Welcome to day two of Citi’s Global TMT Conference, starting here right after the lunch hour with Razat and Herb from Kinaxis. Welcome.
Thank you for having us. Thank you.
Maybe just to start, Razat, if you could just, for anyone newer to the name, if you could just talk us through the journey Kinaxis has been on. How do you think about positioning the company today?
Yeah. Kinaxis, we're a software technology company headquartered in Ottawa with a global presence. We're the leaders in the supply chain planning and decisioning space. We have a long history in working across seven verticals, with some of the leaders in our industry. We've been really focused on helping companies make decisions across demand, supply, production, inventory, using predictive and prescriptive AI. Of course, as we speak and as we are investing and going forward, more and more, we are expanding, which is a very significant expansion for us, into agentic orchestration. So going beyond planning and decisioning into really operationalizing those plans. We're doing that with strong leverage of both generative AI and agentic AI embedded as part of our platform.
Got it. Let's dive into that shift from supply chain planning to a broader orchestration platform. Can you help make that a little more concrete when you think about the operations of your customers? What is changing on a day-to-day basis?
Yeah. Look, our customers tend to be leaders in CPG, life sciences, pharmaceutical, automotive, high tech, aerospace and defense, those sort of verticals. They use our core Maestro platform, the Kinaxis Maestro platform, to help inform their planning decisions. But there is a gap that exists between establishing those plans and then to execute on those plans to operationalize them. That is where, in the supply chain domain, there is a plethora of functions or sub-functions, people, and different systems that are involved in that operationalization of those plans. Leveraging modern data architectures, semantic architectures, leveraging agentic architectures, we have a strong capability to really be able to stitch together and compose those orchestration use cases while leveraging our planning roots as the brains to how orchestration happens. That is a pretty exciting expansion opportunity for us.
It is something that we have been working on with different components of an expanded platform stack. We are also mobilizing because, in this engagement model with our customers, a lot of our customers have pain points, and they have outcome aspirations, but they do not really know exactly what the feature function requirements are. So it requires a forward deployed engineering engagement model that allows us to do the discovery with our customers and prospects, establish what the feature function capability should be, and then to co-build with them, leveraging our composable platform and architecture.
Got it.
That's really the path and journey we're on. We have a core planning business that continues to grow and do very well and has been gaining momentum in the last several quarters. Then we have a very significant expansion opportunity with orchestration as well.
I think the traditional framing of the supply chain software world has been this split between the planning side versus the execution side. When you conceptualize orchestration, does this imply you moving into the execution side? Do you view this as some sort of a bridge between the two worlds? How do you think about that?
Yeah. If you were to ask me this question, let's say three, four years ago, the decisions we'd have to make in terms of our product strategy would be to build or buy execution systems. Given the new semantic architectures and given agentic AI, we don't have to do that anymore to get into the execution time horizons. We can ingest data from the plethora of execution systems that exist. We can map it into a common semantic and ontology layer, and then that feeds into a context graph that we then are able to traverse our agents with. With operational orchestration, we are getting into the more execution time horizons without having to develop or buy all the execution systems that exist, because there's a whole plethora of them. There's systems for sourcing, for order management, for transportation management, warehouse management, et cetera.
The other unique thing about being in that operational time horizon is the orchestration use cases can take lots of different permutations and combinations. So you've got to be interoperable with these different systems, but you've also got to be composable, and that's a very fundamental design principle we have in our platform.
Got it. Maybe Herb, we can bring you in here on this idea of it sounds like some of these specific execution categories are not something maybe, at least today, that you're considering buying into. You're brought in not only as the CFO, but you have the strategy piece as well.
Yeah.
When you think about adjacencies that make sense from a potential tuck-in standpoint, what comes to mind?
Yeah. I think, George, the way to think about it is twofold. One is there are a set of, I'll call it core underlying enabling infrastructure technologies that could potentially be interesting to us. But to be clear, these have to be things that accelerate our own internal product and technology roadmap. So that's one thing. The second thing is there is a difference in terms of how we go to market in some sense and interact with customers with the FDE motion. With the operational orchestration offering. Because it's not a get an RFP, get an RFI, and respond to a list of requirements that the customer's given you. So it requires a different type of capability.
