Q4 2020 Kinaxis Inc Earnings Call
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[laughter].
Good morning, ladies and gentlemen, welcome to the connect CIS incorporated fiscal 'twenty 'twenty fourth quarter conference call.
At this time all participants are in a listen only mode.
Following the presentation, we will conduct a question and answer session and.
Instructions will be provided at that time for you to queue up for questions.
I'd like to remind everyone that this call is being recorded today Thursday March for 2021.
I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at connections incorporated. Please go ahead Mr. Wadsworth.
Thanks, operator.
And welcome to the connections earnings call today, we will be discussing our fourth quarter and year end results, which we issued after close of markets yesterday.
With me on the call are John Scarred, our President and Chief Executive Officer, Richard King, Our Chief Financial Officer, and Blaine Fitzgerald, Our executive Vice President of Finance.
Before we get started I want to emphasize at some of the information discussed in this call is based on information as of today March four 2021 and contains forward looking statements that involve risks and uncertainties actual results may differ materially from those set forth in such statements for a discussion of these risks and uncertainties you should review the forward looking.
Statements disclosure in the earnings press release as well as in <unk> SEDAR filings.
During this call we will discuss <unk> results and non <unk> financial measures a reconciliation between the two is available in our earnings press release and in our MD&A both of which can be found on the Investor Relations section of our website can access dot com and on SEDAR.
Participants are advised that the webcast is lives and is also being recorded for playback purposes, an archive of the webcast will be made available on the IR section of our website.
This call nor the webcast archive may be rerecorded, or otherwise reproduced or distributed without prior written permission from can axis.
To begin our call John will discuss the highlights of our quarter as well as recent business developments followed by Richard in Blaine, who will review our financial results and outlook finally, John will make some closing remarks before opening up the line for questions.
A presentation to accompany accompany today's call, which can be downloaded from the investor relations homepage of our website can access dot com.
Let you know when to change slides I'll now turn the call over to John.
Thank you Rick good morning, and thank you for joining us today.
First as always I hope you and your families remain healthy nothing matters more.
Vaccines are being rolled out.
And we head towards what we hope to be the ending stages of this pandemic. We are mindful that there's still lots of work ahead.
So I encourage everyone to keep doing their part.
We remain forever grateful to the frontline workers everywhere and extend our sympathies to families that have been deeply affected.
I continue to be amazed at the resilience of can access employees and their ability to remain efficient and effective during this prolonged work from home condition.
As you can see on slide three.
I'm very pleased to report that our quarterly results were once again very strong across the board, including SaaS revenue growth of 24% to $39 8 million.
Total revenue of $54 9 million and adjusted EBITDA margin of 11%.
Turning to slide four.
We're also very pleased with our 2020 full year financial results.
Compared to our initial guidance for the year, we came in at the high end of our SaaS revenue growth target and met or exceeded every other target, including total revenue subscription term license revenue and adjusted EBITDA margin.
Couldn't be more proud of the team for achieving our goals during such an unusual and unpredictable year.
As you will see on slide five and as we've previously mentioned Covid had an effect on our markets most notably mid year in 2020, when we saw some deal delays and some and in some cases more scrutiny on overall deal size and project scope.
As always the bigger impact of such delays is on revenue in future periods.
So the net effects have been factored into our 2020 guidance.
Q4 on the other hand saw the returned to very strong momentum with incremental business significantly higher than the fourth quarter of 2019 and in fact, achieving the second highest quarterly incremental bookings performance ever.
We also won a record number of new accounts in the quarter.
This has reinforced our confidence for 2022 and the longer term.
As you can see on slide six during Q4 and since we won a number of key customers some of which I can name now.
In life Sciences, and Pharmaceuticals, Morphosis was joined the joined the <unk> family.
And high Tech, we won crushed drawn electronics cyan and Marvell technology group.
In the industrial market, we won ESCO.
And I'm, absolutely thrilled to name marks as a global customer.
Our customers tell us that the key reason, we earn their business as they are entirely unique concurrent planning value proposition.
And the unmatched platform that delivers rapid response.
Additionally, just last week, we were positioned furthest on the completeness of vision axis <unk>.
And in the leaders quadrant of the 2021, Gartner Magic quadrant for supply chain planning solutions and we're also recognized for the ability to execute.
This is the seventh consecutive time can access has been named a leader in the Gartner magic quadrant related to supply chain planning and we're thrilled with this recognition.
Another reason for our recent success is the rapid growth in our sales team over the last three years today almost half of our account executives have over 18 months experience.
An important milestone as our typical sales cycles are 12 to 18 months.
This season group is ready to fully contribute.
Finally.
We're seeing momentum around our rapid start program are offering that takes full advantage of our knowledge of industry best practices to set customers on the path to supply chain transformation in as little as 12 weeks.
We're thrilled to have several recent customers take advantage of this program.
Covid has made companies increasingly aware of the need for a rapid return on investment to Derisk major per purchase decisions.
We believe that rapid start can accelerate new customer adoption and while initial deals may be smaller they offer tremendous expansion upside as customers see value from rapid response.
