Q1 2021 Kinaxis Inc Earnings Call
[music].
Good morning, ladies and gentlemen, welcome to the next day is incorporated fiscal 2021 first quarter results conference call. At this time all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session.
<unk> will be provided at that time for you to queue up for questions.
Like to remind everyone that this call is being recorded today Wednesday may 5th 2021 I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations and couldn't access to the incorporated. Please go ahead Mr. Wadsworth.
Thanks, operator, good morning, and welcome to the Codexis earnings call today, we'll be discussing our first quarter results, which we issued after close of markets yesterday with me on the call of Johnson <unk>, Our President and Chief Executive Officer, Richard Most of our Chief Financial Officer, and Wayne Fitzgerald, Our executive Vice President of <unk>.
Finance before we get started I want to emphasize that some of the information discussed on this call is based on the information as of today May five 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 that you shouldn't.
View of the forward looking statements disclosure in the earnings press release as well as in our suite of Highlands.
During this call we will discuss for us.
Results of non <unk> financial measures. The reconciliation between the Srs results in non AF for US financial measures 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 to access dot com and on SEDAR.
Participants are advised that the webcast is live and is also being recorded for playback purposes, an archive of the webcast will be made available on the IR section of our website. Neither this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed sales.
Prior written permission from taxes to begin our call John will discuss the highlights of our quarter as well as the recent business developments, followed by Richard <unk>, who will review of our financial results and outlook finally, John of maintenance some closing statements before opening up the line for questions.
We have a presentation to accompany today's call, which can be downloaded from the investor relations homepage of our website can access dot com.
I'll, let you know when to change slides I will now turn the call over to John.
Yes.
Thank you Rick good morning, and thank you for joining us today.
First as always I hope you and your loved ones remain healthy nothing matters more than.
In particular, I'd like to let our free or a fantastic team in India know that all of us of can access are thinking about you as your battle very worst of this horrible pandemic under extremely difficult conditions.
Wherever you are in the World I encourage you to get vaccinated as soon as possible. So we can all see each other face to face once again, something I dearly Miss.
We remain forever grateful to our frontline workers everywhere, especially those in supply chain, keeping our necessities flowing and continuing to extend our sympathies to families that have been deeply affected.
I am also forever amazed by and thank her for for the resilience.
Of our can access employees as we remain in this prolonged work from home conditions.
Turning to slide three I'm pleased to report a strong start to our year, including SaaS revenue growth of 19% to.
To $40 6 million total revenue of $57 7 million and an adjusted EBITDA margin of 16%.
Turning to slide for while COVID-19 related delays are not fully behind us the environment for booking new business, which started to show signs of improvement in the fourth quarter of 2020 as continued to return to a more normal state.
We won a record number of new customers for our first quarter, which together with project expansions resulted in record first quarter incremental subscription bookings.
These positive first quarter results, coupled with the continuing healthy pipeline of opportunities reinforces our outlook for 2021, assuming these trends continue we remain even more contract and a return to higher SaaS revenue growth rates in 2022 and beyond.
We continue to see momentum in life Sciences and pharmaceuticals.
Adding in this quarter, Sweden based mold Nicky.
Which has been in business for 172 years and has operations in more than 100 countries <unk> designs and supply of surgical and wound care products from the operating room to our homes.
All of a gen is another win for us of global pharmaceutical company focused on developing manufacturing and selling generic branded an over the counter products for patients around the world.
The company has commercial operations in 20 countries with 700 employees.
As we mentioned on our last earnings call. During Q1, we also won biopharmaceutical maker morphosis.
And of Global Engineering, and Technology Solutions Company Science.
I'm also thrilled to share of win with a distribution company a nascent vertical for can access LNR distributors has been a leading national distributor within the supermarket drug independent in math class trade across the U S for over 60 years.
A number of these wins involve our rapid start the delivery program, which is an operating that takes full advantage of our knowledge of the industry best practices to customers on the path to supply chain transformation in as little as 12 weeks.
We continue to see the value proposition for strong and fast ROI resonating very well amongst our prospects.
Our rapid response platform strategy is beginning to pay dividends and I'm very pleased to report that we have made initial sales of transportation load optimizer solution developed on our platform by for flow as well as production scheduling of solution developed by planet together the.
These are just two examples of how our new solution extension partners can leverage our platform for mutual gain.
The pipeline of opportunities for all such partners continues to grow.
And as a strong validation of our strategy to open up rapid response is the development platform you can expect us to name more partners in the program this coming year.
Overall, we continue to see a heightened level of interest from companies looking to drive hyper agility and their supply chain through our unique end to end concurrent planning approach of.
I'll now ask Richard and Blaine <unk>.
Discuss results for Q1.
