Q3 2021 Kinaxis Inc Earnings Call
Good day and welcome to the connections Incorporated's fiscal 2021 third 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 and instructions will be provided at that time for you to queue up for questions.
I like to remind everyone that this call is being recorded today Friday November 5th 2021, I would now like to turn the conference over to Mr. Rick Wadsworth Vice President of Investor Relations at can access incorporated. Please go ahead Mr. Wadsworth.
Thanks, operator.
And welcome to the Codexis earnings call today, we will be discussing our third quarter results, which we issued after close of markets yesterday with me on the call are Johnson card, our President and Chief Executive Officer, and Wayne Fitzgerald, Our Chief Financial Officer.
Before we get started I want to emphasize that some of the information discussed in this call based on information as of today November 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 you should review the forward looking statements disclosure in the earnings press release as well as in our SEDAR filings.
During this call, we will discuss <unk> results and non <unk> financial measures.
A reconciliation between <unk> results and non <unk> 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 can access dot com and on SEDAR.
Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive. The webcast will be made will be made available on the investor Relations section of our website. Neither this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed so prior written permission from Nexus.
To begin our call John will discuss the highlights of our quarter as well as recent business developments followed by Blaine.
Review, our financial results and outlook finally, John will make some closing statements before opening up the lines 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 dotcom, we will let you know when to change slides I'll now turn the call over to Joanne.
Thanks, Rick Good morning, and thank you for joining us today I'll start on slide three.
I'm very pleased to report another solid quarter of progress for can access, including SaaS revenue growth of 14% to $44 7 million total revenue growth of 17% to $64 4 million and adjusted EBITDA margin of 19%.
Moving to slide four we continued to experience tremendous momentum in our business.
Which will benefit our growth in 2022 and beyond in Q3, we won more new customers than in any quarter in our history. A notable achievement given that the third quarter is often challenging due to summer vacation, particularly in Europe.
Year to date, we have more than tripled new wins compared to the same point last year.
We continue to see significant interest in rapid start our accelerated deployment package at a relatively balanced split between mid market and enterprise wins.
I'm also very pleased that we won new customers in six of our seven vertical markets in Q3, once again, demonstrating the value that rapid response ads across an incredibly diverse universe of companies and industries.
Supply chain issues continue to be at the center of boardroom conversations and the daily news.
And we are pleased to be helping companies navigate these complexities.
Together all of this success is reflected in a slightly improved outlook for 2021, which Blaine will discuss and very strong growth in our annual recurring revenue.
Our total E. R. R stands at 207 million, 23% higher than it was at this time last year.
We believe that this metric provides excellent support for our view that the market can support 23% to 25% SaaS revenue growth in the midterm, including next year.
On slide five we're very proud to have released our global impact report in September.
While we remain in the early part of our ongoing ESG journey, we are committed to it as a key strategic pillar, including oversight at the board level.
In our report you will see that we achieved carbon neutrality in 2020.
We required that for roles for all roles.
30% of candidates presented and 25% of candidates interviewed must be from underrepresented groups.
We take care of critical customer data, we were the first Canadian company to receive the German Z five security standard attestation and increasingly important achievement for cloud service providers.
We aligned our ESG program with six UN sustainable development goals and we recently joined the UN Global compact, which outlines 10 principles that address areas of human rights labor environment, and anticorruption I <unk>.
You'll have a chance to read this report we're committed to improving our performance every year and believe that can access is a good home for funds that have a particular focus on sustainability. Please reach out to Rick if you have if you'd like to learn more about our ESG efforts.
I'll now ask Blake to discuss our results for Q3.
Thank you John and good morning, as a reminder, unless noted otherwise all figures reported on today's call are in U S dollars and IRS.
Moving on to slide six total revenue in the third quarter was up 17% to $64 4 million.
<unk> revenue grew 14% to $44 7 million driven by record new customer wins and the expansion of existing customer subscriptions.
You may recall that in Q3 of 2020, we were required to accelerate the revenue recognized for one customer Sn.
Essentially doubling their quarterly amount.
Because they had given us notice that they couldn't renew their subscription when it became due later that year.
The customer is taking financial measures to mitigate the impact of COVID-19 on their business nor.
Normalizing for that accelerated revenue recognition of SaaS revenue growth in Q3 of 2021.
Would have fallen to the 17% to 20% range, we expect for the year.
So subscription term license revenue grew 93% in the third quarter to $2 million flux.
Fluctuations in this revenue item are generally tied to the normal renewal cycle of our customer hosted software subscriptions and will vary period to period as a result.
Our professional service services activity with strong game, resulting in $14 6 million in revenue or 27% growth over the corresponding responding quarter of 2020.
This revenue varies from quarter to quarter based on the number size and timing of customer projects underway.
As well as the proportion of work assumed by partners.
Maintenance and support revenue for the quarter was $3 1 million.
