Q4 2019 Earnings Call
[music].
I'd like to remind everyone that this call is being recorded today Wednesday February 26, 2020, I'll now turn the call over to Rick Whats worth Vice President Investor Relations I can access. Please go ahead Mr. watts worth.
[music]. Thanks, operator, good morning, welcome to the accessories.
Today, we will be discussing our fourth quarter results, which we issued after close of markets yesterday.
With me on the call or John's card are.
Sir Richard.
Sure.
We get started I want to emphasize that somebody information discussed on this call.
Today February 26 2020.
Contains forward looking statements that involve risks and uncertainties.
Actual results may differ materially from those set forth in such statements.
For a discussion these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release as well.
Peter.
During this call we will discuss for us results.
Yes financial measures.
Reconciliation between I ever Us result.
Financial measures is available in our earnings press release and in R&D, which can be found in the Investor Relations section of our website exercise com shooter.
Participants are advised the webcast as life.
Playback purposes.
The webcast will be made available on the Investor Relations website.
I do this call nor the webcast archive, maybe recorded or otherwise reproduced or distributed without prior written permission from Maxim.
To begin our call John will discuss the highlights of our quarter in years as well as recent business development well what that Richard.
Our financial results and outlook.
Finally, John will make some closing remarks for Ocaliva workforce.
During the call over to jump.
Good morning, Thank you for joining us today.
I'm pleased to report that our fourth quarter results were very strong across the board, including SaaS revenue growth of 26% to 32 million.
Total revenue growth of 47% to 56.3 million.
Adjusted EBITDA of 3% revenue.
As a result, we met or beat our annual guidance for all of these important metrics.
Key accomplishments included growing full year SaaS revenue by 22% to 119 million.
And achieving an adjusted EBITDA margin of 30% for fiscal 2019.
These weren't results were driven by a record number of new customer additions, including the recently announced wins at Lundbeck, a leading European Pharmaceuticals company.
Dr. Reddys Liberty laboratories.
Other leading pharma company and our first customer in India.
Our success this quarter is in large part the direct result, because investments to significantly expand our sales and marketing teams across 2018 and threw out 2090.
Given the strength of our markets, we will continue to increase these investments through twentytwenty.
Wow, new customer wins are critical our land and expand strategy is also focused on extending and expanding our relationships with existing accounts.
Last year, we continued the strategy through renewals with several major existing customers, including Unilever Schneider electric and Merck.
To support our renewal and expansion efforts and as previously communicated.
We have built a dedicated sales teams that is solely focused on serving the needs of our installing our installed base.
Our success in 2019 was also increasingly driven by our relationships with partners, who not only influenced the significant majority of our new wins for the here, but continue to take peaking ever increasing rules in our deployments.
We now work with approximately 25 partners globally.
Recently, we have announced relationships with synchronic in Denmark, he's been consulting in Japan, and Blue Cross and Belgium.
Developing key partners around the globe continues to be a long term strategic investment that involves education.
Training and joint commitment on the sales and services side.
We believe that our global alliances strategy is instrumental to scaling the business and we will continue our investments to strengthen these relationships through twentytwenty.
Growth in our customer base and our alliance partners also needs to be supported by growth in our own internal customer care and professional services capabilities.
I'm very pleased to announce that we have recently acquired a long time business partner chronic consultant.
On an office in India based rapid response consultancy with over 70 professionals, including a team in California.
Over the past 15 years, they have supported and continued support many successful customer deployments and now will be instrumental in providing us the necessary scale in delivering services and customer care.
For our ever growing customer base in Europe and Asia.
We ended the year within outstanding backlog of committed subscription business.
Our multiyear SaaS revenue backlog was up by 40% from just one year ago.
Which will help underpin our growth for 2020 and beyond.
Our strategic investments are clearly paying off.
And we see market conditions that are continuing to strengthen.
As a result, we anticipate SaaS revenue growth in the 23% to 25% range for fiscal 20 Twond.
And foresee an ability to sustain this higher rate in the mid term.
Let me share with you some of the reasons why we feel that the market and our position in it is strengthening first.
Events that are wildly disruption disrupting supply chains globally continue to shine a light on the need for concurrent planning.
From tariffs to Brexit.
The recent RVR prices the need for planning in real time has never been more evident.
We have seen opportunities emerge from some of these disruptions.
Secondly.
Our market just like the investment community has never been more focused on the issue of sustainability.
Rapid response is core to the elimination of all kinds of waste supply chain and customers and prospects are keen to understand the ways. We can help them plan for less waste.
Third.
Can access is laser focused on innovation and we are hearing feedback that we're outpacing key competitors in that regard.
Lastly, and perhaps most broadly.
There is increasing acceptance.
Supply chains need to go through a digital transformation.
As a testament to that in November 2019, Gartner held their first ever dedicated supply chain planning summit targeted at the planning leadership team.
Which is the main audience for our unique digital digital either grades concurrent planning approach.
As a result of all these themes and our past strategic investments we are seeing interest from our core vertical markets geographies, where we now have dedicated presence.
Prospects and new countries within Europe, and Asia are starting to show up as potential opportunities.
Remember that sales cycles are long approximately 18 months, so opportunities can take a while to come to fruition.
But it is this reason for optimism.
The time is right to continue to accelerate our investment in people and capabilities.
Global basis and across all functions of the business.
With that I'll turn the call over to Richard to provide further commentary on this outlook in the financials for the border. Thank you John I'm. Good morning, as a reminder, unless noted otherwise all figures reported on todays call our in us dollars under IRS.
