Q3 2020 Kinaxis Inc Earnings Call
I am thrilled to share that our strategy to open and extend our rapid response platform to the development capabilities of third party partners is making real progress.
We delivered the extended platform on schedule in mid 2020, and already have five partners that have offered entirely new functionality and mission critical data through rapid response.
Customers will soon be able to take advantage of new capabilities for Trent transportation optimization planning recycling flows and enhanced production line scheduling amongst others.
Resulting in revenue growing 23% over the corresponding 2019 quarter to $11.5 million the.
The growth reflects the proven ability of our expanded delivery team to support engagements as we have noted in the past professional services revenue will vary from quarter to quarter based on the number size and timing of customer projects underway as well as the level of deployments assumed by our partners.
Yeah.
326% to four 5 million from $1.1 million for the third quarter of 2019.
As of September 30th 2020.
Cash cash equivalents in short term investments totaled 210 million compared 212 $6 million at the end of 2019.
Approximately 60 million Overcash How're was used jurymen court third quarter to fund our acquisition of Rupert cloud.
Our minimum contracted revenue backlog remains strong.
As of September 30th 2020 at grew by 26% to 364 $7 million as detailed a note 13 to our financials.
This amount includes 334 9 million of SaaS revenue backlog, which represents a 36% increase from September 30th 2019.
The backlog will be recognized over the following periods.
$43 $2 million will be recognized in Q4 of 2020 of which $38 1 million relates to sass business.
$136 five will be recognized in 2020 of which 124 3 million relates to SaaS business.
We are maintaining our annual guidance for subscription term license revenue at 60% to $17 million.
Overall, we now expect annual revenue to be in the range of $220 million to $223 million.
We now anticipate adjusted EBITDA margin for the year to be in the range of 22% to 24% of revenue.
Thank you Richard as I mentioned earlier, we hosted over 3000 registrants from over five 500 companies spending six continents and 70 countries at our virtual connections just two weeks ago.
It was an opportunity for us to launch some exciting new product capabilities I'd like to provide you with some additional detail on what we shared at the event.
Our new supply chain of command and control center gives companies instant visibility and actionable insights into the health of their business through an intuitive and interactive dashboard that combines traditional data with new digital disruption detection signals.
From a single place companies can manage day to day volatility in real time by prioritizing and automating routine responses.
The automatic capture of decision data leads to future AI based decision, making and recommendation improvements.
Later for Q and a.
If youd 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 stay with National Bank financial.
Yes. Thank you just wanted to dig into the non renewals a bit more based on your comments are you, suggesting that these clients are kind of in that situation of financial distress on their own and that's kind of causing them to be in this position here.
Well, it's difficult for me to judge you know with precision what our customers. What is what is guiding our customers decisions I will say.
Kind of allay fears here you talked about the pipeline on your call can you give us an order of magnitude in terms of the sequential increase no doubt I'm sure you're gonna Love and bounce from that conference recently, which is why they will all attendant, but they didn't give us some perspective I'm not that would be helpful.
Yeah, absolutely. It's you know it it continues to strengthen from from the same period last quarter. That's just a fact it is larger now than it was three months ago. It's.
You know I I like monitoring not just the.
The overall size of the pipeline, but the health and not just the health, but you know I.
Richard It's that's why we're arcadians has always been to provide guidance at the same time when we report the results so that.
It's clear to everybody, whether they can see that backlog and they can see the results and and.
As John said, we remain confident in the broader market conditions, it's not without without its challenges but.
That's that's this is this.
Our history of execution.
That's great. Thank you.
Next question comes from Stanhope Metropolis with BMO capital markets.
Let me have been non-renewals can you clarify and talking about sort of like a handful of customers or would it be something Martin at and then in some cases may be a question, where the customer wants to keep using your software, but it's tied up which procurements and they might actually can do at some point in the future or in these cases does it seem more likely that.
May be switching off the software indefinitely.
Well thanks.
Thanks for that question in fact, that's a very interesting question.