Largely in line with the results in Q3 of 2020 and reflects the ongoing stability of our base of on premise customers.
We continue to be pleased with the diversity and strength of our total revenue base for the quarter and year to date, our 10 largest customers accounted for 26% of our total revenues with no individual customer accounting for greater than 10% of total revenues.
Third quarter gross profit increased by 16% to $42 6 million as a result of our revenue growth, partially offset by investments in head count and data centers that are helping can access support our ever increasing base of customers.
Gross margin in the quarter was 66% the same as in Q3 of 2020.
Adjusted EBITDA was up 22% to $12 4 million.
For a margin of 19% compared to 18% in the third quarter last year.
We recorded a profit of <unk> 2 million in the quarter compared to <unk> 7 million in Q3 of 2020.
Q3 cash flow from operating activities was $11 2 million compared to $4 5 million in the third quarter of 2020.
At September 32021 cash.
Cash equivalents and short term investments totaled $240 6 million compared to $213 1 million at the end of 2020.
We remain pleased with our outstanding track record of cash generation.
Overall Q3 was a very solid quarter and we're pleased with the financial results.
Now please move to slide seven.
Turning to some key metrics.
Our remaining performance obligation or <unk> remained strong at $375 8 million up 3% from September 32020.
Of that total $358 1 million relates to SaaS business, which represents a 7% increase from the amount in Q3 2020.
Despite strong incremental bookings during the quarter, our <unk> growth rate was impacted by Q3, 'twenty one being in a lower part of the renewal cycle.
$48 6 million of our current Rps will be recognized as revenue in the fourth quarter of 2021.
Of which $45 4 million relates to SaaS business.
If you add our fourth quarter of SaaS RPI to our year to date SaaS revenue result, you can see that we are in very good position to end the year within our guidance range.
Further details on our RPM can be found in the revenue note to our financials.
While a valuable metric remember that total <unk> is impacted by among other factors, the timing and duration of existing customer contract renewals.
<unk> is a better indicator of our momentum in winning new businesses.
Which in turn drives future revenue growth.
Okay.
So now moving to slide eight we are very pleased that our <unk> reached $207 million in the third quarter.
At 23% increase over the comparable period of 2020.
As we mentioned last call, we fully expect our growth to fluctuate slightly between quarters and we view. The result in Q3 as another very positive data point in the longer term trend of accelerated growth in this metric.
Generally we believe that total <unk> growth of approximately 20% or higher is it sufficient metric to meet our current midterm objectives.
I'll also remind you that SaaS <unk> growth is higher than total AOR growth generally due to lower growth in the <unk> for a relatively small group of on premise customers.
And moving to slide nine.
Based on our strong performance. So far this year, we are able to provide you with updated guidance for fiscal 2021.
We now expect <unk>.
Total annual revenue to be in the range of $248 million to $250 million.
That is revenue growth to be between 17% and 20%, but likely towards the lower end of the range.
Subscription term license revenue to be between 6% and $7 million and an adjusted EBIT margin of 14% to 16%.
Part of the increase in guidance relates to an exciting new customer we won after quarter end for whom we are delivering rapid response as a SaaS offering from a cloud environment, but who has the option to move on premise.
Under <unk> 15 revenue from any customer with such an option, even if not being used has to be recognized under term license accounting.
Beyond 2021, we are very confident that the positive trend in our <unk> supports our assertion that 23% to 25% SaaS revenue growth is a sustainable target over the midterm, including for 2022.
We look forward to giving specific guidance ahead.
With that I will turn the call back over to John Thank.
Thank you Blayne.
As with earlier quarters in 2021, the real story for can access is the momentum, we're seeing with new customers and.
With the accelerated growth in our annual recurring revenue.
Given that Q3 is often a slower quarter due to summer holidays, we were particularly pleased to have won a record number of new customers in that period.
More than ever we're seeing companies understand the urgent need for an end to end digital transformation of their supply chain.
And increasing numbers of considering the exceptional value can access offers with our entirely unique concurrent planning approach as always thank you for taking the time to join us on the call with that I'll turn the line over to the operator for Q&A.
Thank you we will now begin the question and answer session.
To ask a question you May Press Star then one on your Touchtone phone.
If youre using a speakerphone please pick up your handset before pressing the keys and to withdraw your question. Please press Star then two and at this time, we'll pause momentarily to assemble our roster.
Once again to ask a question Star then one.
And the first question will come from Richard <unk> with National Bank Financial. Please go ahead.
Of the rapid start deals you won.
Last year, you know what portion of those have converted into sort of full rapid response deployment.
That's great question Rick.
The ones that closed last year their lives.
The rapid start deployment methodologies designed to get customers from.
I would say is shaking hands at the beginning of.
Of a project to go live inside of 12 weeks.
So and in fact.
We've had one customer that was half that time.