On a comparative basis total revenue in the fourth quarter increased 47% to 56.3 million driven primarily by SaaS revenue, which grew 26 to 30, 26% to 32 million and by the growth in subscription term license revenue.
SaaS revenue growth results from contract secured with new customers as well as the expansion of existing customer subscriptions.
Consistent with our guidance, we recorded 12.1 million of subscription term license revenue in Q4.
This was approximately five times the Q4 2018 level as we have previously noted subscription term license revenue varies significantly quarter over quarter and year to year simply as a result of the timing of the individual underlying renewal date for subscriptions hosted.
Summers on their site.
Our customer hosted subscription agreements are generally three year commitment that follow our renewal cycle, whereby 2019 was at the peak.
And 2018 Hello.
Given our current customer base, we expect this three year pattern to continue with the next Pete anticipated and 2022.
Professional services revenue grew by 20% to 8.9 million compared to Q4 2018.
Professional services revenue is driven by a number of factors, including the number size and timing of customer projects underway as well as the level of deployment support being assumed by our partners.
Overall, we remain pleased with the diversity and strength of our revenue base for the year, our 10 largest customers accounted for 32% of our total revenues with no individual customer accounting for greater than 10% of total revenues.
Gross profit grew 60% to 41.4 million or 74% of revenue compared to 68% of revenue in Q4 2018.
This increase results from the growth in SaaS and subscription term license revenue, partially offset by an increase in cost of revenue.
Profit grew by 168% during the quarter to 7.8 million or 29 cents per diluted share compared to 11 cents per share in Q4 2018.
Adjusted EBITDA for the fourth quarter grew 102% to 18.1 million or 32% of revenue compared to 23% in Q4 of 2018.
These results were due to an increase in revenue and gross profit, partially offset by an increase in operating expenses, including investments to support our long term strategic growth initiatives.
Q4 cash from operating activities was up 21% to 8 million largely due to higher profit, excluding non cash items, partially offset by fluctuations in operating assets and liabilities, including a larger increase in trade and other receivables compared to the same period in 2018.
As at December 30, Onest 2019, cash cash equivalents and short term investments totaled 212.6 million an increase of 31.1 million from 181.5 million as at December 30, Onest 2018.
Full year 29 results included total revenue of 191.5 million up 27% from 2018.
SaaS revenue of 118.9 million up 22%.
Subscription term license revenue of 26.2 million up 164%.
Adjusted EBITDA margin of 30% compared to 28% in 2018.
Our minimum contracted revenue backlog has strengthened considerably as noted by John.
As of December 31st 2019, it was 339.4 million.
As detailed a note 13 to our financial.
This amount includes 310.6 million of SaaS revenue backlog.
The backlog will be recognized over the following periods.
$137.8 million will be recognized in 2020, which 122.1 million relates to SaaS business.
100.1 will be recognized and 2021, which 91.8 million relates to SaaS business and $101.6 million, we recognize in fiscal 2022, and thereafter of which 96.7 million relates to SaaS business.
Total bookings in Q4 were 97.1 million.
Which SaaS bookings were 95.7 million.
We're very pleased with his continued strong performance driven by several new customer wins and a significant customer renewal activity.
As you know given the nature of our large enterprise sales model bookings will vary between periods, depending in part upon the timing of new customer wins and customer renewals schedules.
Based on this backlog strengthening market conditions and our own expanded capabilities. We're pleased to initiate guidance for fiscal 2020.
We expect the total revenues will be in the $211 million to $250 million range.
As to the key components of total revenue.
We expect SaaS revenue grow approximately 23% to 25% above fiscal 2009 levels.
We expect professional services revenue juice.
Due to both organic business growth and our product acquisition to grow in the 20% range. We further expect that our partners will continue to expand their deployment activity with can access.
As communicated last year for 2020, we expect subscription term license revenue will be approximately half the level of 2019 or in the $12 million to $14 million range.
Regarding the timing of this revenue within Twentytwenty.
We expect approximately one third.
We recognized in Q1.
At approximately 40% in Q2.
Again, the anticipated fluctuation in this revenue simply results or the timing of the individual customer hosted renewals, which follow a three year cycle.
We expect maintenance support revenues to be relatively stable and in line with a level of 2019 or in the $12 million to $13 million range.
This revenue is almost entirely related to the residual portion of our customer hostess descriptions and because it relates to ongoing support it is recognized ratably over the full customer subscription term.
Regarding our investments for 2020 as John mentioned, we continue to be encouraged by a number of factors, including significant backlog greater capabilities of our expanded global team and general market conditions cost. Currently we are expanding our investments globally in a number of areas and expect the falling ranges express.
As a percent of revenue for fiscal 2020.
Cost of revenue, representing professional services data center and support operations to be in the 29% to 31%, which would support a gross margin between 69 and 71%.
Sales and marketing expenses will be between 27 and 29%.
Research and development expense will be in the range of 19% to 21% and DNA will be in the range of 13% to 15%.
Finally, we anticipate acquiring 14 to 16 million of capital assets, largely reflecting expansion investments in our datacenters.
To reflect the needs of our ever growing customer base as well as our expanded R&D team.
Roughly three quarters of this amount will be invested in the first half of the year.
Based on the above revenue growth and investments, we expect adjusted EBITDA for fiscal 2020 to be between 20 and 23% of revenue.
