Q3 2023 Kinaxis Inc Earnings Call
[music].
Good morning, ladies and gentlemen, and welcome to the synopsis incorporated physical 2023 third quarter results constant cough.
All participants are in a mission <unk>. Following the presentation, we will conduct a question and answer session.
<unk> will be provided at the time for you to to up your questions I'd like to remind everyone that this call is being recorded today.
Date November 2nd 2023, I would now turn the call over to Vic widespread Vice Presidents Investor Relations with connection Corporation. Please go ahead Mr. <unk>.
Thanks, operator, good morning, and welcome to the to the excess earnings call today, we will be discussing our third quarter results, which we issued after closing markets yesterday.
On the call or judged card, our president and C. E O N Fitzgerald R. C S.
Before we get started I want it.
Some of the information discussed on this call is based on information as of today November 2023.
These forward looking statements, including with respect to recently announced sure by the <unk>.
Risks and uncertainties actual results may differ materially from those checks within such statements.
Discussion of these risks and uncertainties you should review the forward looking statements disclosure in the earnings press release as well as an <unk> silence.
During this call, we will discuss I F or S results and <unk> financial measures, including adjusted EBITDA. The reconciliation between adjusted EBITDA and at first I asked for US resolved is available in our earnings press release, and an R. N D. They both of which.
On the <unk> website.
Dot com and on SEDAR plus.
It's been Sir advisor to webcast is wide and is also being recorded for playback purposes in the archive of the webcast will be made available on the I R section of our website died of this call during the webcast archive, maybe re recorded or otherwise reproduced or distributed.
Written permission to access to begin our call John will discuss the highlights of the quarter as well as recent business development, followed by Duane review, our financial results Mailbox Finally, John will make some closing statements before opening the lines for questions. We have a presentation to accompany today's call, which can be downloaded from the I R O.
Website.
You know when you change slides I'll now turn the call over to joke.
Thank you Rick good morning, everyone and thank you for joining us today I'll be starting with slide four.
I'd like to highlight some key points for this call all of which Blaine and I will explore in more detail first.
Q3 financial results were strong with sauce revenue growth of 26%.
Total revenue growth of 21% and a healthy adjusted EBITDA of 21%.
I'm very pleased with the team's execution, despite various challenging macro conditions around the world.
Second.
We are providing updated annual guidance that notwithstanding an unavoidable shift in revenue classification between staff and subscription term license would be in line with our original estimates at the start of this calendar year and continues to deliver rule of 40 plus performance for 2000 twenty-three with.
An increase in profitability.
Third.
The last quarter of every year's typically our strongest for building a R R and.
And we expect it to be as usual this year.
We're actively working on some major expansions and some exciting net new additions, we hope to be able to share with you very soon.
Fourth management and the board is pleased to have announced the buyback of up to five per cent of our shares starting this Monday the earliest possible date.
At current valuations. This investment is an easy decision a good use of capital.
And in the best interests of the company.
Fifth.
And most exciting for me, we continue to see compelling evidence that supply chain management market remains very robust.
Our pipeline remains very healthy.
And our ability to serve it is stronger than ever let.
Let me expand my comments on this last point and I'll ask Blaine to go deeper on the rest very shortly.
Turning to slide five.
With respect to market activity or pipeline is larger now than it was at this time last year and remains very near record levels.
Our business development team, which builds pipeline in its earliest stages booked a record number of meetings for our account executives in Q3.
With an over 40% year over year increase.
This is an encouraging sign in evidence of accelerated interest and fly chain transformation.
We have invested heavily in expanding our sales team now over 30% larger than it was at the start of 2022.
And ready to execute on these new opportunities as they mature.
I should also note that we are not slowing down our investments in sales and marketing, but rather will continue to expand in both areas through Q4 and through 2024 to ensure coverage of an expanding market.
Oh, when right against the key competition. So far this year continues to be strong and we're pleased to be able to name a sample of our recent customer wins, including.
In the automotive sector, we added innovator Volvo cars.
In our industrial vertical we welcome Eco lab, a global sustainability leader offering water hygiene, an infection prevention solutions and services that protect people and the resources vital for life.