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 at slide five Youll see the total revenue in the first quarter was up 9% to 57 7 million as healthy growth in SaaS and professional services revenue was offset by a normal cyclical decrease in subscription term license revenue.
SaaS revenues grew 19% to 40.
$6 million, driven by new customer wins as well as the expansion of existing customer subscriptions.
Subscription term license revenue was $2 1 million down 58% from the comparable period. This revenue item is linked to the normal renewal cycle of our customer hosted software subscriptions.
Our professional services revenue activity was strong again, resulting in $12 million revenue, our 13% growth of the corresponding quarter of 2020 as.
As previously noted this revenue will vary from quarter to quarter based on the 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 $3 1 million largely in line with the result in Q1 2020.
We continue to be pleased with the diversity and strength of our total revenue base for.
For the quarter, our 10 largest customers accounted for 27% of total revenues with no individual customer accounting for greater than 10% of total revenues.
Gross profit increased by 1% of $37 2 million, representing a gross margin of 64% compared to 70% in Q1 2020 the.
The change in margin reflects the few items.
First the lower proportion of subscription term license revenue, which contributes nearly 100% gross margin.
We also made in part of the strategic investments in our direct costs throughout 2020 in Q1, and that's reflected in these new costs.
These investments will help connect to support our ever increasing base of customers.
Adjusted EBITDA margin in Q1 was 16% compared to 29% in the first quarter last year.
Again this reflects the impact of the natural cycle of subscription term license revenue and a part of and investments in all our operating teams across the organization globally.
These investment initiatives will help create a scalable base to support much higher revenue for codexis in the future.
We had a loss of $1 5 million in the quarter compared to $5 6 million profit in Q1 2020, largely due to the factors I just mentioned.
Q1 cash flow from operating activities was $26 million compared to $21 million in the first quarter of 2020.
At March 31, 2020, cash cash equivalents and short term investments.
<unk> totaled $229 3 million compared to $213 1 million at the end of 2020.
We remain pleased with our outstanding track record of cash generation and I will now turn the call over to Blaine.
Thanks Richard.
The enterprise software space Q1 is often a slower quarter for booking new business, but we are very pleased that we had a record first quarter for winning incremental business and for new customer wins.
As a result, our minimum minimum contracted revenue backlog remains very strong backlog grew by 11% compared to March 31, 2020 to 384 million.
This amount includes $368 million of SaaS revenue backlog, which represents a 16% increase from a year ago.
The backlog details can be found in the revenue note two of our financials.
The backlog will be recognized over the following periods of $129 5 million will be recognized in 2021 of which $119 8 million relates to SaaS business.
127 million will be recognized in 2022.
Of which $118 6 million relates to SaaS business.
And $127 5 million will be recognized in fiscal 2023, and later of which.
$122 4 million relates to SaaS business.
Total bookings in Q1 were $48 5 million of what.
SaaS bookings were $47 9 million, representing 40% growth compared to Q1 2020.
These bookings figures represent the difference in opening and closing quarter end backlog adjusted for revenue recognized in the period and includes bookings of both incremental and non incremental business.
Moving on to slide seven the strong start for the year and ongoing positive outlook continues to give us confidence in our guidance for fiscal 2021.
To reiterate we expect total annual revenue for 2021 to be in the range of $242 million to $247 million.
And I expect 2021, SaaS revenue growth to be between 17% and 20%.
Based on the normal cycle of customer hosted subscription renewals, we expect subscription term license revenue to be between three and $5 million in.
In 2021.
We continue to expect an adjusted EBIT margin of 11% to 14% for 2021.
So given the 16% result in Q1, we will continue to monitor and update.
While the impacts of COVID-19 are still not fully behind us we still anticipate that 2021 will be a much better year than 2020 for signing incremental business and winning new customers.
As a result, we continue to see 23 of 25% SaaS revenue growth at the sustainable target over the midterm, including for 2022.
We will give specific annual guidance on our usual cadence.
Thank you for your continued support of connectedness with that I will turn the call back over to John Thank.
Thank you Blayne.
We're pleased with our positive start to the year and continue to see a heightened level of interest from companies looking to drive hyper agility in their supply chain.
Ongoing major disruptions in supply chain, whether micro chip shortages of container ship blocking the Suez canal or.
Of course, COVID-19, and its the variance.
Continue to hit the news and shine the light on our unique differentiated technique.
Add to these the omni present in more mundane disruptions that impact supply chain sales from delayed delivery trucks issues on the manufacturing line or large purchase orders of customers, who want to accelerate and you start to see how invaluable concurrent planning is for our customers.
The weakness of rigid legacy cascaded techniques that introduce latency and planning and.
And follow functionally siloed approach of being exposed to every day.