To the extent that there may be opportunities for us to, again, accelerate the organic investments that we're making in building out that type of capability, those are the types of opportunities that could be interesting to us. But to be very clear, everything that we're thinking about right now, whether it's organic investment or through the M&A lens, these are all things that are designed to drive very clear revenue growth, revenue acceleration types of scenarios for us. We're not focused on the, I'll call it the consolidating types of acquisitions that are cost synergy driven.
Got it. On this movement, again, to a broader orchestration platform, do you feel that changes your competitive landscape that you play against? Maybe just to start, if you could frame how you think about your competitive differentiation, then do you feel like that's evolving in terms of the landscape of players you're up against?
Yeah, let me answer that question first. If we think about the evolution of Kinaxis and our Maestro platform, there's some very core differentiators, and I'll list out three of them. We are the richest digital representation of the physical supply chain and how it operates. That's very complex because it's highly interconnected. It is highly constrained because supply chains exist in a physical environment, on dock doors and shop floors, and pallets and containers. We incorporate all of that into the Maestro model. Also all the policies and the governance that happens in how these supply chains function. With that digital representation and we have a core principle around concurrency because, if you make small changes in demand downstream, how should that impact your production plans?
You have changes in inbound component parts or materials, how will that impact your ability to fulfill orders to customers that may be bent against those items? Those kinds of concurrency bidirectional interdependencies are reflected in the Kinaxis Maestro platform in a highly differentiated way, and is one of the big reasons why customers work with us. So that's the first reason. The second is in having a very sort of a patented and a proprietary in-memory database architecture that really allows for high fidelity and significantly high performance with complex compute and algorithms. Because a lot of the use cases we have, and actually almost all the use cases we have involve some form of machine learning optimization, heuristics or a combination thereof. That in-memory architecture is incredibly powerful.
The third one, as part of that is we have a very differentiated database architecture that's our own, that's pretty deep technology that allows for versioning in a way that scenario planning is a highly differentiated capability. Most of our competitors will say they do scenario planning, but when we are able to get customers and prospects to take a look at the way we have architected and the way scenario planning functions in our platform, it's the speed, it's the flexibility, and the propagation of these scenarios across that concurrent network. A combination of those things are highly differentiated. So those are the existing differentiators. Obviously, we are continuing to invest in R&D. We invest roughly 18% of our revenue back into R&D. We have a very rich patent portfolio, over 100 patents. We've got over 200 patents that have been filed that are pending.
This year we've already filed close to 50 patents. 46% of those are in AI use cases applied to the supply chain. It's a very rich and a thriving R&D and an engineering, and a product development function. In terms of how that competitive landscape is evolving, obviously there are traditional players that we compete against. There are new and emerging entrants. Our footprint is also growing, both in planning and now with orchestration. It's a fragmented landscape. What I can say is we're very focused on the first principles of our customer's pain points, how we create value for them, making sure we can do what we say we're going to do and deliver the value. That's leading to a strong flywheel, which is resulting in very high win rates, all-time high win rates in the first half of this year.
Got it. I think specific to the competitive landscape. Many of the players you play against have broader product portfolios across maybe ERP or supply chain execution or other areas of the stack. When you think about competing against those relative to the competitive advantages you just outlined, what's the playbook there?
Yeah, look, we've competed against ERP players who've been in the supply chain planning space for more than 25 years. SAP and Oracle have had supply chain planning footprints. We, of course, coexist with their ERP layer, but our differentiation and our positioning is very specific to the complexity of our customers' supply chains. When customers have scale, complexity, global, multi-divisional elements, complexity could be reflected in the network, in the complexity of their bill of materials, in the level of variability and change in the volatility in their supply chain operations. We just have a very highly differentiated capability, which is why the likes of Unilever and Ford Motor Company and General Motors and Qualcomm and Merck and hundreds of other customers work with us.
Got it. On that point, you just listed off a great list of strong logos. There's many more on that list.
Yep.
When I think about the total customer base, 400-plus customers, it is relatively tight relative to the size of the business. You have very deep relationships with large enterprises. When you think about the new logo opportunity, where do you see the most opportunities? I think about the data center build-out, maybe some of the oil supply chain shocks as maybe introducing some new opportunities. What comes to mind for you?