And life Sciences, and Pharmaceuticals, we welcomed several new customers.
Cooper Health European leader in self care, including Nonprescription medicines, food supplements and medical devices.
First and pharma Ah Philip Morris Company.
Which develops and manufacturers innovative systems for delivering aural pharmaceuticals.
And finally F I S in Italy, one of Europe's leading private manufacturers of active ingredients for the pharmaceutical industry.
I'm also pleased to share that the vast majority of new deployments occurring within our public cloud are occurring within our public cloud partners, Microsoft and Google.
As I've mentioned in the past. This is an important strategy that will help us scale as we accelerate into the future and ultimately will become our standard method of delivery.
In recent periods, we talked about several long term strategies to expand our addressable market, notably with more focus on targeting small to medium sized businesses.
I'm pleased with our progress to date for example.
Over half of the new customers added this quarter and year to date have been mid market or smaller companies.
In the year to date total is higher than in the same period in 2022.
And the third quarter or value added resellers or bars, who sell the smaller companies contributed a record number of wins and we are anticipating a strong fourth quarter as well.
Serving this much broader market increases, both our growth opportunities and business resilience.
I'm moving to slide six.
We launched several new and exciting applications earlier earlier this year, all of which attract new subscription revenue.
Our supply chain execution application is targeting a market that a recent industry report sized it over 12 billion in 2023, and that's expected to grow roughly 20% through 2030.
Our new enterprise scheduling application is highly differentiated as the first and only tool on the market to allow companies to create and manage a globally integrated production scheduling strategy.
Our sustainable supply chain solution allows companies to embed emission factors and supply chain decisions.
Just as requirements around corporate disclosures of G. H G emissions are being mandated globally.
And finally demand dot AI leverages cutting edge AI to provide highly accurate demand forecasts based.
Based on insights that human observation alone wouldn't be able to uncover.
This offering has been instrumental as our entry point to the quick service restaurants segment of retail where we are serving one of the world's most recognized brands.
And will be key in penetrating the broader retail vertical for years to come.
I'll now turn the call over to Blaine to cover more details on our financial results.
Thank you John and good morning, as a reminder, unless noted otherwise all figures reported on today's call are in U S dollars under I for us.
Starting on slide seven total revenue in the third quarter was up 21% $208.1 million and are key size revenue result grew 26% to $67.9 million.
Subscription term license revenue was $2.5 million versus $5.8 million in Q3 2022.
This item largely follows the normal cadence of renewals among our small group of on premise customers.
Are those that have the option to move their deployment on premise.
Our professional services activity resulted in $32.9 million in revenue or 28 per cent growth over Q3 2022.
January this revenue item varies from quarter to quarter based on the number size and timing of customer projects underway as well as the proportion of work as soon bye partners.
Maintenance and support revenue for the quarter with $4 $8 million up 18%.
Third quarter gross profit increased by 19% to $65.3 million.
Gross margin in the quarter with 60% compared to 62% is Q3 2022.
Our software gross margin with 74% compared to 80 per cent in the comparative period with the biggest factor in this change being our transition to public cloud hosting arrangements.
We continue to be ahead of plan in this transition, which is positive for our business and expect related costs to normalize by the beginning of 2025.
Professional services gross margin was extremely strong at 29% compared to 17 present in Q3 2022, mainly due to significantly lower use a third party contractors and delivering projects.
We still foresee a total annual gross margin and the 60 to 62 per cent range.
As a result of the growth in our revenue and gross profit adjusted EBITDA was up 54% to $22.8 million with a margin of 21% compared to 70% in the third quarter last year.
Our profit in the quarter increased by over 350% to $7.4 million or 25 cents per diluted share compared to $1.6 million in Q3 2022.
Cash flow using upper activities was $1.5 million compared to 3.6 million in the prior year period for.
For the year to date.
Cash flow generated from upper activities was $51.4 million versus 26.8 million in the comparable period.
At September 30th 2023, cash cash equivalents and short term investments grew to $290 million from $225.8 million at the end of 2022.
As always we remain focus on being a strong cast generative business.
On to slide eight.