Assuming the continued recovery to a more normalized business environment, we expect our current momentum and positive outlook will support our target of 23%, 25% SaaS growth in the mid term, including 2022.
Our 2020 year end sales pipeline grew by more than 40% from 2019.
As manufacturers continue to recognize the urgency in driving hyper agility in their supply chain.
We made several key strategic investments in 2020.
Both organically and by acquisitions.
Which will better enable us to execute on this growing pipeline accelerate our product innovation and exceed the needs of our growing customer base.
I am confident that can access is quite simply never been more relevant or in a better position than we are today.
I'll make a few more comments about that at the end of the call, but for now I'll ask Richard and Blaine to discuss results for Q4, and the year as well as our outlook for 2021.
Thank you John and good morning, as a reminder, unless noted otherwise all figures reported on today's call are in U S dollars under IRS looking.
Looking at slide seven total revenue in the fourth quarter was down 2% to $54 9 million as strong growth in both SaaS and professional services revenue was offset by the expected cyclical decrease in subscription term license revenue.
SaaS revenue grew 24% to $39 8 million driven by new customer wins as well as the expansion of existing customer subscriptions.
Subscription term license revenue was $1 9 million down 84% from the comparable period, a slightly ahead of our expectations for the quarter.
This revenue item is linked to the normal renewal cycle of our customer hosted software subscriptions.
Our professional services activity was strong again, resulting in $11 3 million in revenue or 27% growth over the corresponding quarter of 2019.
As previously noted this revenue will vary from quarter to quarter based on a number.
Size and timing of customer projects underway as well as the proportion of work assumed by our partners.
Maintenance and support revenue for the quarter was $1 8 million a decrease from the same period in 2019.
The decrease was solely due to a onetime adjustment to revenue allocated to the maintenance support component of an existing customers subscription contract.
Supported by a backlog of more than $12 million for 2021, we expect future maintenance support revenue to be just over $3 million per quarter.
We continue to be pleased with the diversity and strength of our total revenue base for the year, our 10 largest customers accounted for 27% of total revenues with no individual customer accounting for greater than 10% of total revenues.
Gross profit decreased 16% to $34 8 million, representing a gross margin of 63% compared to 74% in Q4 of 2019 the change.
It reflects a few items.
First the significantly lower level of subscription term license revenue, which carries nearly a 100% gross margin.
We also made important strategic investments in our cost of revenue, including professional services customer support and SaaS delivery capabilities throughout 2020 organically as well as through acquisition.
These investments will help can access a part of our ever expanding base of customers.
Adjusted EBITDA margin in Q4 was 11% compared to 32% in the fourth quarter last year.
In addition to the impact from the lower portion of subscription term license revenue, we made major investments in our product development team in 2020 as well as grew our operating teams across the organization globally.
Overall, including two acquisitions and our organic hiring we grew that can access team by roughly 50% in 2020.
These investment initiatives are designed to further scale our operations to support anticipated revenue growth.
We had a loss of $1 $6 million per quarter compared to $7 8 million profit in Q4 19, largely due to the factors I've just reviewed.
Q4 cash from operating activities was $3 2 million compared to $8 million in the fourth quarter of 2019.
At December 31, 2020, cash cash equivalents and short term investments totaled $213 1 million compared to $212 6 million at the end of 2019.
During the year, we used approximately $62 million of our cash to fund our acquisition of Aruba cloud and prana during the year.
Moving to slide eight.
Full year 2020 results included total revenue of $224 2 million up 17% from 2019.
SaaS revenue of $148 9 million up 25%.
Subscription term license revenue of $17 9 million, a decrease of 32%, which as we previously advised is simply a reflection of 2019 being the high point of the normal three year cycle of customer hosted subscription renewals.
Adjusted EBITDA margin of 24% compared to 30% in 2019 trough.
Profit of $13 7 million compared to $23 3 million in cash flow from operations of $59 5 million up 62% from 2019.
As noted on slide nine our minimum contracted revenue backlog remains very strong.
As of December 31, 2020, it grew by 12% to $381 3 million as detailed in note 16 to our financials.
This amount includes $353 million of SaaS revenue backlog, which represents a 14% increase from December 31 2019.
Since.
At December 32018 backlog has grown at a CAGR of 27%.
Our 2020, a year end backlog will be recognized over the following periods.
$158 9 million will be recognized in 2021 of which $144 5 million relates to SaaS business.
$113 2 million will be recognized in 2022 of which a $104 9 million relates to SaaS business.
And $192 million will be recognized in fiscal 'twenty, three and thereafter of which $104 1 million relates to SaaS business.
Total bookings in Q4 were 61 5 million of which SaaS revenue bookings were $58 4 million.
As we announced yesterday I will be retiring August one at which time Blayne Fitzgerald, our executive EVP will transition into the CFO role.
It has been an absolute privilege to help can access and a success of becoming innovative high growth profitable public company.
While it's been a pleasure working in high Tech for the last 40 years. The past 15 years with can access has been the most rewarding and challenging by far Wildcat.
<unk> can access has amazing technology and customers. It's people have made a difference.
Blaine has been an outstanding contributor since we've recruited a one year ago as part of that transition plan Blaine.