To go live and so we can sit and we continue to believe that the rapid start as a key differentiator, especially during Covid times, where many of our many of our prospects are asking too as I've said on other earnings calls like this lowered their temperature right lower the fever.
Get them to a go live state and from that point it gives them an opportunity to expand and obviously the thesis is once you're once you live inside of a three months period, you will move to an expansion so the land and expand philosophies.
<unk> philosophy is in full swing there I can tell you that we've already had expansions of those customers that have gone live with the initial rapid start deployments.
Okay, Great and my other question would be in no doubt the sectors clearly benefiting for obvious reasons here has there been any sort of change in the competitive landscape in terms of like maybe the tactics that are being used by your competitors or is it sort of pricing like any change in the environment from that perspective.
No meaningful changes that we're seeing we continue to see.
SAP is the dominant incumbent.
That really hasnt changed and honestly I think the Gartner magic quadrant did a great job in showing where the competitors.
Sort of fall in.
I will say that we continue to compete on technique first most of our prospects if not all of them are.
Are using words like resilience as.
As a motivation for transforming their supply chain and and of course, we remind them that resilience isn't a competence. It's an outcome of our competence. The competence theyre looking for is agility and agility is achieved by adopting a concurrent planning technique as a foundation and that narrative.
<unk> to play exceptionally well with chips chief supply chain officers.
Okay, great. Thank you.
Thank you Richard.
The next question will come from Thanos mass Choppiness with BMO capital markets. Please go ahead.
Hi, good morning.
John just to give us a bit of a flavor for it what proportion of new bookings would you see a rapid start at this point is kind of 50 50 or is it trending even higher than that.
If we look at since the start of the program I would say without having a specific percentage in mind. It's I would say that's roughly 50 50 this past quarter.
I'd say it was a little more.
On the traditional enterprise.
Traditional enterprise deployment, but make no mistake rapid start continues to be.
A healthy portion of.
Of net new wins more importantly, they are driving a healthy portion of our pipeline.
As a lead in generating a lot of interest.
And I was just playing with the partner channel.
One of the premises is that rapid start with maybe a bit easier for a partner to sell than.
Large enterprise deal is that accurate and what are you seeing in that regard.
Yes, absolutely we continue to add partners continue to.
To be heavily involved in our in our sales cycle.
And so obviously, they've we're training them on the rapid start methodology.
And they continue to influence the majority of net new wins as they as they have in past quarters, but absolutely there.
The partner ecosystem. If you will are wrapping their arms around this this this protocol.
And then finally Opex was a little lighter than I was expecting can.
Can you speak to the hiring environment is that proving to be an impediment to growth in any way or are you able to scale up head count that's exactly it.
Alright.
There are reasons why our opex was a little bit later than than even we expected one of those is.
Probably not a big surprise anyone travel as we expect it to open up and it is opening up a little bit, but it's not open it up as fast as we expected and so that's that's a big one.
The Canadian dollar actually helped us out the FX impact was a was a tailwind for us over the past quarter, which helped.
It helped us along the way now conscious of our people and talent Wars, it's real it's out there and people are seeing this.
And the newspaper, we're seeing that from.
The hiring we're trying to get.
So the people in the doors as fast as possible right now because we see this big opportunity.
And <unk>.
Position, where we're in a bigger fight than we've ever seen in our history, just trying to get as many people as we can to fill the seats that we need for our future.
Great. Thanks.
The next question will come from Robert Young with Canaccord Genuity. Please go ahead.
Hi, good morning.
The sub term.
Contract you gave a little bit of color on that and they get a new customer that has non prem option was that something that might have been pulled forward from 2022 should we still think of <unk>.
<unk> two is for 2020 twos as being.
Strong quarter for perpetual renewals and with this.
Yes, Paul forward from that or have any impact on 2022.
Yes.
Not a pull forward.
And this is one of those.
Giving you the secrets, we have one new name account that we're able to talk about because it did impact our guidance.
To that degree.
Going forward and when we look into 2022 I think you should expect that again, we will see very strong SaaS adoption.
But as things happen.
I wouldn't be surprised if we have a subscription term license deal that comes in as well that could impact our numbers. So.
We didn't proceed is coming the option came on the table at one point and we thought it was going be <unk> that would have been impacting our go forward over the next number of years, but we're very pleased to have that new customer onboard and they will be a subscription term license.
Coming in for Q4.
Okay and then.
Seems from the guidance that Q4 is also going to have a larger contribution from.
Some term and so is that a different client or is there another dynamic.
Fortunately no.
No. So the what we're trying to do and the whole reason as soon as you see our guidance go up for sub term.
And you can see where our year to date is today, it's almost like telling you right away. We know what that amount is and it has to do with that one customer that will.
We will take up that spot.
Okay, and so that that one customer had an impact on perpetual in Q3 and Q4.
No it will only be on Q4 so.