This guidance reflects two key factors first the lower subscription term license revenue, which has a dollar for dollar impact on adjusted EBITDA and accounts for roughly 13 million of the expected change.
Second the level of additional business investments for 2020, which are focused on product innovation and sales and marketing.
As John noted, we anticipate that we could sustain our SaaS revenue growth in the 23% to 25% range.
Over the medium term.
Further while we will continue to invest in growth, we anticipate the total opex growth rate will be lower after 2020. Consequently, we expect adjusted EBITDA margin will return to levels similar to 2019 in fiscal 2022, once we reach the anticipated peak over three years.
Friction renewal license cycle.
To help you understand the accounting for subscription term licenses, we have posted a hypothetical example of IRS 15 revenue reporting per customer hosted subscription agreement in the financial sections of our IR pages of our web page.
As always we will continue to assess our business and market conditions, and we'll update our outlook as appropriate.
Thank you for your continued support of can access with that I turn the call back over to John.
Thank you Richard.
I'm pleased with our meaningful progress in 2019, and I'm confident in our ability to accelerate SaaS revenue for twentytwenty and sustain that rate over the midterm, all while maintaining healthy profitability.
Our strategy to get there is largely the same.
What has brought us to such outstanding success to date.
We are going to put innovation parse through our own work and in collaboration with our Alliance partners.
We believe we have for best solution available on the market today.
What we are relentlessly working to prepare for tomorrow's needs.
We're going to drive customer excellence by maximizing ongoing value throughout our customer relationships.
We believe this will create opportunities for increased retention and expansion.
We're going to evolve our amazing culture globally.
The sensor pride that exists in our company today and our corporate goals will extend everywhere. We have people as we continue to attract and retain world class talent globally.
Lastly, we.
We will diversify our growth strategies entering new markets and tackling new use cases has been a cornerstone our growth today and we will continue to actively investigate ways to augment our revenue streams.
Before closing for questions.
I would like to extend a warm welcome to best meet Rafael was appointed to our board of directors yesterday.
Betsy has over 30 years of executive financial experience and tech in the technology industry, including senior roles at Apple Cisco Silicon graphics to name a few.
Do you currently sits on the board Autodesk Rivette sees the audit Committee Chair and also and has also been a director several other innovative technology conference.
We are thrilled to have her experience and pedigree, adding to our team.
On behalf of can access I would like to thank you for your support and as always we're taking the time to join US on this call with that I'll turn the line over the operator QNX.
If you would like to ask a question at this time. Please press Star then the number one on your telephone keypad. If you would like to withdraw your question press. The pound key first question comes from Richard Tse with National Bank.
Yes. Thank you given your backlog here, which is incredibly strong it looks like you guys are being quite conservative here, where the guidance is that fair characterization.
Well thank you Richard.
I think you're referring to sort of our our general practice, when we provide guidance of having approximately 80% of that 12 month forward view.
And our and our subscription backlog and based upon that midpoint of the guidance, yes that sort of calculates to sort of the but 80% to 84%. So it is a little bit above, but I'd like to say, it's in the 80% range and so.
Given market conditions, given where we are in the year.
Just given the nature of the enterprise sales and the timing.
We feel this guidance is as appropriate.
Okay.
Got you talked about number reasons why some of the prospects are looking at rapid response.
Could you maybe give us some examples of how rapid response has helped some of those customers against this current virus outbreak.
Yes, so much of it has to do with okay, what I'll say material movement and sourcing scarce.
Raw materials and while you can access.
[music].
Currently doing business in China, we certainly have customers that have significant operations in China and under conditions like this like we saw under the the disruptions of tariffs.
Our customers are looking to to run frequent.
Simulations and course corrections based on understanding where the will have supplied risks.
And so thats where were predominantly seeing the interest in the activity.
And as I stated earlier.
Any disruption quite frankly in supply chain, the velocity of disruption in supply chain cost for frequent.
Concurrent and concurrent planning in real time in order to navigate the conditions that that our customers find themselves.
Okay, Great and just one last one from me.
He's had a strong professional services quarter, and then now you're acquiring one of your former partners.
You can't seems a little bit inconsistent what's your former strategies are offload some of that service revenue. Your partners. So why are you making that move today.
Sure so busy year.
Doing a lot of valuations that you need that extra manpower.
Yes, that's exactly it is good it was good timing for both parties.
Our success in Europe, and Asia is driving the need to scale up customer care.
And services.
At a rapid pace and and so we see we've been working with product for the last 15 years, we know them well their practice has been entirely focused on on rapid response.
And so.
In essence, we are procuring instant scale and again in light of our growing business in Europe, and Asia and them being largely located in India. It made a lot of sense and preparing for.
For 2020 and beyond.
Other thing I will tell you is based on the skill set that we see a product.
We see a broader use if you will have that function.
I don't look at it is buying a professional services arms, so much as I see it as volume.
70 individuals with significant experience and can access and rapid response that could be used at a much broader.
Levels, which again is a earlier mentioned the notion of customer care and support.
Being one of those functions.
That's great. Thank you.
Next question comes from tenants Metropolis with BMO capital.
Good morning.
John on the topic of the virus I mean, as you mentioned Im sure. It clearly highlights the need for software like yours, but on the flip side, if customers are too busy putting out fires might that delay some sales cycles in the short term and have you seen any instances of that are not yet.
Well certainly it as we see these kind of macro level disruptions that I mentioned to others, whether it was brecht Brexit or or.