I am confident that can access has never been in a better position to serve our markets as always.
Thank you all for taking the time to join US on this call with that I'll turn the line over to the operator for Q&A.
At this time of you would like to ask a question. Please press star followed by the number one on your telephone keypad again. It is star one we'll pause for just a moment.
You have a question from the line of Daniel Chan with TD Securities.
Hi, good morning.
You commented that you saw record Q1 incremental bookings from new customers and expansions I just wanted to drill into the a bit more given what sounds like a heightened sense of urgency to modernize supply chains in the current environment has there been a change in the size of these initial deals that youre seeing.
And has the pace of expansions also changed compared to what you saw before the pandemic.
It is of Great question.
The answer is yes in that.
Our prospects are looking for a much more rapid well of.
The rapid start to.
Two of their transformations.
Rather than looking at it.
At the beginning of wholesome way.
So.
We're really pleased with the uptake.
The last quarter and in Q1 with rapid start initiatives, so that I think.
As of as an indicator.
We're seeing it with both have very large enterprises.
In mid <unk> and mid market as well, both and so that's how I would describe perhaps the change.
The COVID-19 has brought on it's really.
Customers looking for a much more much.
The much more urgent and rapid return on their initial investments.
Okay. Thanks, that's helpful. And then can you comment on how customer activity has trended so far into Q2.
While we continue to see.
A return to more normal I'd say conditions.
Obviously, we're still early in the quarter, but I would say that the quarter started.
For the quarter started strong as the Q1.
And the pipeline of business continues to look very strong and.
I see the pipeline strengthening in every in every vertical and every geography, so I don't see necessarily of concentration problem at all.
So, yes, I would say.
We're cautiously optimistic of.
Obviously every day you read the news and COVID-19 is not behind us.
And so we're cautiously optimistic that.
We're closer to the end of it than we are at the beginning.
And we're certainly seeing a trend right now towards a more normal.
Operating environment.
Thank you.
Yes. The question from the line of Richard Tse with National Financial Bank.
Yes. Thank you.
All of a similar question for Dan.
The C that you had the record number of new customers falling on the record last quarter, how many of those new customers are rapid start customers not specific number but yes.
Some of that May so the quarter Im just trying to get a sense of what that is.
Yes.
When we look at obviously, we don't.
The disclosed the.
The details of every deal or the customer counts in a given quarter, but I can tell you that it's roughly double that of the same quarter last year in terms of net new customers and I will also tell you as I as we described last quarter, we're seeing.
The more activity for.
The mid market.
And I think that is also reflective of.
<unk>.
I'd say the the recognition of of the potency behind concurrency and the fact that mid market companies can step into this new world. This new transformation in 12 weeks or less.
And so the.
In Q1, we certainly.
Saw a continuation of progress in the mid market space.
But again great question Richard.
<unk> is roughly double the number of customers added in Q1 as the same period last year.
Okay.
Fair to say that given the rapid start and it's kind of like a rapid response light version so to speak.
Sort of the value of that contract is the fashion outlet of full deployment will be.
Get those conversions for the total deployments youre, obviously going to get the sort of mid the pick up. So the question is is that what sort of like the relative ratio of rapid start vs rapid responses of that.
For the quarter or intent of water.
For the appointment.
<unk> of contract would be.
Yes.
Every one of these is a little different because of the size of these organizations of difference is difficult.
Necessarily describe it as it's exactly X amount.
I will say it is less risk for a prospect to begin.
We're doing this inside of 12 week window. It is of prescription. It is not of light version of rapid response.
Just for clarity. It's rapid response it is concurrent planning, but it is a.
Based on <unk> best practices and it is the the first step that.
<unk>.
<unk>.
A customer will take so think of it as.
A patient who has a severe fever and theyre looking to lower their fever before they can work on the cure, okay, and so theyre looking for the call it our supply chain inoculation.
And describe it.
Where the Doctor Youre of the patient we're going to come in here at 12 weeks or less youre going to feel an awful lot better and when you feel better you can now start to strengthen and cure of the underlying governance model.
Okay, great and the Swan lots of equivalents per day, so it's been the brown.
A year since you acquired group of cloud.
Maybe you can give us that day on progress.
I can't really tell.
Just wondering how much it's sort of a sort of contributed to the business.
To the extent of and you can provide any color on that that'd be helpful. Thanks.
Richard So as I think we described this in the last quarter that we had been successful in.
What I would say cross selling their value proposition.
To our base and into the CPG.
Arena in the CPG vertical which was the first I'd say the first motivation for the for the acquisition.
And the second motivation was strengthening.
Our our machine learning and AI bench and so we're thrilled with the talent that we've been able to add in that area and have that talent implicated in and rapid response in the rest of our ml and AI roadmap.