Q4 impact all comes in and then the only piece that we'll have is the maintenance support piece of that.
We'd obviously be ongoing for the for.
For the length of that agreement.
Okay I understand okay. So the Q3, the $2 million in Q3 wasn't a surprise to you that was more along the lines of what you thought some turmoil.
Yes, that's exactly right.
Okay, and then maybe just an update on the pipeline.
End markets are strong and thank you said six or seven end markets had.
Customers this quarter, maybe just some color there are no pipeline.
Yeah. Thanks, Rob So it continues to be healthy in every region in every vertical market.
Including aerospace and defense, which.
In previous years, where it's a lighter but we're seeing.
Good broad healthy distribution there.
And again I think the one thing with this global pandemic has put supply chain issues at the center of boardroom conversations every boards asking their Ceos, what are you going to do next time and.
So that's what's driving I would say the positive.
Momentum in the market and obviously it continues to give us confidence in that mid mid term target of 23% to 25% SaaS revenue growth.
Including for 2022, so I would say.
Just in terms of.
<unk> of color of the pipeline continues to be strong.
I might add that.
It is gaining strength in the mid market.
So you would say the pipeline is larger relative to last quarter I mean, it's a summer.
Cornerstone slower maybe but I was curious if you'd see it yes.
Yes, certainly continues to grow.
But more importantly, we have made a very specific decision to target mid market on purpose and the results of that effort, which we began.
Earlier in the year. The result of that effort is.
More than doubled our Tam.
We used to talk about our Tam as being roughly 3000 is more than double that now in terms of.
Target accounts.
Doubled in terms of number of customers or would you say dollar value as well.
In terms of customers and targets that we go after earlier.
We had our big ideas to Dot O event.
In place of connections connections will be next early may.
And we had I want to say approximately 2000 people registered in a very large number of <unk>.
Prospects and of that prospect list.
No.
A large portion of that was mid market. So it's starting to fuel the pipeline if you will.
And so that.
Say as noteworthy when I look at the.
The pipeline the shape size health.
It's very uniform and geographies, it's very uniform I'd say across all the verticals.
I am pointing out aerospace and defense as.
As I did in the last quarter.
And again the more noteworthy is seeing some acceleration in the mid market.
In terms of their interest in.
In rapid response to thing.
I would tell you is we are now we now have absolute proof points that rapid response and rapid start is is a completely viable solution for mid market and I'd say, even the lower end of mid market.
It's.
Obviously, the use cases are <unk>.
Exceptionally.
Exceptionally common.
Whether your sub $500 million in revenue or over $100 billion in revenue.
So we're obviously pleased that with a singular product we can.
We can satisfy the needs of so many different verticals and now proof points.
It's not just for enterprise.
This could be for.
The mid market and so I think we're going to continue to see a growth in the Tam as we roll this out.
Okay. Thanks for all that.
Thanks, Rob.
The next question will come from Stephanie price with CIBC. Please go ahead.
Hey, good morning.
Just hoping for an on an RPM.
By our calculation the RP O our backlog coverage of the SaaS guidance lower this quarter versus a year ago just.
Just curious if you could talk a bit about how you see that our appeal coverage the SaaS guidance.
Okay.
Yeah.
Yes.
It's a good question and there's a good reason why we started showing IRR because it shows a smoother trajectory of where our business is growing and it gives us a good opportunity to help people understand what the health of our businesses today Arpaio.
Although I believe it is important for the longer term.
View of where we're going there are some issues with.
For our business.
That renewal cycles as an example.
It could be higher low in a particular quarter. We've just gone through two low quarters for renewal cycles, where there is no businesses that were that were up there.
In the middle of their current contract and so there is no reason for a renewal to come up.
And when we have those big.
Big increases like we did in Q3 of 2020.
It's just it is misleading as when we have a lower renewal cycle.
We've just got to kind of gone through so if the UCF, 45% increase in.
And our backlog or if you see a 3% year over year increase we know that thats wrong I kind of look back at our <unk> and I look at the last three years, we've had a CAGR around 24%.
Actually very very close to what our <unk> growth is that right now that 23% number so.
Although <unk> I think is a good long term view of the company.
You said that we have is that if you are a low renewal cycle. It wouldnt really show in the year over year growth metrics.
Okay. That's helpful color. Thanks, and then the traditional enterprise sales cycle I'm, just curious how the supply chain disruptions are impacting that neither clarithromycin question dealing with near term disruption to their focus on rapid start or are you seeing clients that are willing to engage in any kind of that traditional enterprise.
Rollouts.
Yes, it's a great question and I spoke a little bit about this during the last earnings call, where our thesis was.
Dramatically, reducing the overall risk.
And to some degree cost of entry into a concurrent planning foundation.
The rapid start deployment live inside of a single quarter.
At least the thesis was we would see some.
Shrinking of the overall sales cycle I can tell you that we are we are seeing that.