We're tariffs or someone that yes that can sometimes disrupt sales cycles as people.
Turning to too.
Absorb that particular disruption, we have not seen that in our and our current sales cycles today, but certainly it's possible.
Weve.
We've certainly taken that into consideration as part of our guidance.
Again based on the activity that we're seeing in the field, which is which is augmented quite frankly.
We have not seen that negative.
Great and then just on the overall demand environment I was struck by Genpact recent commentary they said that they've seen a threefold increase in their supply chain management pipeline over the past year and I believe there is your largest partner among the largest partners.
You might not be prepared journey quality quantitative metrics in the pipeline, but just broadly speaking is that consistent what you're seeing.
Well certainly really.
Happy with both the.
The size of the pipeline and equally if not more so the quality of the pipeline and the activity that we're seeing.
In comparison to the same time last year quite frankly and.
We have been.
We've been Telegraphing, there's obviously that we are investing heavily in sales and marketing.
I mean the team our sales engine is more than doubled since January 2019.
And it will continue to grow that as a direct reflection.
Of not only the size and shape and help with the pipeline.
Finally, the activity that we're seeing in the pipeline.
Great a couple of Richard which you'd be able to disclose printers that trailing revenue.
Yeah.
Now, we we haven't disclosed that.
Fair enough and then she.
Should we assume that term licenses in 2021 will be similar to 2020 levels might look back at the.
Historical pattern.
Yes, so what we had indicated was that they'll they'll they'll be at a lower level and 2021 than 20. So basically 2021 would be in line with 2018.
Again this is assuming.
Annuals and without expansion sort of just at the at the at a run rate and then again.
Returning to.
To levels Thats for the peak in 2022.
Great. Thanks Leslie.
Next question comes from Daniel Chan with TD Securities.
Thanks for taking my questions.
Just to ask another question on this term license.
At the beginning of 2019, yes, you said it was going to be half of 2020 term license would be half of 2019 at that time.
That would have implied around 10 to 11 million for 2020. So does your current 2020 term license guidance, which is above to until Emily does that include assumptions for expansions when they renew.
Well it's.
Dan It's really just as ongoing reflection of.
Level of activity and so when we were forecasting that two years ago or sort of year and a half ago.
It was sort of an indication where we thought.
2020 was going to be and and move just updated that based upon current condition. So it's about it is but the half right. So that's why the 12 to 14 million.
Range, and then again I noted.
A significant portion would be this quarter.
Okay. Thanks.
And then for the current quarter, if we assume term license revenue is nearly 100% EBITDA margin.
That implies the rest of the business.
As generating EBITDA margin of about 14% this quarter.
That's down from the low Twentys that we saw in Q1 Q3. So just wanted if there any onetime expenses this quarter or if there was some sort of seasonality that we should see in Q4 of every year.
Well there is a little bit of seasonality just just.
Moving the subscription term license element away there is little bit of seasonality in that so for instance, we hold are very large customer that connections in Q4, and some other key marketing activity. So marketing expenses tend to be higher Q4.
In Q1 option, what's happening is budgets for customers are just being finalized and so therefore, sometimes the professional service level is as a little bit lower.
The impact of new payroll taxes hits little harder Q1, and so and so there's some some variability that's why we we tend to focus on the overall annual and.
That level, we're talking about gross.
Given the 29% to 31% that we noted for the overall cost of revenue for the full year. So this includes the expansion of the Datacenters and so on that we also talked too.
And that approximately 70% to gross profit line with respect to your specific question on subscription term license because that is really the contract where we have to allocate revenue over the three year terms to that right to use component.
And yet we're spreading our support over the three years, yes.
Hey, you know the that notion of that day one.
Component approximately 60% on a three year arrangement of a full three year term is is 100%.
From a from accounting perspective, really 100% margin and so that's why you also saw the strong strong margin and and Q4 with the with a $12 million level of subscription term license. So.
As we as we hit those numbers, you're going to see that variability in the gross profit, but again, we take us longer term view at a minimum on an annual basis and what we're trying to do down his help people understand some of that.
You know variability from that from that accounting change, but from the business operation side, you'll you'll see it's quite consistent in the subscription.
SaaS revenue is.
It is growing and continues to growth quarter over quarter, but you'll also see that.
Those ongoing expense.
Investments in product of sales and marketing. So we hope that that provides and our goal here today, which is to help give a bit of visibility through to the to the dimensions.
Our overall PML for 2022, so that people can see that sort of three year cycle and.
Range is how it impacts.
Adjusted EBITDA.
Yes, that's that's helpful. Thank you.
And just final question for me if I look at your SaaS backlogs.
Kind of dips to 91.8 in 2021, but then you have it ramping up again in 96.7 in 2022. So just wanted to help me understand why you have it kind of backlog that kind of ramps up as you move up to two outer years do you have expansion agreements that already booked for for the next couple of years.
It's actually 2022 and there after so.
We have.
I would say on average our subscription agreements are three years, we do support customers with five year commitments. This is a gain a minimum level so that customers with expansion of privileges.
Unless they've committed contractually to that we don't include that in backlog. So this is the minimum contracted amount and because some deals are greater than three years.
We break it into thereafter so.
That's our practices try to provide that mid term and.
On wind, if you will as well as the overall confidence and the total backlog.
Got it thank you.
Next question comes from Stephanie price with the IVC.
Good morning.