And we're very pleased to have welcome back customers after.
They departed and there's a number of reasons why.
Customers may have left and everything from the from their business climate too.
The other factors, but yes, we for greater clarity, we have welcome back clients after the App.
We had a sort of a bit of a separation if you will.
The.
When I do talk about the.
The overwhelming majority. It's so yes. It is it is a relatively small number we would love to keep every customer and.
And in fact, we have done and we can we will continue to do is to invest in our customer success programs and this starts off from helping them through to training through.
I am going health checks with them too.
Helping them understand features that they're made that we can see that is not utilizing.
Environments.
Just with Covance and everything going on has there been any change in the landscape has caused customers for example to become more appreciative of the value of concurrency.
How are you seeing your competitors respond.
In this environment relative to what the dynamic was like recovered.
Yes, Thats a great question and we are seeing.
While you know the large incumbents continue to be.
Ever threatening.
I will say that the the openness to altering technique.
Well well frankly in the conversations I've had I've a I've never had more conversations about it with C level executives in a single quarter than I have in this past quarter there.
There is a deep interest in understanding can I be managing governing supply chain planning differently and.
And achieve achieve better results and.
And so that gives me.
Confidence that there's a trend towards transformation and you know.
People ask me, what's the likelihood that supply chains are going to digitize.
And transform the answer that question is 100% Theres, a 100% chance that companies will transform and digitize at some point in time I guess the question is about timing and so.
While I wouldn't necessarily declare we are at some inflection point I will say that this pandemic has called called into question. The those legacy approaches to governing supply chain planning and the lethargy that comes with it.
If you will.
Procedures around approvals, often requiring board approval.
To prove to proceed on projects like this and so we're continuing to see that a broader in a broader sense as you know as the pandemic sort of set.
Settles in and people realize that this is going to be around a little longer than perhaps they thought through.
Three or six months ago.
So I'd say that.
The the the protracted procedures for approval.
Our starting to broaden across you know across the verticals and the geographies that we serve.
Broader team and and a greater menu of a hub capabilities.
Okay, Great and then just finally from me maybe a related question around partner execution in the quarter, just when we've seen through cobot into the partner engagements and execution, then and maybe a bit on the new solution extension partners as well I noticed that one of them was a premier sponsor connection boss week.
Quite frankly isn't large enough to absorb their own enough hands in minds to absorb the volatility they're dealing with and so I think thats one of the areas. It's caused professional services for us to remain high as well as partners right. They're leaning on partners heavily on Sustainment services to help them absorb of all that.
Realty so projects remain.
Very very.
Active the other thing I will say as a side effect is theres no what I will call time zone fatigue in a time, where professional services often happens on on premises, where you know consultants and employees and partners are made to travel across time zones and deal with.
Well, that's not happening and so we're seeing even more efficiency in the delivery.
Of projects Lastly, I'd say a.
Our customers are looking to accelerate milestones more than ever.
They know they know the benefits that will come with concurrency and so they're looking to hit those milestones faster.
Chemicals or what did you say Q1 would be the stronger quarter.
Well the subscription arrangements are typically in sort of the three year banned in some cases, there longer and we've been now and there are 15th year of.
Claims ear a subscription so that over time, there was a little bit more seasonality, but as we've expanded the customer base in.
I would say there really isn't.
That level of of seasonality.
There is.
That with regards to.
Very long term customers some that were actually converted.
There were prior to 2005.
Those are the ones that I have to assume to talk about every earnings call with regards to subscription term license. So yes.
There is some baked in on that minority of customers.
Cycle, but you know the.
The broader level.
I wouldn't say.
There is that marked seasonality now.
Don't forget our customers that we are very much have a land and expand model. So what is not a communist them to expand but those those expansions are predominantly on a on a coterminous basis. So you'll you'll see that pick up as we go through.
Okay, and then it sounds as though you've got an expanding group of prospects EFI.
Red.