He will be joining Rick ni to support a number of investor meetings in the months ahead.
As you will have the opportunity to meet Blaine I know you will also be impressed by his proven understanding of our business.
Personal integrity and strong financial skills.
No I'm, leaving can access and great hands and with that I'll turn the call over to Blaine to discuss our guidance for 2021.
Thanks, Richard it's been an exciting year and has been an invaluable to work. So closely with you through revenue I look forward to continuing your record of success at Codexis.
I also look forward to getting to know all of the shareholders analysts and investors on this call over the coming months.
If you move to slide 10.
And as John explained the Covid related delays, we experienced in the middle of 2020, I have a bigger impact on 2021 SaaS revenue than in 2020.
That is simply the nature of our subscription business model and long sales cycles.
Given that fact, the backlog Richard just outlined and our current outlook, we are introducing guidance for 2021.
We expect 2021, SaaS revenue growth to be between 17% and 20%.
A very healthy outlook given the circumstances.
As we've previously communicated based on the normal cycle of customer hosted subscription renewals, we expect subscription term license revenue to be between three and $5 million in 2021.
The underlying base of subscription business from these customers remains materially unchanged from 2020 and recent years.
We expect total annual revenue for 2021 to be in the range of $242 million to $247 million.
We expect an 11% to 14% adjusted EBITDA margin for 2021.
This estimate is primarily a reflection of COVID-19 related incremental subscription booking delays in 2020 day.
The lower proportion of subscription term license revenue in 2021.
Compared to 2020, driving approximately $14 million reduction in adjusted EBITDA on its own.
And the strong level of strategic investments, we undertook in 2020, which is setting us up very well for future growth and scale.
We're looking at other potential targets for 2021, we expect the gross margin and a 63% to 65% range.
Sales and marketing to be approximately 24% to 26% of revenue.
R&D to be roughly 24% to 26% and G&A G&A to be in the 16% to 18% range.
Finally, capex will be between 33 and $38 million.
This amount is roughly equally split between significant expansion to our data center capacity to support our growing customer base.
And investments in our new connections headquarters.
When the building is ready in early 2022.
We will be excited to bring the team back together to a new safe state of the art facility that will help us attract world class talent.
Moving on to slide 11, consistent with the strong bookings momentum we started to experience in Q4, and our elevated end of year pipeline, we anticipate that 'twenty 'twenty, one will be a much better year for signing incremental business and winning new customers.
At this time last year before the pandemic, we stated our belief that 23% to 25% SaaS revenue growth was sustainable over the midterm.
We deliver that performance in 2020, largely off the support of strong bookings in fiscal 2019.
While the Covid related delays from last year force a slight deceleration in SaaS growth in 2021, we continue to believe that 23% to 25% SaaS growth is achievable again in 2022.
In 2022, we will also hit the peak of our renewal cycle for on premise customers to subscription term license revenue to grow to $24 million to $26 million in that year and gross margins to expand to the high <unk>.
Our operating expense growth rate will also temper over the next couple of years. So we do we would expect adjusted EBIT margin to be.
To be in the 20% range for 2022.
Naturally we will provide specific guidance on our usual schedule.
We see room for improvement and sales growth gross margin and adjusted EBITDA margin in the longer term.
As always we are building for the long term and we'll make investment decisions based on what we deem to be in the long term interest of the company at that time.
Thank you for your continued support of can access with that I will turn the call back over to John.
Thank you Blayne, turning to slide 12, as I mentioned earlier.
I am very confident that can access has never been in a better position in our markets.
I'd like to briefly touch on some further elements of our strategy that are key to supporting our growth ahead.
Our pace of innovation has accelerated.
And we remain fully focused on product dominance in our field.
Our sales team can already offer our customers and prospects more value than ever before and we're releasing even more revenue generating product capabilities. Later this year like our AI enabled command and control Center.
We will also continue to remain open to product enriching acquisitions.
We will continue to significantly expand our data centers to ensure an ongoing premium level of service delivery to our customers. We are also continuing to grow the programs and points of engagement with our existing customers, including up to the most senior level executives.
To ensure that we're consistently exceeding their expectations.
We're getting greater support at each step of the customer engagement process by our rapidly expanding group of partners. We recently signed five new system Integrator partners, who will take on professional services engagements to help our global customer base digitally transform their supply chain.
We also brought on five new referral partners.
Consultancies and solution providers were equipped to recognize the fit between prospects business needs and rapid response capabilities.
We expect to release details of these new relationships soon.
And finally, our brand new solution extension partners are helping can access expand rapid response capabilities for enhanced customer value greater stickiness and entirely new revenue opportunities.
You can expect us to add more new partners across every category in 2021.
All of these developments would be impossible without our amazing team and our people matter here culture that we support and create every day.
On that note I would like to say a personal thank you to Richard <unk>.
He's been an invaluable partner to me and the full can access family throughout his long tenure.
He has helped <unk> growth and a diligent corporate steward.
Taking us public and dedicated himself to making sure that the investment community understands our performance and future opportunities.
Truly the company would wouldn't be in the excellent position. It is in today without his very significant contributions.