Yeah, look, we have expansion opportunities with existing customers, and then we have a ton of net new logo opportunities as well. The way we go about servicing that market and covering that market is in a very disciplined, focused way. We play in seven verticals. For each of those verticals, we've got specific use cases and templatized capabilities. We've got great reference bases. We are seeing a lot of growth in the high-tech value chain, obviously with the surge in the data center build-outs. That is extending beyond high tech into manufacturers of cooling units and energy and utility companies that are seeing a massive surge in demand. They've got much more complex supply chain needs and are becoming customers of ours. So, organizations like NextEra in North America, and Enel and Engie in Europe, they're customers of ours today.
Historically, we hadn't really targeted them, right? So that whole high tech and the data center value chain is a great driver for growth. Aerospace and defense is another one. We're seeing a lot of demand and need for our capabilities in the aerospace and defense industry, where there's a surge in demand and the need, and they have very complex bill of materials. They've got fairly fixed capacity. To add capacity, there's a long lead time and massive CapEx investments. So they're, for the first time, really trying to focus on understanding how to build out demand supply planning, sales and operations planning, integrated business planning capabilities. Also getting more sophisticated with thinking about their inventory strategies, both for finished products, but also in many cases for service and repair parts, right? So aerospace and defense is a great vertical for us.
We're working with the likes of Raytheon and Pratt & Whitney, L3, Bell Helicopter, Rolls-Royce Engine, and Lockheed Martin and several others, right? In that sector specifically, we've also initiated our FedRAMP certification, which there's a lead time to that, but by the end of next year, that should be completed, and that'll further expand our ability to service the aerospace and defense industry. It also opens up the window for other federal and DoD sectors that we have historically never covered, right? What doesn't keep me up at night is the addressable market or the net new logo opportunity. The more thoughtful element is how do we go about attacking that in a sensible, profitable way, and in a way that we can continue to deliver successfully to our customers, not just sell to them, but to actually deliver the deployments.
Because the problems we are solving are complex problems. They are not simple problems. That is a good thing, because if it was very simple, somebody would vibe code it, right? We want to make sure as we scale up, we are able to continue with that strong track record of trust in delivering what we sell.
Maybe on that point, if we could pivot to the agentic products, talk us through where customers are at, how the journey has gone, and getting them into production. You have the FDE model. How has this played out?
Yeah. It is a good question. Look, I will divide up the journey in three phases, right? The first phase was, I would say pretty straightforward but also table stakes now, which is we took standard LLMs. We support Google Gemini, ChatGPT, and Anthropic Claude. We built some RAGs around datasets and documents around these LLMs. We built some agent skills, and we provided a conversational interface to our application, right, to our platform. That is available now. It is getting good usage. Frankly speaking, the customers almost expect that going forward. That is in place. The second phase really was in being thoughtful about building agent skills. Now we have six packaged agents, and creating, within our Maestro platform, an agent studio that customers and partners could compose and build their own agents, having access to all the data and resources available in our Maestro platform.
That is something that we initially worked in the beginning of this year with seven early adopter customers. Since then, we have made them successful. Several of them actually presented at our Kinexions event in June. Now we have opened up the aperture, and as we disclosed in our last earnings call, about 10% of our customer base is in active paid trial mode or in full deployment mode with these Maestro Agents. These Maestro Agents are really designed for improving productivity with the usage of our platform, improving usability. There are all kinds of interesting use cases emerging on the demand side, supply side, risk side, that we are continuing to support and see with our customers. That is off the ground, and we are beginning to get some good traction with that.
The third phase, which in my view is most likely the highest value-generating element for our customers, and also as a result could be the largest growth driver for us going forward, is in really expanding into operational orchestration. Where we're not just stopping at planning, we are extending beyond planning into interfacing with execution systems and really agentically orchestrating the realization of those plans and all the replanning that happens in that operational timeframe. There we are just early in that journey. But frankly is exciting because in my humble view, in enterprise software, and definitely in the supply chain domain within enterprise software, the big value is not just going to come from using a conversational interface or a chatbot or in just shaving off two hours here, six hours there from a user.