Particularly in the mid market on the mid market front, it's not uniform I would say.
In terms of it being systemic we've had.
One net new account happen.
Well I would measure it in weeks.
Not months.
So in some cases, we've seen that acceleration.
And even <unk>.
Enterprise I will tell you even very large enterprise accounts have great interest in going live inside of 12 weeks and so we've done rapid starts I think it's really important for everybody to hear that our rapid start philosophy, our deployment methodology to get someone live inside of 12 weeks is not just a <unk>.
Market message that narrative plays exceptionally well for large enterprises.
Knowing in advance that they will expand.
Knowing in advance the point of this exercise is get to a concurrent state as quickly as possible and expand from there.
Thanks for the color.
The next question will come from Daniel Chan with TD Securities. Please go ahead.
Good morning, guys I wanted to dig into the 20% to 25% SaaS growth target you have.
For next year on the midterm.
So if we use that assumption that you got 80% visibility into next year's SaaS revenue that implies your 2022 backlog needs to increase by at least $26 million by by the end of this year.
So I don't think you've added $26 million to next year's backlog over.
Over the last three years. So I'm just wondering what gives you the confidence that you'll be able to do it or has that 80% visibility guideline changed.
Yes.
A good question and it ties back to your <unk> backlog.
Question so.
We're confident that we're going to be in that range.
But you are getting to the 26 million needs to be added to get to at least a 23% SaaS.
SaaS growth number.
Yeah.
As I mentioned renewal cycles are different every every quarter I would expect that Q4 is going to be a stronger renewal cycle than we've seen probably the last four quarters at least.
So based on what we're seeing for our current pipeline and the incremental bookings that it could be quite strong in Q4 as well as a stronger renewal cycle than we've seen over the past four quarters. We think we're in a good position to meet those those requirements to get to the 23% to 25% range.
Okay, that's very helpful.
I wanted to kind of dig into rapid start a little bit.
I mean is it safe to say that the average new customer engagement size is declining due to rapid start I'm just trying to reconcile the.
The fact that you guys had a record number of new customer wins this quarter with the lower sequential <unk> dollars added.
Yes, so we license rapid response.
Including for rapid start customers based on number of users sites.
And.
In applications et cetera.
I would say mid market mid market businesses are more likely to have fewer users insights than enterprise. So so it's common to see mid market accounts.
With lower subscription amounts.
I'll also say that in some cases rapid start is targeted at a specific region or a specific product family to get them live inside of a three months period.
And the point of rapid start is to land and expand and so the thesis here is you might start seeing in quarters.
Looking forward, a more balanced percentage split between net new and.
And expansion of of the deals that we're that we're closing.
Right now.
So that's the way I would describe it.
In terms of the effects that rapid start has on.
On the initial bookings and again the point of this exercise is when we walk into accounts is not to boil the ocean, it's to get them live and set up inside of a 12 week period, and so we we monitor and manage the scope of that to ensure that we're successful.
That makes sense and last one for me just wondering if the component supply chain shortages are.
Or having any impact on your ability to source servers or is there excess service capacity at the moment.
That has not been.
That has not been a constraint on our on our business.
Great. Thank you.
Alright. Thanks. The next question will come from Paul Treiber with RBC capital markets. Please go ahead.
Thanks, very much and good morning.
I just wanted to ask you about renewals versus new customer wins, and new business generally what's been the mix in terms of RP all between renewals. If you can give an average.
Between renewals and new business.
And just to clarify this past quarter did you mentioned that there was zero renewals in our Apio.
Okay.
Good question Paul.
Okay.
I guess I'll clarify the last part notes. So theres there were renewals they just aren't as large as some of the renewals that we've seen over the past.
But we are seeing is we've had a fantastic year for incremental bookings. So new named accounts have been off the charts for us that's why we keep on saying record record record over the last four quarters.
What we have seen is.
Probably the last four quarters are just hit a trough in our renewal cycle and we had.
Three of those four quarters.
Definitely some of our lowest renewal cycles that we expect in the near future.
And what we've seen historically, so we're coming out of I would say that trough and we're going to start seeing the renewals coming a little bit more as those contracts become due.
We're pretty pleased.
Part of the reason why we've been able to stay at least stable with our backlog is primarily because we've had such strong incremental bookings, which we we like Ken.
Again, I'd point to the direction of IRR of 23% year over year growth is because of those incremental bookings being so strong.
But.
Now the vast majority of what we've seen over the past four quarters at least has been incremental bookings growth.
<unk>.
<unk> increased the IPO.
Small smaller renewals because just the contracts aren't due yet.
And so another way to say it or if I can characterize it. This way is that renewals for the last several quarters have been below the historical average, whereas new new business has been above the historical average as a percent of RBR.
That's correct.
That will change based on when contracts become due in.
I think over the next the next year, we'll grab a lot of contracts that are starting to come due.
That will start.