As John mentioned and as R. Q3 results demonstrate we've been sharpening our focus on profitability and I wanted to provide an example.
As you know we continued to make investments in our sales organization to capture the large and growing opportunity ahead.
But we are simultaneously and gaining leverage in our R&D and G&A lines.
Slide eight shows were steadily spending less on these operating expense items as a percent of total revenue or normalize revenue, which averaged out are lumpy subscription term license revenue over a three year period.
We are very pleased with progress and fully anticipate Morehead.
Overall I for US results in Q3 are very solid.
Moving to slide nine.
Our annual recurring revenue R. R. R grew 18% over the third quarter of 2000 $22 million to $304 million, reflecting a couple of factors.
First economic uncertainty has obviously been a challenge for the software industry all year.
Although our are our growth rate is strong compared to many it has grown slower than our ambitious expectations.
After AVR growth peaked in Q3 last year, we started to see macro impacts so the compare to figure is a challenging one this quarter.
As usual, we expect the fourth quarter will be our strongest for winning new business and growing era.
Secondly, Q3 of the first quarter that we don't benefit from the inorganic growth related to our acquisition of M. P O.
If you look at the era of excluding M. P O at detecting on slide nine it only declined by one percentage point this quarter.
As we only recently launched the integrated supply chain execution product, we fully expect that aspect that aspect of air or to grow over the next year.
Finally, tecogen this comment given strong underlying demand.
A larger sales team just coming into higher efficiency.
A strong competitive when right and multiple earliest days growth strategies that are showing progress I'm fairly confident in air acceleration of these strategies mature and as a macro environment improves.
On slide 10 at quarter, and Ah remaining performance obligation or <unk> with $591 million.
Up 8% from Q3 2022.
Of that total $547 million relates to status business up 12% year over year.
Of the thousand Mt, roughly 67.9 million converts to revenue next quarter.
Yeah.
By far the biggest aspect to slower RP outgrowth relates to a year to date, 48% decrease in the amount of renewal versus the same time last year circulated to the normal renewal cycle.
Q3, twenty-three without a relatively low point in the normal renewal cycle as well.
In other words.
They are simply hasn't been as much business scheduled for any of this year.
Further details on our <unk> can be found in the revenue note to our financials.
Turning to slide 11.
We are updating our twenty-twenty three guidance, while still focusing on rule of 40 performance.
We anticipate stronger profitability and subscription term license revenue and slightly tempered sales growth that spilled demonstrates acceleration over last year's <unk> results and impressive accomplishment.
We're very pleased to affirm our total revenue outlook, which remains unchanged at $425 million to $435 million.
With respect to some of the components of total revenue it.
It can be difficult to accurately forecast, which direction new customers will go when choosing to host our solution.
We generally assume that new customers will be hosted in our environment and are therefore recognizes size revenue.
However, in 2023, certain customers decided to host or have the option to host our solution on premise.
Which is recognized a subscription term license revenue.
Year to date. This has resulted in just over $3 million in lower size revenue or between one and two percentage points of growth while simultaneously increasing our subsequent subscription term license revenue.
As a result, we are increasing our subscription term license revenue outlook for the year to $18 million to $20 million.
And updating our size revenue to grow between 24 and 25% over our 2022 levels.
Absent this shift in the various accounting revenue components, there would've been no change to size guidance.
Finally, we are increasing our adjusted EBITDA margin guidance to 16% to 18% for the year, reflecting operating leverage that's led to increased profitability.
We have managed to bring costs and lower than initially planned across several functional areas. While also absorbing the additional public cloud expense compared to the amortization of our private data centers in previous years.
In the current environment, we will remain even more diligent around profitability in a balanced approach to performance, while still making key investments to feel top line growth.
Turning to slide 12, as we announced last night, we have instituted a normal course issue or a bed for up to 5% overstock.
We can start buying Monday.
We are an acknowledged leader in an exciting market and few companies offer growth and profitability profile.
Current valuations.
This investment is an easy decision a good use of capital and in the best interests of the company.
The NCI B provides the opportunity to more than cover issuances made to date under the expanded stock based compensation plan, we rolled out in 2022.