The last element has been focus on retail and so this calendar year, we're focused on.
Merging and all of that technology into rapid response, and getting it ready for the market.
Okay. That's great. Thank you.
You have a question from the line of day knows my shopping list.
<unk> with BMO capital markets.
Hey, good morning.
In terms of.
The traction youre seeing in the mid market can you clarify are you targeting the mid markets through the same sales teams.
Partners or do you have an overlay of focusing on the market specifically with the dedicated sales people.
Yes, it's a great question of Donaldson.
Describe it this way, it's a little bit of both.
We have seen a also as a result of the Gartner MQ being published and in Q1.
A record number of unsolicited inbound leads the stroke.
People ringing, our doorbell and asking to come into the store.
So we're thrilled to see that and obviously there is of a larger proportion of those that we're seeing now.
The mid market as we start to see some.
Access so some in some cases, we have mid market companies coming to us.
With the free will and in other cases with partners, bringing them to us and so again and this and this.
Quarter the VAT.
Cost majority of net new business was influenced by our partner <unk>.
Partner.
Ecosystem.
It's a bit of both.
Hi.
Okay.
Would you characterize that across all geographies or is the mid market traction kind of more.
Geographically focused in certain regions the.
The all geographies in Asia, and Europe in the North American market.
Okay.
For a product perspective back at the user conference.
You had introduced some pretty neat AI capabilities.
With respect to stressing scenarios of implementing scenarios just curious if that's been launched and whether that's something that's a factor.
Terms of deal wins, or whether thats being adopted by clients or is it are the gains for that.
It's still early days.
We're obviously thrilled with the innovations of last year, especially around command and control.
And so thats been.
Picking up some traction and a lot of interest.
A tremendous amount of interest with prospects.
Early days too.
To highlight the any.
Any significant contribution.
Okay.
Alright. Thanks.
You have a question from the line of Paul steep with Scotia Bank.
Hey morning.
John maybe talk about the partner solutions and maybe the Genesis We know you will.
Once the new transportation planning App on the App, where has yesterday can you talk to where that sat.
At this point.
Yes. So this is the.
Yes.
I am extremely exciting.
Time for can access and a longtime coming getting getting rapid response.
Exposed to third party developers so that they can build intellectual property on top of rapid response and that by definition of eliminates our own development teams from being a bottleneck.
And delivering net new value for customers.
So I couldnt be more thrilled.
It's been of great quarter, and Thats been one of the greatest highlights as having a third party for flow successful as well as plant together.
Selling.
They're they're extensions on top of rapid response, we have several several other.
The development projects in the works with several other <unk>.
Solution extension partners and so throughout this year I'm very confident youre going to be seeing more.
The unique applications being posted on our warehouse and more.
Press releases of successes in solution extension partners, it's just a thrilling absolutely thrilling time for us.
And for our customers quite frankly.
Great.
Yes in the maybe the quick follow up on that and then one last one just.
How should we think about maybe the evolution of this app ecosystem the.
And then the number of years in the works we're here apps are launching.
What are you seeing in terms of customer interest and uptake. Obviously, you just launched now the third one and more to come.
What's sort of the customer response, so far none of that one quick follow up thanks.
Yes. It is.
<unk> been really good.
Sure.
Demonstrating these applications together with with these partners.
The integrations are completely seamless.
Extremely tight and for our customers they feel like there is still.
Working with rapid response, and they are still getting benefits of concurrency so.
I think it is still early days as excited as I am.
We're seeing the initial successes for our for our investments here, we're seeing a lot of interest from solution extension partners as I said, we have several other projects in the works.
Various stages and so as they become certified we are of formal certification process of all of them go through once they become certified.
There.
Pushed up the the App warehouse, so I think it's early days, but for sure.
I liken it to what happened when sales force.
The announced force Dot com, where whether it's.
Third parties or even customers themselves, having a safe way to extend the platform and add your own intellectual property.
And have it safe from upgrades.
That is the that's the Holy Grail for my opinion, and so we haven't really invented this technique I often quote the force dot com type of.
Analogy.
But I think our customers are going to love. It therefore, where we're seeing evidence of that and so theres a theres already a strong pipeline of business.
In three short months for some of these applications that we're just talking about.
Great and then the last quick follow up here for Blaine or Richard maybe on the margin.
Was there anything noteworthy callouts.
<unk> in the quarter that maybe had either investment for spend sort of push out of the year or should we think that that cost base apart from normal seasonality reflects where you sort of add at this point. Thank you.
Yes, I would like to.
Would love to give you more exciting answer but everything has gone according to plan for Q1.
As you know our cost profile is non linear and.
The things that such as connections and marketing programs theyre going to ramp up throughout the year connection to the back half of the year that it usually hits so.