I am grateful to Richard for ensuring that the transition of his role will be entirely seamless and I look forward to continuing to work side by side with such a great talent as Blaine.
Finally as always.
You all for taking the time to join US on the call today with that I'll turn the line over to the operator for Q&A.
Okay.
At this time, if you would like to ask a question. Please press star one on your telephone keypad replacement Keith.
If your question has been answered or you wish to remove yourself from the queue press the pound key.
Please limit yourself to two initial questions.
Thank you Paul for just a moment to compile the Q&A roster.
And your first question comes from Richard Tse with National Bank Finance.
Yes. Thank you just first off wanted to say congratulations to both Richard and Blanch from your respect to retirement and promotion here.
John It's nice to see the backlog trending up here when it comes to your prospects in general what had been a condition that <unk> been waiting for it and it really make decisions to move ahead and you think thats.
Pretty much behind us now.
How we look at this going forward.
That's a very great question Richard and.
The easy answer is.
To value.
Under Covid.
The customers and prospects that we're talking to today are looking for extremely rapid healing. If you will every manufacturer that we talk to is in a state of of pain.
So they're looking for their own inoculation. This is the start of a transition. This is a start of their transformation.
But as I said in the opening remarks.
The rapid start program is.
Gaining speed and it's because our prospects in the pipeline that we're looking for they're looking for value within the three to five months timeframe.
Theyre looking to feel better fast and.
That's the I would say that.
The prominent change in terms of the discussions we're having with prospects.
Okay, Great and then.
The chart in the deck on that sort of the Gartner landscape here. So.
So when you look at.
That you are involved in today and certainly the pipeline are you seeing kind of the same level or fewer competitors in the market today.
We're still seeing the same level traditionally and it continues to be the case.
The large ERP providers, such as SAP tend to be the incumbents.
And that remains to be consistent.
We certainly see others.
In the mix as well as the competitive landscape as Gartner has has described.
But I wouldn't say there is a significant shift in who we typically see.
I will say that this notion of driving hyper agility.
<unk> has become incredibly.
Incredibly.
Our customers are incredibly and prospects are incredibly aware of that.
Every supply chain has found itself in the same condition right.
I'd say, the pure math based models or in a state of flux.
And the state of shock and a lot of a lot of our prospects are learning what it feels like to have an agility muscle that has atrophied.
And that's why they're turning their turning around thinking okay incremental lithium is dead, we need a giant breakthrough here and theyre turning to end to end concurrency as a base model.
That's great. Thanks, I'll pass the line and get back into queue.
And your next question comes from Stephanie price with CIBC.
Good morning.
Congrats Richard on your retirement.
Welcome Blaine.
I just had a question around the 2021 subscription guidance and I was just curious it was impacted by any additional non renewal loans.
If you could talk a little bit about the customer the customer churn rate here.
Thank you Stephanie per your best wishes and a very good question.
We continue to have.
Over 100% subscription renewal.
Sorry net.
I'm, sorry, but 100% net revenue retention.
And no it has not been we noted.
The main application really has been those headwinds that we experienced and earlier in the year. We've now continued to build them.
Not only the funnel, but also the sales team and so we're very confident.
With the guidance that we provided both for 2021 as well as in a in the midterm.
Okay, great and maybe on that Scott that sales pipeline.
Congrats on that Q4 bookings momentum are you seeing with sales process start to normalize here it sounds like maybe that's that's.
The commentary that you gave I just wanted to confirm that.
Yes.
Definitely.
You can see that I'd say the middle of 2020 is when we felt.
I would say the COVID-19 related headwinds.
And coming out of Q4, we saw the momentum with the second best.
Bookings performance.
In our history.
And we started Q1 very strong.
Obviously, we're optimistic that we're out of the Covid headwinds here, but as you can appreciate we can't necessarily see all the things in our in our future.
But all things remaining.
The same in terms of the recovery the business conditions recovery, we feel like the momentum will continue.
Great. Thank you very much.
Your next question comes from Paul steep with Scotia Bank.
Great. Good morning, Congrats Richard on the.
Retirement and welcome Blaine.
We.
Circle in on the level of investment that you're continuing the business in 'twenty one.
What are the key metrics as a team you're watching that give you confidence on sustaining that level of investment what would you look to maybe either kemper or increase or decrease that volume. Thanks.
Yes, I'll start and maybe pass that onto.
Richard and Blaine, but first its the growth in the funnel.
We have a very rigorous process in terms of how we scrub and how we validate.
Anything that enters into it we've been it's just the way we are we don't know another way to be.
And so.
When we saw the and it was expected I mean supply chain.
The supply chain transformation and supply chain excellence on the lips of everyone.
Teenagers know what it is now and so as you would imagine and as transpired throughout the year the pipeline grew by 40%.
We know that Theres some length to sales cycles. These are not simple decisions that that these manufacturers are making they're making a generational shift.
And what governs their supply chain.
We do not want to be crushed by that success and so we're investing ahead of that ahead of that pipeline. So that is first and foremost the driver for how.
How we budget our expenses and our investments Richard maybe I'll ask Jeff and Paul as you can appreciate the there are certain expenses, which I would sort of really equate as a step function. So during the year and primarily with.