Comments earlier correctly, maybe even brought in further by connections. So are you putting in place more aggressive qualification.
Do you think that sales needs to get more efficient here to handle a higher level of prospect volume or do you think you'd need to expand sales because these are high quality high probability prospects.
One thing that again as a side effect of positive side effect, if you will of.
Of this work from home condition is that we've been made to perfect the virtual sale and the virtual demo and.
I'd say, our pre sales consultants their efficiency I would say is nearly gone up three X. When you think about how demonstrations used to happen.
You'd get on a plane and you'd fly some somewhere a different time zone.
Have dinner wake up get up the next day go to do a two three hour demo.
Then fly.
<unk> you get the picture and now.
You can do three times the number of of demonstrations in the same period without increasing that function and that's been really.
It's been really positive for us.
So we're doing a lot more online frankly, a lot more online and the thing the other thing is.
Our employees obviously.
It limited cases, we've had you know at Solvencies that have precluded that in other cases, we've had highly engaged customers.
That are driving value.
And this does but just because of that.
I'd almost would call it a tree ash type of situation, whereby while they're driving value they have been.
There is such a financial situation that.
They.
They are not able to necessarily renewed in some cases you are right. It is a matter of utilization, but again thats, where we have this customer success team that is engaged in working with them to.
To try to try to try to help us.
<unk> to go.
We have hundreds of prospects that we're just in our home at connections learning and listening to what our customers are doing too absorbed this unprecedented time in history.
And so we're going to obviously be working those accounts very diligently our sales team has become far more efficient than it's ever been.
So.
We're not we're.
We're not sitting back thinking Oh my goodness there's.
This is some kind of a systemic problem.
No I think what the systemic problem is the lack of agility and supply chain and the need to address it through transformation.
And so we're.
Thats, even on a virtual basis so.
I think.
All I can do is reinforced were very very positive by the productivity of the business the the level of profit and and.
Very pleased to increase the guidance for the full year to that range.
Are you expecting to accelerate hiring.
Through the end of the year, possibly into 2021.
Well, we're here, we are a growing organization and we're not a quarter over quarter focus.
Weve significantly I you know I think we have noted before that you know from a few years back up now for instance, quadrupled our sales quota carrying capabilities, we've dramatically as I noted in my prepared comments with this most recently with the acquisition of Aruba cloud increased or our.
These and other product R&D team, we're expanding our global customer care, we're investing in the data centers. This is all part of that longer term because what we want to do is make sure that we're in a capable situation to execute upon upon this growth and so yes, we are going to be incurred.
Focusing now I don't know.
We've we've dramatically increased.
Over 50% this year in terms of people I.
I don't think thats going to be sustained at but you know again, what we'll do is when we provide guidance into our operating plan for 2021 will will give you those of those ranges.
Okay.
And then just wanted to dig into the Cody signings with little cloud. This this came about pretty soon after you acquired with the cloud can you talk about how the cross sell happened so quickly.
He also mentioned in the press release that you're making progress with cross selling to the cloud into other customers and your CPG base. So just wondering if you could shed some light on how many trials are going on and if we should expect those to be just as fast as the coty deal. Thanks [noise].
Yeah, I mean, it's a great question and you know as it relates to that a particular deal I will say well, we don't comment specifically on one deal versus the other closing that particular opportunity happens significantly faster than.
Other opportunities you know almost 50% faster.
You know as as a result, so the fact that we you know we had a relationship already in place and the value proposition being so potent for consumer.
Consumer products I think really helps so of course, we are you know.
And with our strengths in consumer products, we are actively engaged right now.
You know describing in demonstrating and selling the.
The value proposition that came with that acquisition with the other.
CP customers.
And participants we will take one question per caller.
Next question comes from Paul steep with Scotia capital.
Okay, great I'll stick to it Richard can you just confirm that the 50% year on year was it ended the quarter textbooks.
For head count that is.
Oh, the 50, I'm, sorry, I'd, even if it's over 50% from the start of this year here.