With that Dr. reddys contract win in the prior to acquisition announcement can you talk a bit about India is a region for can access and should we expect further investments in the region.
Life Sciences as I've said in the past has been.
Probably the warmest and continues to be in fact.
That was a moment, which they outpaced high tech electronics and I can tell you. It has continued to outpace hi Tech electronics, even today.
And so as we expand our footprint in that market segment.
It made a lot a sense to target some of the largest pharmaceutical companies.
In India.
As you know we have very very strong alliance partners.
That have a global footprint there in every country that matters in manufacturing, especially in in life Sciences, and so it isn't.
It is an uncommon to get that kind of influence from partners to help us expand in life sciences beyond sort of the target.
Geographies that we talk about most often.
Certainly the Prama acquisition helps with customer care, and support and and service opportunities as well being and region.
Local time zones and.
The language.
Issues and such so I.
I wouldn't.
I wouldn't say that we are proactively targeting.
Accounts outside of the geographies that we have traditionally talked about North America, Europe, and Asia Pacific portions of Asia Pacific.
We are nowhere near saturated.
In any vertical in any geography.
So we we feel like Thats, where we will continue to target, but certainly be opportunistic when we see.
Very well.
Reasonable deals in markets, where we should be winning those accounts with the assistance of.
The wind of our alliance partners and our backs.
That's helpful and then in terms at the Krona acquisition does this signal more of a focus on M&A here and are there other areas of business that you would you are looking at building and through acquisitions.
Yes, we we've.
I mean, obviously the current condition of the business is has been the result of.
Focus rigor.
Responsible operation of the business and organic growth.
And so when I think about acquisitions.
I'm forever.
Im forever thinking about making sure we don't poisoned to suit with every acquisition. Every every day. These are new ingredients into the into the organization.
And frankly, we have a wonderful business continuing to grow organically, obviously with product.
Personally myself have been.
Friends and as I've known VJ for.
Teen plus years.
They have been working with us for quite some time. Some culturally this was a an extremely natural fit.
And the timing was exceptionally good for us given our growth in Europe, and and Asia. It was just.
It was just very very obvious thing for us to do given the conditions of the business as it relates to the broader question of.
Of M&A.
Certainly we are where we have are here to the ground for things that might push.
What I call technically accretive things that.
Opportunities for us to fill white space.
To support our customers and prospects.
Beyond where we currently are.
I would tell you that we do these evaluations with extreme rigor knowing that you know can access.
As a company as has grown and developed to be.
Just an absolute.
Valuable asset as as an organic growing company.
So I guess, that's the best way to describe our current conditions on M&A I wouldn't call it.
Significant growth strategy for us it's more.
We'll be opportunistic when we see technologies that can help us expand use cases for our customers and prospects.
Great. Thank you very much.
Next question comes from Paul Treiber, with RBC capital markets.
Thanks, so much and good morning.
Bookings in the quarter could you speak to the magnitude.
Bookings for new customer wins as opposed to renewals.
Good morning.
We.
Yes, the backlog reflects both the new name.
Wins, as well as renewals and related expansion for their customers, we don't break that out from a backlog perspective, but our trend of from an incremental revenue perspective, a two thirds being driven by new name wins and one third by expansions.
As continue.
We have the sales team as part of the expansion of the sales team has actually been a team dedicated to just working with existing customers an expansion. So we're very pleased to see that level activity also continue to increase but with the overall expansion as John noted to the sales. So there is theres and the activity there is still a lot of.
Additional.
Capabilities now just focused on new name wins and so those two just basically continue to be working in tandem and that sort of two thirds what third.
Is continuing.
Okay, and then thinking through an EBITDA margins. When you look back at 2019, you did exceed the guidance you provided at the beginning the year by about 600 basis points at the midpoint I think some of that was on higher term license revenue can you speak to just the moving parts there and then also.
When you look forward to 2020, what do you see as potential upside or downside drivers versus your guidance.
Yes, so you're correct, we have significantly exceeded.
Overall guidance, especially from an adjusted EBITDA from us, especially from the initial against that we provided last year.
Good point in time, we had.
Anticipated.
A lower level of a subscription term license.
As it turned out.
Not only did we have a very very strong.
Absolute renewal rate, but with some meaningful expansions with those same customer hosted.
Arrangements and such subscription term license revenue was higher in fact, it represented about 13% of our overall total revenue and as we talked to briefly earlier on the call that essentially implies straight down to the bottom line, so with the nature of the cycle and the revenue.
In a declining this year the subscription the midpoint. This is Chris term license revenue sort of in a 6%. So you can sort of see that 13% to 6% Delta 7%.
All things being equal would flow through to the adjusted EBITDA percentage. So Paul we're going to we provided you and the market with our view as to that.
Not only cycle, but the level of subscription term license that we're currently anticipating.
Should that.
Change, we will continue to update.
Update you, but yes, if we we do have a higher level of subscription term license or specifically expansion therein.
That will have a.
Positive impact on.
Adjusted EBITDA.
Thank you for taking my question.
Next question comes from Gus Papageorgiou with Pi financial.
Thanks for taking my question. So congrats on a great quarter I mean, the results are fantastic you really good growth in very high profitability.
But if I look at your business I guess, the only metric or stands out as being kind of poor would be the return on equity you're kind of high single digits low double digits and the key reason is because of the huge cash position.
If you look at that cash and what to do with it can you talk about how would you think about.
Three things one.
Perhaps being more aggressive on M&A, secondly, perhaps being more aggressive investing in the business and sales channels and thirdly issuing a dividend.