The acquisition of Aruba cloud team, we had an opportunity to do a significant increase into our R&D capabilities and strengthen in our our our AI as well as.
Support for CPG and retail so we grab that opportunity we're going to see.
This significant increase in R&D this year, but it was key to do that similarly, what we've done is we've.
Increased our investment and basically our capabilities are supporting customers throughout the world. So that includes a combination of data centers and so we're continuing to invest.
Capital and people and those data center capabilities.
Global customer care organization, which is so critical to Canadian continuing the connection with customers, we have regionalized that to a much larger degree.
And we've strengthened our capabilities in marketing.
As recognized in <unk>.
You did attend the the virtual connections and other activities. So there was a number of initiatives that we did and that really resulted in that 50% or more increase in people. This year again now that we've made those key investments as a matter of looking towards our return on those investments and and so it's a matter of.
Really the timing of that.
Ascription revenue growth in the out years aligning so I think we probably are at a higher level of from an operating margin perspective.
Randy G&A marketing this year, but.
<unk> is our cadence will provide guidance for 2022 next year.
Okay just to follow up on that can we talk a little bit about the velocity of new product development, namely ruble cloud and are those products that youre investing in ramping on this year are those fully factored into the F. 'twenty two.
<unk> in terms of the return to the sort of 23% plus range or is that incremental that we should think about it. Thanks.
Yes so.
From my perspective, I think 2020 was was a year, where we produced more innovation than any that I can recall at least an immediate.
Time frame it was a great year for innovation and anyone who attended the connections to the <unk>.
Virtual connections conference, which we had.
Just unbelievable 3000 people registered.
Witness there was some some amazing innovations in those are slotted to be in generally available state as part of 2021 on the roadmap and so yes, we have factored all of that in.
Not only our 2021 guidance, but as well as 2022 as it relates to Aruba cloud.
Thesis behind it.
As mentioned in previous calls.
The fact that they had filled white space in market segments that we already serve.
Predominantly as CPG and to some extent life Sciences, and I am pleased to say that that thesis has come to fruition through 2021 and the other key thesis was the strength of their machine learning bench and.
Essentially doubling our own.
And that integration has gone exceptionally well in the fourth being there.
<unk> in the in the retail space.
And so we're going to continue the integration step I'd say the third element of that thesis is is the biggest lift of them all.
We're integrating their technology stack, along with ours and that's been factored into our investment in 2021 as well as.
Predicted.
Return on that investment in 2022 and beyond.
Thank you.
Your next question comes from Paul Treiber with RBC.
Thanks, very much and good morning, and congratulations to Richard line.
Just in regards to the disclosure on incremental bookings, which I think is very helpful.
When you look at the year in its entirety.
And it still looks like there was obviously a headwind from COVID-19 in the middle of the year end.
And as a result of the year looks it looks down a little bit.
How much bookings do you think have shifted to the right as a result of delays around COVID-19.
And do you expect those to close.
Next several quarters and sort of get back on track.
Well thanks Paul.
So.
<unk>, yes.
You could see from the results that we published how strong Q4 wasn't as John noted we have been.
Continue to close business in this in this quarter, which will be sharing with you when we provide the Q1 numbers obviously.
But there is another trend that has been very interesting and that is the expansion component of our business. So these are customers.
Signing up for broader use of rapid response, some of the new innovative services and applications that John has discussed we're seeing.
An increase in that waiting and so while the time when we went out as a public company was about 50 50, and it's sort of morph with the focus on some very very large new named customers down to the sort of two thirds, one third two thirds being with new named customers.
Over the last couple of years has returned.
To more of a 60 40 weighting and even at higher maybe in the 55% for new name. So and that is a combination of non of those services, but also the focus a dedicated sales team now just working with our growing base of customers and so the dynamic is yes.
We have some of the headwind issues that we talked about earlier for new named customers, but we've got a very strong base of existing customers that we continue to expand into and so those I think are reflected in some of those dynamics.
Thanks, That's helpful. And then just secondly, I was hoping could you touch on the patent dispute that came up this quarter to the extent that you can directly to speak about it or maybe indirectly whats been the impact or not on either bookings or just discussions with customers.
Well, it's certainly not something that we're going to discuss in this venue given.
Given the nature of the issue.
And when there is meaningful development, we will certainly.
Sure that will let our news releases do the talking for us, but I will say that we look forward to fighting fairly with Blue Yonder and the marketplaces. We continue our journey here, but John I don't think we've had any customer.
From a sales perspective impact so no.
Okay.
Your next question comes from Daniel from MS Coppola with BMO capital markets.
Hi, Good morning, I'll Echo the congratulations to Richard and complain.
In terms of the guidance if I take your SaaS revenue for Q4, and I annualize that that gets me to 90% of your 'twenty, one SaaS guidance.
And Thats, a higher coverage ratio than we've seen in prior years.
So I guess my question is is there. Some reason explanation for that does that imply incremental conservatism on your part or.
And any reason to to counter that.
Thanks.
Thanks Dennis.
I'm looking forward to getting to know you better throughout the.
The weighted we look at our guidance and we are pretty happy with the <unk>.
Guidance will be provided.