It's really going to come from transforming the ways of working, rethinking how decisioning is done, rethinking how orchestration is done. That's what's going to lead to business outcomes that our customers really care about. Because our big value proposition is not to go from a customer using our application having 200, 300, 500 planners down to five, 10 planners. There's value in that, but that's not really the primary driver. The primary driver really is in how we enable our customers to reduce hundreds of billions of dollars of inventory. That only happens when you're able to transform the ways of working, re-engineer the processes, and to agentify a lot of those orchestration use cases.
Got it. Maybe that leads me into my next question of the ROI you've seen delivered by some of these agentic products, I think has been kind of a theme debate at the conference. When you look at the most tangible proof points that you've seen, maybe from your leading-edge customers, what does that look like?
Yeah, look, I think organizations are early in that journey, in my view. The low-hanging fruit has been in just productivity. So what would take five days can be done in a few hours. There's value in that, and that impacts headcount and sizing, and of course, our customers are taking advantage of that, and there's plenty of good examples of that happening. But frankly, it's not the biggest revenue driver or value driver for our customers. Because our customers, like in the planning and decisioning use cases, they don't have tens of thousands of people that they can reduce the workforce. We're not in the project management space, for example. That's the case in a different domain. However, in our domain, across our customer base, there's over $500 billion of inventory in their supply chains that we are helping plan.
If we impact that by 5%, 10%, 15%, that's a massive unlock. Customers care about what is the cost to serve from a supply chain perspective. What are the operating costs stuck in the supply chain? Those are in hundreds of millions, billions of dollars as well in many organizations. Or they care about, how can I improve my service levels, my on-time and full service levels to our customers so they can increase their revenue. That is of tangible value to them. The business outcomes that our customers are focused on from a supply chain perspective are really around cost, cash, service level, and risk. That's where this journey we're on with agentifying the planning plus execution life cycle with operational orchestration is going to be the big prize at the end of the day.
To do that and to achieve that, it's not just a technology change. They've also got to make changes to their operating models, to their underlying processes, and it is truly transforming the organization, and that takes time. Right. I think enterprises are early in that journey.
Right. I think in addition to time, it seems like it also takes resources. I'm thinking of the FDE model that you guys-
Yep
recently announced.
Yep.
Maybe if you could walk us through what exactly is the scope of an FDE when they go into a customer. Is there a teach them to fish dynamic where, once you are up and running on a couple of agents, now they can start to run on their own? How is that working in practice?
Yes. Look, the FDE engagement doesn't start with a capability or a feature, or teaching them how to fish. It starts with really understanding what is the pain point and the opportunity for value unlock for the customers. If I am a large pharmaceutical company with CAD 3, 4, 5 billion of inventory in my supply chain, and I want to reduce that by 5%, 10%, 15%, understanding the picture on where the inventory is stuck in terms of finished products in my distribution network, work in progress in my manufacturing network, or inbound materials in terms of raw materials. Then understanding how do you segment that? The FDEs are really doing the discovery first. Then based on that discovery, identifying how to prioritize the use cases and the tie into the outcomes.
Then using the different components of our platform, being able to build the solution for our customers to really be able to operationalize and realize those business outcomes. In terms of the actual skill sets of the FDEs, really they are structured in pods and there are three broad skill sets that typically get mobilized. It is a combination of supply chain process architect, someone who really can understand the domain and get into the guts and the details of the underlying operational elements of the supply chain. Typically, a data engineering lead because the data is sitting in all kinds of fragmented systems. Then also somebody who can really figure out how to bring the data, not just in terms of the data transfer, but also in architecting the right semantic and ontology layer. So data engineering becomes a very important skill set.
And third skill set is typically data science, because you are typically tuning or feature engineering algorithms. Could be optimization algorithms, could be machine learning algorithms, could be heuristics or a combination thereof. In many cases, all of those working in concert with the LLMs. So we have got a lot of interesting research happening with Google DeepMind right now, where it is an ensemble of these techniques being used to apply to the supply chain use cases that we enable. So those are the pods that we have mobilized now in North America, Europe, and in India. Over time, we will take it to other parts of the world as well, like Japan. But it is these three skill sets of supply chain process architects, data engineers, and data science coming together and co-building with the customers using our platform.