Because I think given that you continue to be pile of cash vicious sitting there that it just probably more effective use for it.
Well, Thank you guess and in particular for noting our very strong cash and we continue with that very strong cash generation and with regards to aggressively investing in the business first off we believe we are I mean, we have.
More than double our sales capacity in fact, our well try to to extend beyond that one we've significantly increased our marketing profile one of our.
Kelly's heels as you'd I have chaz previously has been.
Our awareness and that is at that is changing and it's changing for a number of factors. One. It's just the marquee names that were provide that we've been able to have the pillars are working with and that association and then the general recognition of ongoing.
Disruption in the market in the end the importance of planning. So those things are are positive. So we are now moving into that high high 20% range of sales and marketing versus the mid percentage point, we continue to sustain are very strong.
Investment and product in fact, our increasing that.
We're very fortunate to have to have a number of strong individuals we.
Our expanding our capability.
They have a service Syed Ali with general.
Our general expansion, but with the significant step up of the product capabilities to provide ongoing sustained services.
With regards to M&A.
We we are actually taking more I would say thoughtful approach and that with the strength and management team strengthen our product management capabilities strengthen our thought leadership.
We are now aware of additional opportunities and and we're going to continue to to review that so it is very much.
From a product roadmap perspective is it a buyer or build but as as we've stressed before in a rapid response as a single product.
And it is.
The team is so focused on growth opportunities, we need to ensure that whatever.
P. that we do bring in if it were by way of acquisition.
He is going to be immediately accretive is going to be highly scalable and quite frankly that has been a being a challenge we are continuing to pursue.
And review opportunities, but.
We.
We're not a company, where we're going to be buying a lease at this juncture buying a revenue stream. So it really is as product focus and your last question on a dividend.
Companies.
That is have you know theres never tech companies with high growth that have strong business model that have started dividends, we're not aware of any SaaS company, though that.
Certainly at our growth level that has initiated dividends and.
The consensus from our key investors. This point in time is continue to to execute as you have to continue to direct your cash resources to to that investments. So that's something that the later type there might be some consideration, but at this time there is.
There is no.
There is no consideration.
On the dividend.
Okay. Thank you.
Next question comes from Deepak Kaushal with Stifel GMP.
Hey, Good morning, guys got a couple of questions.
First one on the margins on I'm trying to parse out.
In your guidance and your outlook.
What's changing in terms of structural margin versus cyclical it doesn't seem like the swing through the cycle and margins in the last cycle is as big as the one we're expecting going forward.
Certainly as you expand internationally you have to add more data centers and now you're adding a dedicated sales team for existing customers does this structurally change your margins long term.
Well, we do have significant leverage and our and our business model.
And the so let me when you say up margin I'm going to first sort of parts first focus on on the gross profit so general.
Gross margin, if you will and that yes, we are investing and Datacenters and we continue to expand that we do so for two reasons one is not only to support our expanded customer.
Requirements, but also by way of showing a demonstrating our commitment to.
Two are different theaters. So thats. The reason for the two data centers that were brought on in the last couple of years and in Japan as well as in Europe.
On the significantly expanded capabilities in North America.
[music].
We're going to continue to invest there the other big operation.
Another cost as global support and we have consciously.
Also pushed out.
Global support into our theaters, so that we have people not only in the same time zone, but same language capabilities and so on now these are a bit of step functions and so.
There's going to be we anticipate higher yield over time, but it's important to make sure that we demonstrate our commitment and support to those customers on the last component is professional services professional services.
Capabilities tend to move in line with.
With the underlying revenue the the other margin going down to two.
And this is where were sales and marketing expense would be is down to the adjusted EBIT. If you will it and again we've commented there how we are continuing to to accelerate our investment and sales and marketing just because we feel is so part.
To gain on a global basis have has capabilities to to work with our expanding mix of customers. So I think you'll see over over a period of time.
Yes.
Most of those margins are relatively in line, but what you will see is that from a core part of bases. There. There is some there is some variability.
I hope that helps yeah that helps so when you when you expect to get back to normal margins in 2022.
Well, if we assume that that's a 30% EBITDA margin what would your gross margin level be at that time are you expecting it back at the mid 70% range or stay in the kind of looks well first.
Not mean to be arrogant whatsoever, but I think that 30% margin is is quite exceptional and probably not normal I mean, what what we're talking about it as you know and moving into an EBITDA range of 20% to 23%, which is still from a from a pure perspective very very strong.
And yes, what you'll see.
Over that three year cycle. Some some variability on that just again, primarily as a comp.
An artifact of the subscription term term license.
Revenue, but when you look at over the three year cycle, it's still up.
Tended to be very strong performance. The point I was trying to make earlier with regards to leverage is that.
I think it's probably a reasonable assumption overtime that our growth rate and revenue is certainly a.
SaaS revenue will probably be at us at a higher rate than for instance, G and H and so you'll see that said overtime.
That leverage manifests itself and our operating results.
However, we and I would say our investor community field various important to continue to our sustained focus on on sales and marketing so that is where whether its cash our carbon CNL metric perspective, where we're investing heavily okay. Thanks, and just my last question just going back to the prawn aquas.
Question.
In terms of need I know you mentioned that you need to support growing.
Customer deployments, but I mean, how much of this was driven by a need for local presence because you only have one customer in India.
Are you getting a margin pickup on services through kind of in offshoring effect by by adding the protein versus versus organically supporting.