And given our strong cash generation overtime at a robust current cash balance we will also have more than enough capital to simultaneously pursue growth strategies.
With that I'll turn the call back to John Thank.
Thank you Blaine.
Over the last few years the world has witnessed and survived several global business disruptions and today, we continue to see challenges affecting supply chains across every vertical and every geography.
And it has become obvious to most that legacy techniques are no longer fit for use and supporting the demands of a modern supply chain practice.
C E O's and boards can't Unsee, what they've been exposed to and.
And there continues to be a push towards new and better ways to absorb continuous volatility.
I continue to have more discussions than ever with practitioners of leaving companies looking for our health.
And I continue to believe that powering supply chain excellence will require the fusion between machine learning and AI with concurrent planning and execution.
That is the value can access can and will deliver to all who need it.
On behalf of the can access team. Thank you for your support.
I will turn the line over to the operator now for Q&A.
If you'd like to ask any questions. Please.
Number one on your telephone keypad, that's alright and number one on your telephone keypad, we got our first question <unk> Kenneth.
<unk> your lines now okay.
Yeah. Thank you and good morning, everyone.
First question for blame last quarter.
On the conference call you spoke to a couple of large expansion opportunities that you're expected Woodhead Q3 or four.
It sounds like from the prepared remarks that a few of those are are still on the common hearing Q for maybe you could speak to your execution against those opportunities and if you did observe any slippage from Q3 and a future periods.
Yeah, good good cashier Doug.
We obviously did have some slippage into a queue for probably our most significant expansion.
Right now it was it was supposed to be Q3, it's looking like it'll be November at this stage, we are still working through that deal, but yeah. There's some extremely extremely big expansion center.
That are slated for Q4 at this point that we are supposed to be in Q3.
Alright, that's helpful professional services margins, obviously stand out here is particularly strong the quarter you said in your prepared remarks, you expect you know better mute revert to the mean here I guess my question here on this is you know the degree to which you expect the shifting mix of third party.
As in house delivery.
You know it can be a positive benefit in years ahead as you continue to optimize that.
Yeah, Yeah, I hear that 29% gross margin for personal services number one it's a record and when it when it first came in I. Obviously told my team can you double and triple check that never because we've never seen a of ours on hybrid.
<unk> the the power.
That we have with our pricing right now for professional services and we are trying to push as much to our partners.
Or perhaps a services team is doing extremely well on their side at winning these deals and and doing quite well.
Making our customers very happy with the deployment that they're receiving.
But again, the what you're seeing right now with those margins is in large part due to the power that we have with our pricing around professional services based on how successful what we've done over the last little while I might just add just from a commentary perspective, I recently had two conversations.
One with a C E O of one of our largest.
One of our largest partners and another who basically leads the practice of an extremely large ssi and both have told me that they were at record level of revenue for can access related work year to date. So it's I think a reflection a lot of it's a reflection of a lot of project.
Starts that have occurred over the last four quarters.
One last question from me for you John I wanted to ask a question on competition I think we've all seen some of the noise related to eat to open I recognize that's pretty recently to open is not directly competitive with your entire portfolio, but I thought it might be a good time to revisit the competitive environment, you've quoted very strong.
When rates are just to ask you John how you see the competition.
Evolving as you expand your own product portfolio across the.
Supply chain management surface area.
Yeah. So so essay P continues to be omnipresent, let's just say, they're they're almost always the incumbent you know I I would say between 60 and 70% of our of our enterprise accounts are very large SCP shops, and so we tend to hit that wall first.
And then subsequent we might see Blue Yonder, and perhaps O nine E. Two open almost never I can't even remember actually the last time I.
I simply can't remember the last time, we were in the ring with them and I think you know I.
I I would point back to the gardener M Q as being a great.
A great representation of our strengths and weaknesses quite honestly I think they're extremely balanced in their approach.
And and I think they represent you know a good.
Well a good description of how each of the competitors play out and indeed, we have been monitoring and I'm I've been very very happy with our wind rates.
You know with our key competitors and all of those cases, the vast majority we tend to we tend to when we don't win them all.
We're not we're not batting a thousand.