That's a.
Some of the allowing our margin to be a little bit higher at the beginning of Q1 than we potentially will see at the end of the year. So.
Right now, we're pretty comfortable with our our guidance, we think that we if we normalize the full year impact that we are comfortably in that 11% to 14% guidance range.
Thank you.
Yes. The question from the line of Stephanie price with CIBC.
Good morning.
With the Panasonic announcing the acquisition of Blue Yonder I'm, just wondering if you can comment a bit on the competitive environment you can see any implications from that acquisition.
Well first I would say when any company is acquired.
It drives disruption.
No doubt about that there's got to be some disruption.
And to the extent of our competitor is being disrupted and focusing on other things.
That's the good thing.
That's a good thing for us and we've been.
Last quarter.
And this quarter, we continue to be successful in winning business.
Sure.
This arena.
So obviously, that's the way we we look at it.
We wish the disruption to continue and we look forward to competing in good faith.
As the year progresses.
Alright, Thanks, and then Inc.
It should be the vertical you mentioned in the contract win there just curious how we should think of it the potential in that vertical line and potential for its become like a core vertical.
So, yes, we announced that on purpose, obviously, it's a new vertical for us.
We have.
Some additional opportunities in the pipeline, which gave me some confidence frankly in the and sharing that bit of news as you know from our history, where all of it.
We're extremely deliberate when we enter new vertical.
And look to establish some good.
Momentum and wins and proof.
And so it's still very early days when you look at.
How we grew life Sciences for example.
It was a six year run to get to the point, where we are right now and right now of life science continues to be.
Our number one vertical slightly just slightly ahead of hi Tec.
<unk>.
And so.
We're thrilled we're always thrilled to enter a new vertical because it increases the tam increases our value.
The increases the leverage of our R&D spend because they get to leverage rapid response. The same technology is used for aerospace and defense automotive industrial equipment life Sciences High Tech and consumer consumer packaged goods and so it's just the great leverage point for us.
Great and then just one final one for me just given the read the cloud one year anniversary here, just wondering how you're thinking about M&A at this juncture.
Yes, yes, we continue to be very thoughtful about it in fact, we've increased our muscle I would say in evaluating.
The potential acceleration.
To cover off some white space I would say.
There are certain areas that.
That have some interest.
I wouldn't say, there's anything imminent at the moment.
And if you see anything during the year it would probably be categorized more as a tuck in than anything grand or larger disruptive.
But I will say <unk>.
<unk> from say a year ago.
We even during COVID-19, we went through two acquisitions successfully and as a result developed of stronger muscle around that function.
And.
And it is the topic, which we discussed as the management team. So it's an active I'd say portfolio of work.
Great. Thank you very much.
Thanks, Stephanie.
Yes. Good question from the line of Deepak Kaushal with Stifel GMP.
Hi, guys. Good morning, just a couple of follow up questions for me.
I think it was just building on <unk> question around the mid market strategy.
Beyond Robinson for John what do you have to do differently from the sales product or the pricing strategy to fully penetrate the mid market or do you see that you don't have to do anything different at all just thoughts on longer term strategy for penetrating that market volume.
Yeah, what we've realized.
Is that.
Not just mid market I think maybe this this pandemic has been the catalyst.
To get the supply chain as a global craft to rethink the governance model. It's that grant it's not like we just need better technology now.
Mid market large enterprise there is they are looking to.
They're looking at changing the governance model now there has been studies now.
Published.
How companies the leverage.
Currency over of cascaded planning how have the fared during COVID-19 versus companies that have not leveraged concurrency.
And so.
The reports are are overwhelming quite frankly, it's quite obvious that those companies that have already adopted concurrency as the governance model is an underpinning for planning.
Have fared better during this pandemic than those who have not and so that proof point now allows midmarket players to say, hey, I'll have what they're having to quote a famous line I'll have which theyre, having and what rapid start does is it eliminates a lot of the risk because we're coming in and saying Hey, It's your inoculated if you will.
12 of 12 weeks or less and we have successfully deployed in 12 weeks or less.
For mid market companies and so that's.
And that gives us a lot of confidence in terms of doing anything differently. Certainly these companies are.
Theyre looking for reduced the amount of risk and an earlier start.
And I think.
As mentioned the net effect of this strategy as we fully anticipate an increase in that I'd say the expansion opportunity because.
We know Hey, we're just we're just getting started this is like step zero.
And we've already had expansion occur after a rapid start that's already happened. So you get to the 12 week window and they go okay. We're thrilled we're feeling so much better or fever is gone.
And wed like to take step one okay and they start to expand further from that point. So I think over time it is.
Early days, obviously, but over time I'm looking for those indicators over the next 18 to 24 months, where we will start to see.