Evening that out a little bit, but we're in a great position because we're focused on the incremental bookings and if we look down the road in three or four or five years.
I will now be the renewals that we that we expected as a SaaS company with a really sticky solution.
We loved the renewals the renewals are something that our bread and butter for for <unk>.
Theres, a very very strong position that they were going to renew and we'll bring that revenue and that <unk>, even higher than it is right now.
Switching gears to land and expand what's been the typical rate of expansion for existing customers and do you see the magnitude of potential expansion.
<unk> four rapid start or the mid market or maybe another way of asking is are the initial deal size for rapid start and mid market smaller than typical.
Yes so.
Any any customers starting with rapid start with the intent of expanding we'll typically start at a lower than previous.
Our previous.
Offering if you will prior to rapid start they will start at a lower point and again the point is to reduce the risk.
Get to go live inside of a three months period and expand after that point, so I'd say the the variance between starting point and ending point, while we don't forfeit.
Total lifetime value of a customer is very important.
The span between their starting point and their ending point.
Leveraging rapid start might be wider that would be a reasonable assumption to make as opposed to somebody who's starting without rapid start going.
Full enterprise at the start and again I think.
It's still relatively early days.
We're wildly excited about this program because we're seeing we're seeing it work based on the thesis we had.
For it it's working and where it is.
Wonderful to see the adoption and the interest.
As you would expect when you tell a chief supply chain officer.
Shake my hand, you'll be live inside of 12 weeks.
That's pretty dramatic during a global pandemic and and so that's been it's been great to see to see that and more importantly, it's been great to see.
The rapid start early adopters that have already gone live have already expanded we're seeing the expansion of <unk>.
<unk>.
Of that activity, so it's working exactly as planned.
And just one last one for me you mentioned ESG in your prepared remarks to what degree do you think ESG initiatives global ESG initiatives are driving demand for products like rapid response and to what degree do you think rapid response from a planning perspective I can help.
Companies in there and they're around ESG wont, particularly on the environmental side like what carbon.
It can it can it help them better manage their footprint.
Oh do I Love this question.
There is no question now well Theres a few things I will say there is the recognition that there isn't another craft on the planet there's not another discipline.
On this planet that has a more pronounced impact on the health of the world. The health of the environment you can't run the supply chain without consuming the Earth's natural resources' full stop and with boards now recognizing that the E in ESG.
It can be dramatically improved if you will you can dramatically improve the state of the environment by becoming hyper agile in your supply chain. It's absolutely part of the narrative. It's certainly part of the narrative I have with every single conversation with the chief supply chain officer, there's absolutely a <unk>.
Ignition that concurrency leads to agility agility leads to resilience.
Resilience leaves to efficiency and a lack of waste elimination of waste that is absolutely the narrative.
So it is not just about business anymore supply chains are often focused.
Entirely on the financial measurement on time in full.
Inventory turns forecast accuracy peer.
Period, ending inventory a lot of financial terms associated with supply chain and now its environmental footprint.
Need to make sure that I run my supply chain and the most.
Efficient manner possible the smallest footprint possible.
Love the questions great.
Thank you I'll pass along.
Thank you. The next question will come from Christian grow with eight capital. Please go ahead.
Hi, good morning.
It feels like each quarter partners influence more and more of the of the pipeline.
And the wins I was just wondering if you had any commentary on.
Some of the inbounds youre seeing some of the traction quarter to date and efforts from the direct sales effort.
Well it continues to to me.
Somewhat of a pipeline kind of a question in our pipeline continues to be very strong and couple that with.
What may become a trend and shrinking lifecycle total sales cycle.
It has us obviously very excited.
As it relates to our partners. Some of you may have witnessed this on.
Recent Twitter feed we've just surpassed 7500 accreditations that had been.
That had been distributed to outside parties outside individuals' for certifications.
We continue to add significant number of partners I Didnt mentioned, this actually but it's worthwhile mentioning as it relates to our partners.
I believe we're now north of 10 solution extension partners, which were exceptionally excited about this is.
Our solution extension partners think of it as an extension of our own R&D factory right. We're no longer the bottlenecks for innovation third parties can extend rapid response and add their own intellectual property similar to what you might see with <unk> dot com and the impacts that has on sales force.
And so we.
We announced in fact <unk> data is one of them.
This quarter Theres, others were hoping to be able to share with you in the coming in the coming weeks, but I'd say the partner.
Influence continues to be a strategic part of our business. We recognize that we cannot sustain the level of growth continued quarter over quarter without help of partners.
Alright, there in every geography that matters.
It's.
It's harnessing an army basically and so we're really thrilled with the progress we're making there.
That's great color.
Thinking on the sales pipeline when you comment on visibility into SaaS growth.
And expansion into 2022, when you talk about your pipeline.
Do you think of your own go to market efforts or do you incorporate a lot of what your partners are saying into that commentary that your pipeline is as strong as ever.