We look at it more.
In terms of the opening backlog.
At a point in time, so our opening backlog.
At the beginning of 2020 for example worked out to about 83% of our ending SaaS revenue and so if we take that same proportion going forward in that same ratio.
Our guidance for 2021 and going forward is going to be exactly on par with what we saw historically.
I guess my follow that was that the.
The opening backlog doesn't take into account anticipated renewals, which you probably know are coming.
We're looking at Q4 annualized that might take those future renewals into accounts, but.
At any rate I'll move on to a different question.
If I look at the sorry go ahead.
Well I can say that.
You did pick up that very good point and Youre in your research and Thats, absolutely that that extra 20 odd percent, 80%, 20% is going to be driven by renewals by new name wins and expansions and so absolutely it depends upon the timing of.
Those renewals in the year.
We are.
We do have some lumpiness and what's really critical is is within the current year is the timing of when we secure a new name wins. So obviously, if we close.
Customer on July one a new name customer.
There are six months of revenue, but assuming a three year term, it's 100% impact in the in the out years and so when we look at the ASP.
As Blake noted, we look at a number of measures on one of them being the AEP the minimum committed backlog, but it's also looking at the funnel and the turnover and just sort of allowing for where we think those timing of the deals will occur in hand, and as is our practice what we'll do is we'll update.
We will update you and the rest of the market each quarter as we as we move through this journey on new name wins. So there is.
This juncture of the year.
The best guidance really as to sort of use a rule of thumbs with regards to the.
The backlog.
Okay I appreciate that color.
And then next if I look at the backlog.
Dax you have $12 million of term license revenue and backlog for 'twenty. One you are guiding for only $3 5 billion can you help us understand that dynamic.
Well, there's two elements so.
A very very brief refresher for customer hosted subscription so that same three year commitment that we'll get from our customer, but they want a hosted or supporting them hosting it we have to take that and split into two components. The right to use component, which is the subscription term license.
And then the maintenance support which is the residual so the maintenance support has taken ratably, but the subscription term as you know has taken upfront.
So what's noted the $12 million of backlog is that maintenance support so that is that really covers that hole.
And we noted about its a three year cycle, whereby 2022 will be a return to the peak level of that.
Those existing customer renewal, but the maintenance support us as pretty level and so that.
That one element, where we've guided to just over $3 million a quarter you can see that it's all of the backlog.
As of this asset at this time and that backlog will increase as we close.
As we close the anticipated level of activity for those customers. This year, but that is at the low point of the three year cycle and that.
The right to use component is the three to 5 million subscription.
Term license that we're guiding to so does that help so.
We're at a low point, but it's going to fill up.
The backlog for the main support component, but it's going to be at the low point for the subscription term license.
Okay, No that helps I just thought from the disclosure that $12 million was going to fall into the term license, but you clarify that.
Alright.
Right Okay.
Alright, Thanks about why would you have sorry by the way sorry by the way is starting to revenue that we do have as you can see also to call two by $2 million secured of that $3 million to $5 million number that we discussed.
Okay great.
Your next question comes from Deepak <unk> with Stifel GMP.
Hi, guys. Good morning, Thanks for taking my questions I've got follow up congratulations and follow up questions to everyone else.
John We talked about you mentioned competition earlier in the call.
In terms of incumbents nurses.
Can access I was wondering if you could comment on the level of competition, you're seeing in terms of.
This of innovation.
Is there is there.
Shifting your view on profitability versus.
Accelerating our pace of innovation here.
In the market.
Well I think I'd.
I'd answer it this way in the conversations that I'm, having an IV.
A lot of them in the last six months I spend an awful lot of time with the most senior leaders of some of the largest customers and obviously prospects.
And what I'm hearing as I mentioned is this notion that incremental lithium is debt that these.
These practitioners. These leaders are looking for a step function, they're looking for a generational shift there recognizing that the past 30 years as we followed the governance models that have that have.
When used to implement supply chains are failing and perhaps COVID-19 has accelerated the need for this level of transformation. So I might I might say that innovation is everything they're looking to these practitioners. These chief supply chain officers are looking to leave at better than they got it.
Theyre looking to set the next generation on a positive path.
And they recognize that.
Moving from our cascaded pure math based solution.
Accuracy without agility.
This is in the past right Theyre looking for a situation where accuracy and agility can live in perfect harmony and this is where innovation.
Is where innovation matters.
Honestly in and why.
As confident as I am.
Knowing that the last 25 years at can access has been about driving heightened agility.
For companies that.
That needed an arguably we've never been in a state.
With more volatility there is a lot going on.
Not only with regulations and Theres a lot of people wondering what will the future regulations be is there going to be some onshoring regulation.
There's a lot at stake here and so agility becomes a critical.
Competency I will say, so perhaps a long winded, but passionate statement about why I believe innovation is so critical.
To set.
These companies on a successful course for the next 30 years got it but just just asking a different way from the.
Next three years to five years do you think youll have to spend more.
As a percentage of your revenue to maintain.
Innovation lead in the market or can you get back to the 30% margins in the past I still maintain that innovation lead.
Oh, I think that we have.
We can get we can get back to that we've always said it aspirational Lee.