Some potential for an increase an expansion of.
Of of subscription over as a result of rapid start.
Great. That's helpful. And then just the follow up on Richard's question.
No.
There has been a rapid adoption of e-commerce and retail.
Are you starting to see that move the needle for your business with Reuben cloud organically or is this something that we should still expect to come as the integration matures.
I guess, what inning are we in and how would you.
The penetration of the E Commerce segment of the retail market today.
Yes, I'd say, we're in the first quarter.
Game here and we've been successful with pillar number one.
Which which was our prime motive for I can we leverage this technology in the CPG space and so we have been successful there.
And we're thrilled with that with that output at the same time, it's a long game for us.
Of our eye on the price and Thats entering the.
The retail space and so this this calendar year is all about preparing to do that so I'd say the the I'd say substantive.
Return will happen once we get that.
Their technology fully integrated into rapid response.
Okay. Okay. That's helpful for me.
I will pass the line at this point.
Thanks Deepak.
Yes.
You have a question from the line of Robert Young with Canaccord Genuity.
Hi, Good morning, a couple of clarifications for me.
And in the past.
We've seen you as kind of is very intentional and where you shift your resources and I think it may be different than other.
Adding on some of the questions on the mid market. It's always seem to me that the mid market has been out there just been connections has been unwilling to.
Put the resources there I think that yours, some elements of your sales organization, probably love to go after the mid market and so.
If I look at this from a different point of view that says that the mid market is there.
As connections now, saying that it's going to go after the mid market.
Yes.
Great question, Rob and you are right.
Those who follow US closely would see press releases and say yeah, that's not the mid market company that they just closed there and so.
Say that we would be more opportunistic not necessarily targeting mid market and are in our past life.
Whereas today it is definitely more deliberate.
There's definitely more deliberate.
And part of that is in the pricing packaging and the promotion of rapid response, and how we how we target.
And so.
So I think youre going to continue to see more success.
In the mid market the other thing that.
I'd say, we're drafting to use a cycling term we're drafting off of.
Proof points.
No.
We're drafting off of some of the greatest companies on the planet adopting concurrency as an underlying governance model and.
And recognizing just how powerful that is.
Had 40 40 plus of interviews with chief supply chain officers in the last six months and the one thing I'm hearing which is quite uniform as incremental lithium as debt.
People are looking for a breakthrough the recognizing that the past 30 years won't survive. The next three years.
And so.
And so I think the mid market is looking at how the greatest supply chains in the world of govern themselves and they're just saying all have what they're having the proof is there.
I think our technology has matured also with that the opening of the platform has matured our integration processes of matured and we are now capable of deploying rapid response in all of its glory and 12 weeks or less.
And perhaps.
And years years ago.
And I first met I.
It wouldn't have been able to say that.
And so I think that's what's really fueling.
Our deliberate approach here.
Okay and then the.
The distributor the new vertical line talking about you said specifically the expands the Tam when you look at that it looks like it might just be.
The elements of retail and CPG.
Sounds like Youre, breaking down the brand new vertical again is there any.
The size the around the Tam that you would think of our wood it largely fall underneath retail CBD at first.
Yes, the retail CPG of CPG itself is the collection of verticals is so large and so.
Yes, youre right to think of it that way.
And when we think of CPG food and beverage.
Yes. The question from the line of Paul Treiber with RBC capital markets.
Oh, thanks, so much good morning.
Yeah, John Glenn I think he got cut off from the last question I just want make sure Jon is there before I start.
Operator, it's Rick watching the tiers.
Our usage on line.
<unk> is.
He is available.
Paul's line is still connected.
Yes, Im sorry.
Paul and I think the rest of the audience since youre im referring to our main speaker line.
One moment.
I think theyre going to have to redial.
In.
Paul if you want while they're doing that I could.
I can address your initial question hopefully they'll be back.
Globally.
Carrying the spin.
Sure.
The growth of the pipeline in the last quarter.
The company indicated the pipeline was up 40% year over year, just should we how should we think about the growth going into Q1 is that momentum sustained.
The accelerating the how should we think about relative to the 40% metric last quarter. Okay. Yes.
Yes, I mean, when we introduced <unk> talks about that metric, it's not something we're expecting the sort of give the number every quarter really was.
We thought that was a good time to talk about that underlying growth.
Given the given the situation of the time and we can certainly say that I'd say the trend is continuing this is not.
The one off phenomenon the.
The pipeline has been growing steadily through 2020 and.
We would characterize it as still on a positive trend here so.
We will provide a pipeline growth metric quarterly but yes.
The thing that John mentioned.
Moving on in the World, whether it's COVID-19 Suez Canal all of the disruptions as well as the daily ones in all of our success being able key named new customers.