Well, yes. The answer is both absolutely we continue to have a very strong presence on the street.
Within within can access and certainly are our sales our field operations team our sales team work.
Hand in glove with our with our partners, particularly on the larger enterprise deals where.
I would say that the larger partners have trusted advisor relationships with many of those firms. So.
I don't have a specific percentage at the top of my head.
Other than to say that it's quite rare if ever I hear of.
A deal that we're working on where a partner isn't directly engaged in influencing the activities.
Okay. That's very helpful and one more question from my end the rapid start versus rapid response or we've been digging into on the <unk>.
Call it sounds like customers will join enterprise customers.
On the rapid start program.
Mr. Cline communicated plans to expand to rapid response over time now it might be early to comment, but I guess, it's something that's not put in print but near formalized.
12 months timeline that you would expect a more for them to expand like how do they approach that conversation and the clients you get sort of a full rapid response solution.
So first I want to just clarify that rapid start as a deployment methodology not a product.
The rapid start is a 12 week deployment method.
Methodology of rapid response, it is absolutely the same software being deployed.
Using.
I would say industry best practices.
So that's very important to articulate rapid start is an implementation methodology to get rapid response the product go to go live inside of a three a three month horizon and as I said in some cases significantly less than that in terms of the speed at which.
We see an.
An acceleration or.
An expansion opportunity as I said I'm thrilled to see that the early adopters.
That within that cohort, we have seen expansion already I think it will it'll depend based on.
Each one of these accounts I don't believe there are.
Say statistically enough cases here for me to make a prediction, although I will say that the thesis is holding the point of rapid start is to get someone live inside of a 12 week window and expand their maturity from there whether they expand a quarter later too.
Quarters later three quarters later, there's a lot of dependencies there.
Based on individual customers and also geographies and verticals, we are tracking that but it's too early to suggest.
And understanding of that ratio.
Hey, John Thanks for clarifying and thanks for taking my questions.
Thank you.
The next question will come from Nick Agostino with Laurentian Bank Securities. Please go ahead.
Yeah.
Yes, good morning, I guess just to revisit a couple of topics from the past maybe John can you talk about Google Cloud, where you are today as far as <unk>.
Integration into the whole rapid response.
If you've had any cross sell successes.
For the last couple of quarters.
We are an absolute full swing.
Here is as I mentioned in the last quarter integrating in the the elements the technologies of Roomba cloud and fully adopting them within the <unk>.
The rapid response environment. So that is an absolute full swing. We're working this year in preparation of launching proper. If you will the retail use cases next year.
We had successes already absolutely.
We have retail customers now we've had successes in retail.
Recently and so it continues.
The thesis behind that acquisition continues to hold.
And we're certainly thrilled with the talent.
Carrie Liu who is their CEO.
Continues to work on the on the management team is an absolutely exceptional exceptionally gifted contributor I will say that.
And if I could just on top of that response I appreciate how much is.
When you look at the SaaS growth guidance for next year and beyond are you guys incorporating some of the successes when you say the retail use case is for next year or or any success you get on that retail success use case is that going to be just gravy on top of what you guys are.
So far for 2022.
Well I would say, it's part and parcel of our go to market strategy.
Our our intention is obviously to have a viable defensible solution for that market. We have proof points already we've won business already and we're working to expand those use cases, so it's part and parcel of our go to market strategy.
For 2022 and beyond.
Obviously, I will say and.
And I didn't mention this earlier, so I should mentioned that now we can we continue to see.
Probably the warmest verticals are still life Sciences, no surprise actually during a pandemic that you might see that.
Life Sciences, and consumer packaged goods, which again, we're seeing a lot of different buying patterns in that particular space and so those tend to be the warmest.
Again, notwithstanding my my earlier comments that.
We are seeing.
Very.
Well uniformed.
Pipeline.
I said that last quarter that the pipeline looks quite uniform across geographies and across market verticals.
Last last quarter I wasn't able to say six of the seven verticals saw some some success in a quarter and so.
It's manifesting as the as the pipeline would suggest and hopefully that answers your question.
Yes, I appreciate that and just one more for me I know in the past I want to say was what two years ago. When you launched the initiative the idea of the self healing.
Attributes that you were going to incorporate within rapid.
Rapid response can you maybe just talk about.
I guess, what's been the adoption of <unk>.
Of those self healing attributes over the course of the last couple of years, what penetration you've seen amongst your existing customer base and I'll leave it there.
Yes, we've absolutely had success leveraging that.
That technology is.
Part of the machine learning team.
As a SKU coming out of the machine learning team and there's.
There is certainly a continuation in the product lifecycle.
For that specific.
Capability.
That team is also involved in.
Emerging if you will the technology's Aruba cloud and technologies of self healing and demand sensing and.