We've always said 30 30.
That's been aspirational and.
And we do believe that.
The future in the future, we will get back to.
Closer to that range.
Got it and then just one last question for Richard before.
He moves off to his next chapter.
Gross margins are below 70% now is there a structural change here now that you have a higher mix of costs related to your data centers.
And likewise is there a structural mix and the cash versus non cash portion of cost of goods sold any any color you can help you.
You can give there would be helpful. Thanks.
Yes, sure so absolutely we're making investments in fact, we are making investments in all three components of the cost of revenue, which are in our case our professional services.
The broader customer success organization and in the data center.
And a lot of the data center costs are on a P&L basis, our amortization and so they do not impact adjusted EBITDA, but in terms of your structural question. It really is because of the weighting of the subscription term license revenue and at this juncture.
About two thirds.
Our revenue is SaaS.
And.
Sure.
Lesser amount is related obviously to the.
The subscription term licenses.
8% or so.
But the subscription term licenses on that three year cycle have been really with long term customers and so as we continue to grow.
Our SaaS business and that is a higher margin business.
We're going to see a higher weighting of mix of that.
And the overall revenue line, it's going to have less of it of an impact as we continue to expand our revenue this subscription term license and so.
As John said.
I see no reason why we couldnt move back towards that sort of 70% level. So we're going to continue to an absolutely invest.
But as the waiting of the subscription term license alright.
Alright, as the waiting of the SaaS revenue.
Continues to grow that is going to drive that's probably the biggest driver for gross profit.
Got it thanks again.
Your next question comes from Susan to Kumar with eight capital.
Good morning, gentlemen.
Congrats Richard and Great Canadian Blaine looking forward to working together.
Question I had was on new customer wins.
And then when considering from the newer product capabilities, making declining rapid response from clients.
The company has introduced recently, what do you see differently around the scope of solution.
<unk> purchased today with committed Newark language.
Yes, I think in large part.
Couple of things that we're seeing with net new one the most expensive decisions.
I'd say, the most expensive mistakes that happened in supply chain happen on the demand side.
Get your demand wrong.
If you are unable to respond to conditions of demand it has massive downstream.
<unk> downstream impacts and so we're definitely seeing that as the primary motivator.
Towards.
Towards transformations.
But as I noted earlier I'm also we're also seeing that.
The importance of speed.
Back to this this rapid start program, where people are saying Hey can you make me feel better okay. In three to five months I recognize the wholesome transformations can take significant amounts of time for large corporations large global corporations, but make me feel better in three months.
Less than that kind of timeframe and so we're seeing those two those are the two I'd say elements now where.
The speed the speed to go live okay.
Becomes a critical factor in it is typically focused on.
On the demand side the thing that we're seeing and again, it's quite natural you would see as a result of Covid in some cases demand is going through the roof for some and demand is falling under the floor for others and that disruption regardless.
Requires a lot of agility.
To either maximize the opportunity in.
Make sure that you leave no no order.
Unfulfilled or that you can slow the supply chain down and make sure you don't end up with the balloon.
Ballooning inventories.
Okay great.
That's helpful.
And it sounds like the rupee cloud integration is progressing well.
Any update here on your thoughts on M&A going forward do you see potential from more transactions. This year as part of your overall growth strategy.
So so so thank you for that question Indeed, as I mentioned earlier the thesis behind the Aruba cloud acquisition.
Sort of had three three prongs to it and the.
The first two and the people side of things despite being under under these isolation type conditions.
We have been successful we're thrilled with the talent and the management team and the intellect that comes along with that.
With that acquisition and we're also happy to have added some customers.
Based on the technology that they brought with them.
I will say that the integration of the technology stacks as it relates to entering the retail market is a heavier lift require some R&D some continued R&D which will.
We're obviously investing in through.
Through 2021.
No. We've said Thats why I said it earlier as well, yes, we are being a lot more thoughtful about accelerating.
Customer value through acquisitions, and we're going to continue to be thoughtful through 2021 and beyond.
Great. Thank you.
Yeah.
Your next question comes from Robert Young with Canaccord Genuity.
Hi, good morning congratulations.
Congratulations Richard has been a lot of fun working with you the last several years and could be true Blaine.
<unk>.
I'll ask one question at the same time speeds along.
The first one.
The middle of the year it sounds like you're telling investors that the the primary issue was customers that wanted immediate returns they weren't able to get it and so they are delayed.
Planned.
Deployments of can access and so that suggests theres a bit of.
Pent up demand.
Would you say that that.
Is correct and maybe thats reflected in the 40% pipeline growth and then the second part of your question would be around maybe just a continuation of <unk> question around the the way that you calculate the <unk>.
Your guidance is purely mathematical based on the backlog.
At that time, and so that pent up demand or any any kind of demand. It was able to convert middle of the year Despite high level of demand.
That would not be included in the guidance if I understand the way you described it.
R R.
You are correct that if you could net ill pass the line.
Thanks, Rob I'll answer the first half of that question and pass it off to blame for the second half on the on the pipeline.
Question.
You are correct in that I'd say, the trough occurred sort of mid year.