Helping here and he also mentioned the Gardner.
Reported and how that.
The low resulted in the highest number of inbound inquiries that we've ever had so.
Theres a lot of good tailwind behind us at this point.
Okay and then.
I mean, that's on the okay.
Can you guys hear me back now.
Well welcome back Brian.
Alright, sorry about that I guess, just got bounced I could hear you Couldnt hear me sorry about that.
During the logging for now.
Couple of questions on the supply side in terms of managing your business I asked Rick on the demand side.
Of course supply can you speak about the ability to hire new employees. In this environment are you finding that you can you can sort of the talent and the Ottawa region or are you beginning to broaden that out with remote work like are you finding.
Are you actively sourcing outside of Ottawa than perhaps what you've done in the past.
Yes, it's a great question. So as we said last call in 2020 during the pandemic we grew the.
Our work force by North of 50%.
Very aggressive hiring and that was worldwide.
The <unk>.
North America here in Ottawa.
Europe.
In Asia in India, and we've continued to hire in Q1 not to the same pace.
But to the expected pace and I'd say the.
The the work from home global workforce, certainly provides opportunity to find talent anywhere in the world at the same time.
Think it is not necessarily conducive to building careers for.
For young people it sounds great at the beginning and then they realize how do I build my career, if I'm never physically with anyone.
So I am not a buyer of work from home perpetually I'm, just not a buyer of that I think ultimately culture will erode that will you will forego culture as a result.
I think there is a reason why people are stronger together I think theres a reason why the communities of stronger when the lock arms and so our approach.
Going forward, we will be.
Hybrid this is what we're hearing from our employee base. They prefer a hybrid approach, but they are all looking forward to seeing each other once again.
We're continuing our work on our our new global headquarters, which we're still on target to move in in Q1 of 2022.
And it will be a magnet.
Hi.
We're going to magnetize of that place and it will be of place employees will want to be.
But at the same time, we're not going to rush, we're not going to put safety.
Behind us here.
We have to be safe first and foremost, we're never going to put employees in harm's way.
And we are building a phenomenal culture, our people matter here culture, resonates really really well globally.
Globally, all around the world and so we.
We haven't had.
Hey.
The systemic challenge in finding talent.
And last one for me also on the supply side, the MD&A called out the data center expansion in Montreal, which is starting in January.
Is that progressing despite.
The restrictions and in also in regards to.
The supply.
Technology hardware.
It is quite tight.
How should we think about the capacity of your existing data centers and the need.
To expand that capacity and how do you sort of think about mitigating risk. If there are delays on the expansion side.
Well good good question, Paul and just to clarify.
Its ongoing expansion of our of our Montreal of data center and what drives our data center growth is really twofold first of.
The growth of of our customers both from a new name expansion as well as the expansion and then secondly, we developed in the cloud. So it's the engineering team as well now as something whereby we always.
Invest again ahead of the curve and so we want to do is make sure that we have appropriate.
Additional capacity.
So that we can expand.
Whether it's driven by our customers increased usage or buy that expanded R&D teams. So it is with purpose. It is it is planned.
Part of our Capex.
Our plan for the year.
Proceeding as anticipated.
Okay. Thank you all kinds of line.
Yes.
You have a question from the line of students for Tomorrow with eight capital.
Good morning, Jay.
When.
When looking at your recent wins how much of that.
It is being driven through the rapid direct mall versus traditional rapid response model and and how much of a role do partners versus direct sales plenty kind of driving new deals for this new program.
It's about the same actually I wouldn't say that.
We've shifted our practice or are the sales protocols, we haven't shifted our approach to leveraging partner influence and involvement we haven't shifted away from having partners.
More and more become prime on deployments.
So I wouldn't say, there's any if there's been any shift at all.
In that regard.
Okay, Great and then.
Are you guys seeing any new learnings.
From from rapid directly you can take back into your traditional deployments.
The Canadian approval overall the.
<unk> timeframe.
Okay.
If I correct, if I understand you correctly, when you say rapid direct your you're meaning what we call rapid start.
Which is that our program.
Yes, okay.
In that case, we're definitely seeing a shift in.
And customers more customers now than same time last year.
Looking at rapid start as the as their first step and it's too early to say you know it's too early to say this out loud as something that is systemic.
But we have experienced.
Faster sales cycles as a result of rapid start.
As you would imagine were dramatically reduced the amount of risk.
Prospect has the stake has to take to get started.
And so.
Early days, we're monitoring that very closely as we've always said our when we look at our cohorts of deals they tend to be in that 18 month range in terms of the sales cycle.
With rapid start there is the potential too.
To basically lower that number and start to see.
A faster at a faster rate of close.
Then we have in the past.
Hopefully that answered the question you asked but that's the.