Services through Canada.
Yes, a per se.
Having worked with that with this organization across 15 years.
I can tell you that.
Our focus ups support and services has not been India.
The big established.
Skill set.
But they have supported our customers globally, including in Europe, and Asia Pacific. So Unfortunately, I would say, it's given their location is time zone.
We'll be very helpful.
Supporting our our businesses grow Europe and Asia.
Predominantly we're focused.
Okay. Thanks for taking my questions.
Next question, Robert Young with Canaccord Genuity. Please go ahead.
Hi, Good morning is that work starting on the Newbuilding the background there.
Hi, good.
Trying to get them to stop loss.
I thought the building wasn't going to be built for awhile yet.
So I wanted to actually couple of questions on the backlog maybe can continue some of Pauls question, and maybe asking a different way.
The growth in the backlog in Q4, you added a lot to backlog.
You only announced two new when you had three.
Renewals and so I guess the natural question. There is I mean, given that you said two thirds of the growth is driven by new logos, but it appears in Q4 that a lot of that growth was driven by the renewals versus new wins is that correct or were there wins that just weren't announced and we wouldn't have noted.
Well there are a number of stuff when thats were not announced than had we we work with our customers.
And a number of businesses.
We have their support to announce quite frankly, what will happen as that generally it will take about three months. So you know on announcement that we may say in December it very well may have been with regards to a Q3 sales.
You know and I would say in the majority of new name wins, we're currently not.
Making an announcement that will vary quarter to quarter up the.
With regards to the term.
Some of our terms our three year some are five years and sell product contracted.
Minimum contract backlog.
All things being equal.
Five year deal is going to be.
Significantly more than a three year. So the backlog reflects both the volume of business activity ahead, and the terminal and.
It is it is a pattern of of not only in the new wins, but then the renewals in the expenses there and we're very from day, one being Atlanta and expand.
Type of model so.
With what we tried to do is provide the best view in terms of how that.
And that expansion of revenue between the between those two the two areas. So.
Okay.
Second question for me about the final John you said that you see the opportunity for sustainable growth in the SaaS business.
You've clearly add a lot to backlog like I said.
And so when you look at the funnel.
Is the funnel do you see large deals in the funnel that will support wins in the future and I think you said that.
You saw a lot of AD growth in Asia, and Europe, and so when you look at the top of the final.
Would you say that it's a it's growing faster than the the middle of the funnel.
Yes, so as it relates to the activity.
It's not just size and location I look at the quality as well and.
The actual activity.
And velocity quite frankly so.
We've been investing heavily in sales over the last 24 months as mentioned and more than doubled the sales engine since January of last year, and we're continuing to push hard on the on that.
Accelerate our investments if you will in that function.
And it's a reflection of the activity we're seeing.
In the in the pipeline what I can tell you is you know certainly life Sciences.
Continues to be strong CPG continues to be strong.
I see it will.
I don't see any.
Challenges as it as it as it relates to concentration whether its concentration in market verticals or concentrations in geography.
I would tell you that we've seen an acceleration in quality and help the pipeline in Europe, and that's a reflection of our investments there.
And our successes there you've seen some of the names.
You've seen some of the names that we've recently posted we can't post every customer name Thats for sure.
As much as we would love to.
But we're definitely seeing.
Activity in the pipeline and health of the pipeline that would.
That would drive our continued investments in both sales and marketing.
Okay, and then just on that.
The range that.
Richard provided 27% to 29% is little bit higher is that an acceleration in sales head count or marketing spend or is that a function of the topline just a little lower growth because of the gap on some term.
In 2020.
Yes, its combination of both so it is it is increasing but because it is a percentage of total revenue and.
With the lower level of subscription term license it does have a bit of an amplification impact but.
It is also very much.
Real dollar significant investment receivables as usual.
As you model will show.
Any regions to call that where that investment would fall and then the ranges include product and then I'll just passed one.
Well what products as the primarily because it is that it is.
Effectual support people as well sustained support those costs are predominantly in the cost of revenue line. So they do not and they are not characterized and sales and marketing. So the sales and marketing is the continued expansion of of the teams globally.
We we significantly increased the European team sorry, two years ago that has continued to grow Asia.
And in new areas and team has expanded as well as than just the court North American team. So it is it is a global expansion of the.
Of the personnel and it's not only in quota carrying individuals if you will but because of the nature of the team sale, the enterprise sale and the and continuing to sort of 18 months sales cycle.
Is really the sales community. So it is in the industry.
Professionals that the technical.
Professionals that worked with them and then significant expansion in a marketing capabilities as well so those are the.
Those are the the.
The increase capabilities.
Weve invested.
Okay, and then front as in the gross margin Guide you gave then pass line yes.
Is it both in the revenue range as well as in the.
Great and the bugs.
Next question comes from sense to come out with eight capital.
Just on your line is open.
You guys good morning.
Thanks squeezing in.
You guys talked about and seek an acceleration in pipeline in Europe can you touch on the level of maturity involved that you're seeing with with partners in both markets. Overall are these relationships and their contribution progressing as planned better what do you see an opportunity to accelerate further.
Yes, certainly.
Europe as a as a percentage of activity and opportunity for us.
Reflective of our investments they're growing team, we put a data center.
Mr down to host to.
To host our European customers.
Quite frankly, we're really pleased with.
The growth.
The expansion of the pipeline in the health of the pipeline.
In that region, we don't generally comment on.