While I can I can only theorize what was the cause of that trough I can imagine.
And in fact in speaking to chief supply chain officers. Many of them were just absorbing the condition that they were in recognizing that they had never ever experienced.
I mean humanity. The current planet has never experienced a global pandemic. It's been over 100 years. So so I would say that middle middle of the year. Many many organizations, we're taking a pause and trying to figure out how to absorb the condition. They found themselves in and that caused the delay I think in term.
<unk>.
Of deal flow and.
Yes.
If I look at Q4 I might believe that those delays are behind us and we're seeing some momentum now.
And looking at the start of Q3.
Feel the same way, obviously, I am cautiously optimistic and that I can't predict what else will happen with Covid and Covid variance.
And the like.
I do think that.
Organizations now.
They are well past sort of the.
The main event of Covid and recognizing that okay, I get it we need a transformational and theyre now exploring their options and I think that.
Every boardroom.
I've had this conversation with a lot of chief supply chain officers and they've agreed every board is asking their CEO is what will you do next time.
And that's what's fueling this desire to transform this need.
To look at what governance supply chain differently, and so I think that is fueling.
The pipeline.
For us in the 40% growth that we've seen I would say the second half of the year we saw.
More acceleration.
But I'll turn it over to plant to Blake to comment on your question about guidance.
So if you go back to the conversation on sales guidance.
Really.
Two main components that we look at beyond the opening backlog.
One of those is renewals and it depends on the renewal cycle that we have at any point in time.
'twenty one.
Going to be.
A lighter renewal cycle than we see in most years, so that isn't as big a factor in how we come up with our guidance.
The other factor, obviously is exactly what you're talking about which is <unk>.
Pipeline and pipeline conversion throughout the year now when we consider it we obviously don't look at just the annual pipeline. When we look at it from where we are where the pipeline is looking to land for each quarter.
And the Q3 and Q4 conversions that we're expecting to have we'll have a much smaller impact on 2021 revenue guidance going forward. So we think that.
What we have right now is the appropriate guidance for 2021.
The start of the year as we were very happy with where it started out it's exactly on par with what we had expected.
So we're expecting to two to hit that guidance.
<unk>.
Continue on.
Great. Thanks, Dave maybe just a clarification on the first one with that with John.
Customers that wanted to deploy can access did they turned to other solutions. They can roll out more quickly or are they waiting for the right time to rollout can access maybe that.
The underlying question there.
No I think it was more of a pause.
Not that they were looking for alternatives I think uniformly.
Many organizations had too.
Absorb understand and absorbed the condition they found themselves in.
This is just the surreal situation for supply chain and conversations I was talking.
I had I was hearing things like.
Trusted lanes that you had for years were opened one day close to the next open the next day.
Things that you need to be certain and trusted we're no longer trustworthy and so many of them found themselves just working to absorb the condition, let alone try to figure out how to establish.
Future transformation and so of course I'm pleased to see many of those customers that had taken a pause.
Many of those prospects that have taken pause become customers.
Right so.
That's the way I would describe the circumstance.
Okay. Thanks, that's helpful.
And your last question comes from Daniel Chan with TD Securities.
Thanks, and congratulations Richard to teach Blaine.
Questions about whats built into the guidance specifically for 2022 with the bookings accelerating near the end of the year.
Given the let's call it a relatively easier compare with 2021.
What is the opportunity for the SaaS revenue in 2022 to accelerate beyond that 20%, 25%, especially if bookings really accelerate throughout this year.
Yes, I think thanks.
Thanks for the question.
The 20% to 25 percentage right now R. R.
Its judgment on where we think 2022 will land. However, we will provide updated guidance is as we go through the year.
The bookings that we're expecting to see the incremental bookings that were expecting to see in 2021.
Should put us right in that range, but again, if we see Q3 and Q4, especially.
Starting to come in higher than we expect.
We will provide updated guidance towards the end of the year.
At this point, we're thinking 2020, we're pretty excited.
With Richard transitioning <unk> been.
<unk> been put into force and positioned to have.
Business has never been in a better position to to monetize off from some of the opportunities that we have in front of us so with the Gartner MQ coming out and having a position where we are with our mature sales staff with our product investment that we are investing quite heavily in the current year I think.
We are going to be set up for a really great 'twenty two and beyond.
It's exciting for me.
Okay. That's helpful. And then maybe I'll ask Rob's question, a different way second question a different way.
So you're kind of looking at you use your opening backlog and you kind of say that's 80% of your next year's revenue with the bookings momentum that you have is there opportunity that that the current backlog makes up less than 80% of the 2021.
Revenue, if the bookings really accelerate especially.
As you're as you're exiting this year, maybe in the first half of the bookings come in stronger does that have an opportunity.
That's not what we see in our forecast at this stage.
Theres always an opportunity that bookings can far outweigh what we what we're expecting.
But at this stage I think what we've provided in guidance is our.
Our best judgment.
Okay.
Okay.
And there are no more questions at this time.
Great.
Thank you everyone for participating on today's call. We appreciate your questions and as always your ongoing interest and support of can access the look forward to speaking with you again, when we report our Q1 'twenty one results bye for now.
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Yes.
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