Areas of that of that nature. So we're we're pleased with the progress that we're that we're having with the overall machine learning strategy that we launched a couple of years ago, and frankly I think.
Over the next couple of years, we're going to start to see it.
As an emerging use case and we're seeing evidence of this emerging use case, where organizations want to automate the obvious.
They want to take 80% of the transactions that are required to run our supply chain and automate them safely.
And so where we're looking.
Looking very hard at that capability at the moment.
Okay, great. Thank you.
Thanks for your question will come from Martin Toner with ATB capital markets. Please go ahead.
Hey, guys.
Thanks for taking my question.
Can you share a few anecdotes.
About the early progress on.
Hum.
Upselling rapid.
Start deployment into.
The full version.
No again.
Yeah.
I will say rapid start.
Is it deployment methodology of the full version of rapid response.
I Wouldnt want.
There to be a thought that rapid startup.
How a subset of the total capabilities of rapid response in fact, the point of rapid start is to apply industry best practices would be fully concurrent environment.
Sure.
That's the way to think of it now the expansion opportunity often occurs when someone will say I want the full sort of concurrent environment, let's focus on North America, only we will expand into Europe Asia and other parts of the world.
Subsequent to our initial go live.
They'll they'll subscribe to exactly how many sites users et cetera that are required to get to that to get to that point.
So think of it that way.
The most common.
Leverage if you will of rapid start is focus on.
On a specific area.
Sometimes it's a focus on sales and operations planning as it links to master scheduling, but we will do inventory later right.
Alright, so let's get a full concurrent system across these two functions.
And we will expand to other functions later.
But it's not a different piece of software it's exactly the same piece of software so often.
As part of a sales cycle, we work to establish what will that journey look like it's a journey to digital transformation is not a boiled the ocean. It's a journey following agile methodologies.
Were you iterate and you progress over a period of time.
To ultimately have full concurrency across the entire enterprise.
But again rapid start as a methodology designed to get concurrency as a foundation.
Embedded in an organization within a 12 week period.
It is often a specific region first with.
With the intent to expand beyond that region later, sometimes it's all regions, but a subset of product families.
And sometimes it is a.
It's a.
Two or three specific areas of the supply chain with the intent to expand across all areas later so.
It's very flexible that way, but again the point is to focus on the areas of supply chain that are experiencing urgent pain.
There's important pain in this urgent pain. So we work with prospects to ensure that we're attacking the urgent pains first and expanding from that point forward.
Hopefully that gives you some good context to your question.
Yes that was great.
Apologize for the awkward wording of the question.
Well, Greg you had it right.
Next question is and this is maybe Steve your question, but let me ask anyways.
You can't turn around without seeing.
Supply chain disruption in the media can you see the impact.
Think of that in your.
Pipeline on your pipeline.
Well, yes, I think we're seeing the general interest absolutely.
And that was manifested in our big ideas event.
We track.
We track inbound leads and such.
And so absolutely I think we are seeing the impact of this people are realizing that.
The old methodologies to govern supply chain the way supply chains were wired in the past.
Which were optimize every chain link one at a time with the assumption that you optimize the chain.
That is absolutely been proven to be flawed.
And so now people are coming to us.
In search of a new and improved technique. There is a recognition that we cannot be agile leveraging legacy approaches to supply chain.
And so I do think the global pandemic is.
Is highlighting that there is a recognition that.
You can't Trust all the Assumptive parameters that drive all of these optimization technologies can't be trusted and so.
Many of the old techniques have fallen down they've just absolutely crumbled and failed and so yes.
I think that this week.
The condition that the entire planet is in is driving what I call a Renaissance I really do believe we're experiencing a renaissance in.
<unk> supply chain planning as as we speak.
Okay.
That's great. Thanks, so much for that.
R&D R&D the R&D line.
Kind of ticked up this quarter is that.
Is there anything unusual in there or should we just got grow and estimate should we sort of think of that number continuing to grow from here.
Okay.
Well again it.
It depends I think will grow we will continue to hire for our R&D team. Obviously there is.
A big opportunity that we see.
Especially what John mentioned with the supply chain Renaissance that we're going through we need to make sure that we're prepared to meet all the all.
While the needs in all of the demand that we're getting from these prospective customers along the way.
But as a percentage.
Again think about not as a percentage of revenue because we have the subscription term license.
And there I would think of as percentage of IRR, and so think about that as being a stable percentage going forward rather than looking at it.
Total revenue at any point in time.
Just because of the volatility that you'll see there.
This concludes our question and answer session I would like to turn the conference back over to Mr. Rick Wadsworth for any closing remarks. Please go ahead.
Thank you everyone for participating on today's call. We appreciate your questions and your ongoing interest in support of connections. We look forward to speaking with you again, when we report our Q4 2021 results Thanks and Goodbye.
The conference has now concluded. Thank you for attending today's presentation you may now disconnect.
Okay.
Okay.
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