But we are well above average, let's just say I'm pretty happy with the results.
That's a great color I'll pass the line. Thank you.
Our next question comes from David.
Hot spot you Bank your line now okay.
Hi, This is David Weiss on for Kevin Christian Rodney Atkins Scotiabank. So thanks for taking my questions can you talk about demand and interest for your supply chain execution in scheduling solutions, how do we think about the potential near term revenue opportunity, what our customers, saying and how were you positioned competitively.
Yeah, It's a two comments I'll make on that first the enterprise schedule. There I I believe it to be the first of its kind.
You know scheduling factories has always been.
You know reserved for boutique software companies, there's very few companies that have made a living strictly on scheduling and.
And achieved.
Type of size of a can access or greater.
And we've taken the approach that well frankly, we believe that we could build a an enterprise schedule. There were one ring rules them, all and more than that we believe that we can schedule multiple factories simultaneously and so we have run we've run several proof of concepts with actual customers we've gotten a lot.
Amazing feedback from some of our larger enterprise customers, there's a tremendous amount of interest.
And and that we just launched it we think it will be.
We believe it it'll be a winner product.
Because scheduling.
I consider scheduling to be the boundary between planning and execution.
Which is why I started talking about scheduling first and so once you solved for scheduling connected to connect.
Connected to our current platform. It leads do supply chain execution, which was the thesis around M. P. O and then during Covid when you couldn't find a container to save your life you named if you could probably 10 X the cost it was before.
You know transportation risk became omnipresent for a lot of our customers and so they're they're the ones, who really came to US and said you you really have to find a way to fuse in supply chain execution with the planning side. So.
You know something happens where materials at risk while it's in motion we need to know the moment that happens we can't wait.
Until until it's too late to respond to that and that's what.
That's really the thesis behind our acquisition with M. P. O now we've been hard at work integrating those technologies.
I think we're gonna see some acceleration in.
And and pick up of that splashing execution as we entered 2024.
Okay. Great. Thanks last one for me is there are there any particular vertical stand out in terms of gaining better traction ourselves with some of your newer products outside of rapid response, such as M. P O N and the scheduling that you that you just discussed.
I I I think every vertical has its own interesting volatility formula.
You know in in the automotive sector. For example, you know first a lot of automotive companies are are.
Are starting to realize there and the ability business, they're not in the car manufacturing they're into mobility, and they're they're becoming computers with some mechanics around it.
And so you know, they're they're having to deal with.
Chip shortages.
Across the board and and so it becomes a supply of kind of a disruption that affects them and that's where supply dot AI has been extremely valuable to customers.
You know in some cases, it's a demand profile volatility that drives the.
The need for concurrency.
And when I say demand profile. There's two there's two main occurrences that were that were saying there are some manufacturers that are that are telling us we're going to sell 100% of what we manufacturer. We're gonna manufacturer 100 per cent of what we can there's more demand for our products and we have supply and we have to make decisions about allocation.
<unk>.
And in that process as a continuous volatility challenge.
For many and that's where we'll see a lot of of demand on AI.
Type of usage on the scheduling side I think it's if you still manufacturer.
If you're a company that manufacturers your own goods.
And then our scheduling solution or enterprise scheduler is going to fit his <unk> there'll be a fit for US now we do have some companies.
Out there, especially some some that are in the high tech electronic space that are big.
Big brands.
But they don't manufacturer thing.
Everything is done through contract manufacturing in those cases things like enterprise scheduling will not will not be a fit for use for them. They simply don't manufacturing anything.
And so no mentioning the contract manufacturers like Flextronics and.
R. Flacks I guess, they're called now they've been a customer for so long that I I've always done them as flextronics, but anyway companies like that talking to their C. I O God Shaheen, you know, there's a lot of interest in.
Enterprise scheduling because they have over 100 factories.
To schedule simultaneously, so that there's gonna be a lot of interest from the contract manufacturing space.
Thank you.
Our next question comes from.
From B M O capital markets Your line now okay.
Hi, good morning.
John can you expand on the macro hopefully look at conditions now versus say three months ago does it status quo or things cotton incrementally worse, our our customers showing any signs of increasing caution versus earlier in the year.