For sure the.
The significant thing that we're watching right now is the sales cycle, there's something like rapid start as a as of.
Vehicle.
Sure.
Reduce the the time to close.
Great. Thanks, Matt that's touch.
Due to the.
Limit of time, we will be limiting questions to one question.
You have a question from the line of Nick Agostino with the.
<unk> Bank Securities.
Yes, good morning, I guess sort of my one question looking at professional services, obviously second largest revenue component for you guys. In your press release and MD&A you talk about I guess more revenues coming from expanded service offerings I know John in the past you've talked about introducing.
Services and being able to bill for them. So I'm just wondering what what type of service offerings are you.
I guess make up debt that comment about the expanded service offerings and more importantly can you maybe provide a split between how much of your professional services is tied to the implementation work together customer onboarding versus services being offered in the aftermarket and how much of professional services.
<unk> overall can we maybe quantify if possible as being recurring in nature.
Thanks, Nick I mean, first and foremost we've always viewed and continue to view the primary role of professional services of the subscription enablement.
And we're pleased to see that actually our partner of our extensive partner network is actually generating significantly more collective revenue that we are what we've done.
Just to continue that connection with our customers and primarily through our prana acquisition last year.
He is also now being able to cost effectively introduce what we call sustained net services. So this is after that description of enablement is the ongoing connection and helping them better use and leverage and expand their usage of.
Of of rapid response, primarily though of that hit the professional services are still focused though.
On the other the initial subscription enablement of our our further expansion of that description of enablement.
And any comment on is that Sustainment services is that of our recurring revenue stream or is that onetime in nature as well.
As of recurring because its living with our customers and living with the rapid response experiences all of it is absolutely sustained and we continue to expand our strong team in India. The skill set there is amazing.
Half.
Low up 20 years of experience Bill.
Building that in.
There are very very focused knowledgeable team in and have developed a rapport with with our customers. So that is.
That's the ongoing.
Just the start of our relationship.
Okay.
Okay.
You have a question from the line of Martin <unk> with a TB capital markets.
Good morning, guys. Thanks for taking my question.
Is it fair to say that cash.
Customers looking for a more rapid return on your investment result.
Shorter lead times.
Smaller initial contracts and then higher <unk>.
Of our overtime.
That's the that's the thesis for sure exactly in that order rates should we I would expect reducing the risk.
Increasing the return on initial investment.
And and providing.
Our past providing a journey.
To transform their governance model.
Will will yield those those.
Those out right now it's too early to say.
We've seen we absolutely have seen some cases, where.
The sales cycles are radically reduced and in some cases, they continue to be exactly as.
We have been seeing for 25 years, and so we're going to monitor it very closely.
We're obviously very pleased coming off of a <unk>.
Record Q4 2020.
And then breaking records in Q1 again.
And some of that the result of rapid start.
We're going to continue to monitor that and see if that becomes a trend.
But it is the logical thesis.
Super Thanks for that.
And the good quarter.
We will be there.
Thank you so much.
Yes. The question from the line of Robert Young with Canaccord Genuity.
Hi.
The company off before I get your letting me back in the queue here for the last question, maybe just a quick one debt the chip shortage the impact on the automotive sector seems tailor made for what you guys are doing and so maybe if you could just use that as an example of maybe how the automotive sector is seeing your tool set in a different way and then I'll just let you off the hook.
Yeah.
It's another classic.
Major disruption that you can't plan around no.
The old techniques the whole governance models don't know what to do.
When such disruptions occur and Youre right its the perfect use of concurrency.
And the scenario planning and.
Tradeoffs.
And so on so we've certainly done.
Three well in high Tech and I might even say more so in the.
<unk>.
The sub segment.
Yes.
And the.
Chip manufacturing and.
So are.
The customers involved in that in that space for us are certainly leveraging our technology as a result.
There's no doubt about it but it's just one example, as I talked to other chief supply chain officers, whether it's the stuck boat.
The plant fire of.
COVID-19 pandemic.
Or material failing inspection upon arrival at.
Net of factory all of these things are unplanned events and all of these things require hyper agility to absorb you can't plenty of way around it.
And this is where concurrency works best.
Okay. Thanks.
Okay.
And there appears to be no more questions in queue I'll turn the call back over to Richard Milkman for closing remarks.
Thank you operator as you know we announced my retirement in March with Blaine transitioning the CFO on August 1st. Consequently, This is my 28th and final earnings call I want to take this opportunity to think of the analysts investors and other listeners for your support over the years. It has been an absolute.
Privilege to be part of the can access team of to share our story, Thank you and goodbye.
Yes.
Ladies and gentlemen, this does conclude today's conference call. You may now all disconnect. Thank you for your participation.
Okay.