out of the gate, or are there other sort of decision factors that are kind of influencing that?
Yeah, absolutely. We've encountered even recently some very large enterprise accounts that absolutely appreciate the RapidStart approach. They start there with some embellishments. I'll use that word. They say, "Okay, We want RapidStart plus, you know, I don't know, constrained planning. You know, could you add that one feature on top of that prescription?" That might extend that starting point by a few weeks. That is more typical in the enterprise class than mid-market. You know, that would be, say, more typical in the enterprise class than mid-market. I think the philosophy of start, you know, of getting a very rapid go live is uniform between mid-market and enterprise.
The only difference is sometimes the starting point has some additional complexities in it that will extend, you know, might extend the go live by a few weeks, but it will hit a very urgent need of that particular account.
Gotcha. Great. And then one last one for me. Just on kind of the, you know, just kind of looking ahead here and looking at the macro backdrop, do you see any sort of change in the mix of it or in the mix of adoption between RapidStart and kind of the RapidResponse platform, given the potential uncertainty you had in the macro backdrop, or has it not really been a factor given that, you know, supply chain has just been, you know, going to be a growing as a strategic imperative here for the companies that you're working with?
Yeah. I think that supply chain is going to be a growing imperative for many years to come. I fundamentally believe that. I really think this is becoming an urgent necessity is the mother of invention. You know, it might have started with weather events, you know, the Ever Given being stuck in the Suez, port strikes, and then the pandemic hits. Then there's war. Then there is fluid inflation challenges, you know, hitting different parts of the world and recovering at different rates. You know, this is really informing management teams all over the world, and a recognition that, you know, if we're going to absorb this level of volatility, what I say is the ferocity of volatility, then something needs to change. They need to become more agile.
I think that is what's really fueling our momentum. There's you know, momentum begets momentum and we are experiencing it. You know, we're experiencing it right now here at Kinaxis.
Thank you for taking my questions, guys.
Thank you. This concludes the question and answer session. I would like to turn the call to Rick Wadsworth for any closing cmments.
Thanks, operator, and thank you everyone for participating on today's call. We certainly appreciate your questions as always and your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we report our Q2 results. Bye for now.
Thank you. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect your lines.