Got it. Herb, maybe we can bring you in here just in terms of as you start to scale up this FDE model, how much incremental investment is required versus maybe reallocation of resources? Any margin implications we should think through?
Right now, George, we don't see any degradation to our margins at all. We are investing prudently behind this effort, making sure that the investments are synchronized between the platform being ready, the FDEs being ready, making sure that customer demand is there. We are not in a mode of build it and they will come. The operational orchestration platform was announced at Kinexions. When we announced it and before we announced it, this was through dialogue with customers, knowing that there's a demand there's a real business problem to be solved. Having the internal expertise on people who have in fact led FDE motions. Yes, we're making investments there. But these are all prudent, well-thought-through investments, and we don't see any near-term degradation to margin from this effort.
Got it. Makes sense. Maybe I'll quickly pause if there's any questions from the audience for Razat or Herb. Okay. Maybe if we could touch on the near-term demand situation. Kinaxis has had good momentum in recent results, beating, steadily raising the outlook. When you think about your initial guide from the start of the year, how do you frame what has gone better than that initial framework?
Well, I think, as you point out, George, we had a very strong first half of the year with roughly approximately 20% growth on SaaS, 20% growth on roughly ARR, better than 20% on a constant currency basis. The guide that we gave for the full year or the updated guide, we did raise guidance. But I would say it's a prudent guide that reflects a few things. One is just we've been in an environment where we have had volatility in FX, and our guide was not on a constant currency basis. There is volatility just on the overall macro environment. Then the third thing is that because we do very large transactions with large enterprises and enterprise. There's always this, you can have a swing factor in terms of timing of deals. The guide reflects that. But we continue to see strong demand.
The demand signals are strong, whether that is for new logos and/or expansion. We have a lot of success in cross-selling, a lot of the newer applications that we have introduced, things like optimization, demand forecasting, and so on. I think the way to read our updated guide is that there is a degree of conservatism built in, but one that we think is prudent, but there are upside levers. Continue to land the new logos, continue to expand our direct selling motion. All of you can look at what our productivity metrics have been, if you look at it on a magic number basis. That continues to be strong, so sustaining that. Then seeing the benefits of the investments that we are making in partner enablement, to extend our reach. We see upside as well.
Yeah, and look, I think in the first half, if you think about our growth, like Herb outlined, of 20% in SaaS revenue, year-over-year growth, roughly 20% in ARR growth on a constant currency basis, even higher. That is about 500 basis points higher than 12 - 18 months ago. That is a significant acceleration. Personally, I am not an expert in stock markets, but I do not think we are getting the credit for it, given what has happened with the whole market sentiment towards software companies. But there is a dissonance between that concern in the investor market versus what our customers are telling us, not just verbally, but in the substance of what they are transacting with and how they are trading with us. We are seeing growth and acceleration.
And part of what we are working on right now is how to sustain that over a long period of time as we scale up and grow the business. We have a high degree of confidence that we can hit the revised increased guidance we provided, but it is pretty exciting with the momentum we have. We just want to make sure that as we take on more business, we can continue to deliver successfully to our customers with our organization and with our broader partner ecosystem as well.
Got it. Maybe just with our final minute, any closing thoughts on what gets you most excited about the future for Kinaxis?
Look, I think we're on this journey to reimagine and sort of reshape the future of supply chain planning, decisioning, and orchestration. I've been in this space for 28 years now, and I've never seen a time like this to innovate, and that's super exciting for a product person like me, and I'm excited about the impact we can have in terms of business outcomes with our customers. Of course, as we pursue that opportunity, as we innovate, we're not just innovating or delivering by ourselves. We've got a thriving partner ecosystem, and the partner ecosystem includes hyperscalers like Google and Microsoft, but also includes deep technology relationships with the likes of Databricks and NVIDIA, and others like that.
We have a delivery ecosystem made up of the largest consulting firms, SI firms, strategy management consulting firms, that play a really important role in our ability to scale up and deliver in a predictable way. That's the journey we're on, and I'm excited to be scaling the business up and having massively greater impact going forward.
Great. I think we'll leave it there. Thank you all for joining. Thank you both.
Thank you.