Yeah, and we had made that point an earlier earnings calls that we were projecting to be you know potentially north of 40, and we're north of 40.
Closer to 50, perhaps like above 50 at this stage.
That helps thanks.
Our next question comes from Deepak Kaushal with Stifel GMP.
Oh, Hi, good morning, guys. Thanks for taking my question. So I'll keep it to one then gross margins.
They took a dip in the quarter, a Richard probably lowest I've gone on record.
I'm wondering if you can tell us how much of that headwind is organic growth again.
Got it and maybe some color on the cash versus non cash portion and what portion of that is sustainable versus.
I got my position. Thank you.
Well yeah. Thanks, the effectively the with regards to gross profit of <unk>.
You know, it's highly influenced by the timing of subscription term license revenue. So you know it. It does it does vary and it was of course is over 70% some quarters is under 70% and then.
In terms of the comps are three fundamentals. So there is a the professional services team.
There is a data center in the whole infrastructure for the cloud support and then there's the customer support organization also three key areas are all areas have been a beaming have been growing and accelerating now the margin professional services revenue is lower than the margin.
On on.
On Hsas and so you know that that that gross profit is really a function of you know that therefore, the cost the timing of subscription term license in the mix of P.S. and so.
We still think Thats very very strong. It's obviously led to a strong EBITDA performance in fact, the point whereby we increased our overall adjusted EBITDA performance for the year.
Next question comes from Susanne Sukumar with <unk> capital.
Good morning, guys. Just a question on the around some of the recent deals that you signed I can speak about can you speak on some of the trends that you're seeing in buying behavior.
You know are there particular solutions and modules or even see there being purchased more national upfront.
Briefly before and what the what the impact has been on your can average contract value versus historical periods.
Yeah. That's a great question I will say that it really depends on how customers being affected by this pandemic in some cases customers have I've seen demand for their products go through the ceiling.
And so there you know working very very diligently to absorbing capture and ship you know improved their on time in full measure.
Measurements to to capture all of that demand in some cases customers are seeing their demands go through the floor and so they're they're working really hard to preserve cash cash preservation is a key element lowering inventory, becoming hyper hyper efficient I have to absorb.
The volatility and so a lot depends on on the on the type of condition that that a prospect finds themselves and.
Okay next question.
Next question comes from Nick I guess do you know with Lorraine Hutchinson Bank Securities.
Yes, good morning, Hi, John just wondering now that worry about whether it's eight months into this pandemic.
Are there any clients you spoke earlier about the prolonged contract approval process are there any clients that maybe you weren't speaking to come in late Q1 early Q2 or sometime during Q twos that have come in.
In Q3 or even in in early Q4 that are part of your backlog that maybe you can speak to there is a prolong they've done the contract process, but you are seeing those customers that come in thanks.
Yes. The answer is yes, you know we've been successful in getting contracts closed in October.
That that might have been anticipated earlier.
You know we've had you know cost.
Contract negotiations completed in their entirety I'm only to see you.
Potentially six or longer weeks waiting for board meetings to occur to get final approval. So I mean, that's the you know the the you know the I'd say the phenomenon that we didn't necessarily see in the past and so obviously, we're there's there's engagements in activity going on you know ongoing as we speak.
Okay. Throughout you know throughout Q4 and were just drawing attention to this new phenomenon. Every every company is implementing these protracted what I would say you know more detailed approval processes differently. So you know, we're obviously monitoring this very very closely.
You know forecasting our activities very closely as a result of this.
You know as a result of what we are seeing and obviously that's reflected in our guidance.
Yes.
And at this time I will turn the call over to Mr. watts, where it.
Thanks, operator, and thanks, everyone for your questions apologies to have to limit questions at the end, but we're running into some time constraints here. So please reach out to me and we can chat after the call.
As always we do appreciate your questions and your interest and support of Conexus will speak with you again, when we report our Q4 results. So a fight for now.
This concludes today's conference call you may now disconnect.
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