Overall size as a percentage, but I will say.
Europe.
As an area, we see a continued.
For fusion in our growth.
For 2020 and beyond.
Okay, great and.
You got hopefully touched on.
Focused on outpacing company competition on innovation.
What are you seeing broadly from a industry and competitive response to your recent product belief and and what's the partner contribution to inhibition to date.
Yes, so we continue to.
To believe that.
There there really is as anyone competing with us on concurrent planning is this what I described the technique of solving supply chain problems more so than the technology. This notion of end to end inextricably connected.
Concurrent planning.
The technique that I would say the market is realizing.
It is superior to the legacy of approach cascaded planning and and so there were certainly seeing that in our growth, we're seeing that pipeline and the activity in the in the maturity of prospects coming to see us about concurrent planning we continue to see.
It all Sep is predominantly incumbent most of our customers. The vast majority of our customers and prospects are on a sep platform and.
And again, we don't compete with US a fee on their cortical platform or our ERP system, but certainly we work in lockstep with it.
And so we continue to outpace I believe.
Their efforts and.
As it relates to how we work with partners, what we announced last year.
Our investments in rapid response as a platform, we announced that our record breaking out connections conference.
The rapid response platform, we have what I would call some privileged.
Privileged alliance partners that are very closely with working with us and innovative program with that platform.
Basically building.
Building intellectual property on top of rapid response.
We're also seeing customers in fact engage with us very sophisticated customers engage.
In extending rapid response, using the platform as well so it's early days in terms of.
Predicting the monetization of.
Of that have that platform, but we're really pleased to see the uptake.
Interest from both partners and customers frankly, we're seeing it from both sides.
Great.
Thank you for taking my questions good.
Thank you we have a question from Nick I Casino with Laurentian Bank Securities.
Yes, good morning.
Thanks for taking my questions I guess, two things first just going back to product innovation I think a late last year you guys introduced the self healing supply chain or at least.
Brought into the market and you spoke about the initial customer feedback and reaction.
Get an update there as far as what the take up these on those that module and what the interest levels looking like.
Yes, we're we're very excited obviously with our.
Investments in machine learning and what we call automated intelligence.
That team is it's been the fastest growing team quite frankly in our R&D.
R&D facility and the notion of self healing.
It's very well received by senior level practitioners, they recognize supply chains as being a machine to machine that is designed by humans and and yet the notion of self healing is to continuously monitor that machines that machines behavior in the real world.
And so self healing.
The way we describe it.
You know is having that.
Supply chain adjust and self tune based on the conditions of the ROE think of it that way.
We've we've expanded our capabilities.
This and this calendar year and.
So far the big programs are being extremely well received very very powerful.
The self healing technology runs continuously in the background 24 savages is continuously monitoring as demonstrated against as designed and and and predicting adjustments based on that so we're going to continue to invest heavily obviously in that in that function, but thats not the only area of interface.
Patient rapid response as a platform as I described as.
Is really key to to our long term growth strategy and our entry into new markets.
Partners being able to build their own intellectual property.
Similar to what forced dot com did for Salesforce quite frankly is the way I look at it and so we're we're pretty excited.
There were anticipating another.
Another connections event with some significant.
Innovations to to announce so.
Yes, we're pretty excited about what we're drilling today and whats in the pipeline.
Okay.
Okay and then the second question, just maybe going back to the prior to acquisition and the timing on it I believe a couple of quarters ago. I think you had about 80 job openings that you guys were highlighting when it will be website now we see about at least 40 on this site right. Now. So just wondering is this a case of you guys.
Maybe adding positions are bodies, and specifically within Europe, and Asia meetings going a little bit slower than what you were hoping for.
So the question really is did you guys go out from a buy versus build you guys go to seek pronto.
Acquisition or did they may be approach you. So just trying understand how that the whole deal came about.
Yes, so again, having known.
And there are founder for many many years.
And I described earlier on the call. The timing was really good for both parties are up our growth trajectories and need for talent.
Frankly it was.
Was a key element or motivator for the for the acquisition.
I can't stress this enough when we when we talk about investing in the business.
Even if overall as a as a company were.
Expecting to see nearing 40% growth in headcount year over year. I mean, this is across broadly across the business and that is reflection of our confidence in what is happening in the pipeline what is happening with activity.
And just making sure that we're prepared for success, we certainly don't want to be one of those anecdotes where success is upon us and were crushed by it.
So we're we're investing across the board to make sure that we're well prepared.
And again the timing was just just right for us.
Specialty as it relates to growth and those two regions and their location and Theres still a cultural fit.
It was just an obvious thing to do.
Can we assume that you may consider similar pronto transactions in the future.
You know I as I mentioned on M&A.
No and gross our growth strategy is not to acquire revenue that's not how we think we think about organic growth we think about filling.
Technical White space that is accretive to our markets accretive to the customer base, we have and certainly accretive to prospects. So thats the way I would I would.
Characterize our M&A strategy, we have certainly been active and looking and evaluating things, but again I will say, we're where we do so with extreme rigor.
Extreme rigor and and so.
That's the way I would categorize it thus the color commentary is really things that are technically accretive we will certainly continue to look out.
Okay. Okay, great. Thank you.
This time I will turn the call over to Mr. Wadsworth for closing remarks.
Thank you everyone for participating on today's call. We appreciate your questions is always a major ongoing interest and support Tenaxis will speak again, when we report our Q1 results life for now.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.
[music].