Yeah, I think it might be a little mmm.
Mmm it might be a little worse than it was last quarter in terms of signing authorities.
That we're seeing where you know delays.
Are now getting pushed to board meetings and board meetings are happening cause you know once a quarter.
And in some cases those it attracted.
And and so that's one of the things that we're seeing mostly on the enterprise side.
Less so on on the on the mid market small to mid market side.
The other thing that is.
You know I'd say status quo.
Is that accounts are starting smaller which is fine with us I.
I get it we still have companies coming to US, saying can you. Please get me live in three months or less than six months.
And you know the the value of the solution will help pave the way for expansion.
So so that's been I'd say status quo.
Great and then if we look at the growth rates you've had over the last couple of quarters, just very superficially it seems like it might be a challenge to sustain that bit 20th task growth rate next year.
<unk> that you're looking at strong buffington queue for just alluded to maybe some of the customers resigned today, you'll have Sanchez next year, that's neat roll out.
Maybe it's too early to talk about it but just at this point are there any <unk> you'd be willing to share required state.
State minimum level of <unk> next year.
Yeah, Thanks, guys I'll I'll take this one.
Yeah, obviously, it's too or are they going to talk about what we're gonna do four 2024, I think that we're still gonna have strong status growth, we're still going to be growing at an elite level compared to many of our peers.
We have a ton of things that were excited about we're growing our sales team. There we have a significant amount of the sales team cohort that's getting to what we would say are more efficient level based on the <unk> the maturity they've had within the organization.
We haven't been in an organization that is focused on expand until this year and so some of our peers that have reported recently are the exact opposite where their focus more on the expansion side than the new name account side. So we're very fortunate to be growing that team and to see how strong we can be on the expansion side of our business <unk>.
Ours is John mentioned the call we hit New records.
I was kind of look at our numbers and I'm starting to look back just only three or four years and realize our bar business is now basically what we used to have as an organic business are a direct organic business not too long ago, and so that's getting pretty exciting S. M. B is still something that were penetrating more and more we just came out with a wider margin.
A new skews that we can monetise I'm in the nearest future.
Think oil and gas Q S are two very exciting verticals that we're starting to expand you see so if nothing we haven't given our our numbers for 2024, yet and we will wait another accorded to do that as we go through our investment planning, but we're extremely excited with where we are right. Now we think we think we've been doing a lot of the heavy lifting over the past.
The past couple of years, and we're just getting ready to reach them reward isn't.
It's a situation where it's hard to sometimes apologize for getting 26% sales revenue growth in 21 per cent I guess EBIT margin that those are a roll of 47, which I don't think there's that many companies out there that can that can brag about that so.
We're trying to do this with a deference and with her being a humble as part of this but at the same time, we have to kind of stick or chest out and realize we've done an amazing job up to this point, yeah, I I would add <unk> you know.
Some people might wonder whether.
Supply chain excellence of supply chain transformation.
As temporary I.
I mean, we see no signs of that I mean, we we.
And you've known as quite some time you you knew exactly who we were three years ago.
We've doubled more than doubled the number of customers in three years more than doubled.
And three years and think of it as taking US 25 years to get to a point in three years to double it.
We've been a rule of 40, I'm Wanna say for at least eight years in a row, which is a sign of great resilience and growth and.
And is Blain said, we know the conversation that we have we're having.
We know the deals were working on.
There's some pretty exciting stuff in the pipeline there.
And as you know as Blaine said, it's very difficult to predict what's happening in the micro and macro level economy around the world and.
And so we're monitoring all of that but notwithstanding.
We operate the business.
With great responsibility, I'd say and great insight so there's opportunity, we're certainly not going to waste it.
<unk> excellent color I'll leave it there thanks.
Our next question comes from Tucson should come iPhone stifle your line.
Okay.
Good morning, Jen first question for me is is you know maybe on the part of engagement sides with respect to some of your newer part offerings like playing Daddy signed on AI and so forth uhm.
Products influencing when reason deal affected for you guys <unk> catalyst for new business or are they more value on the expansion side.
Well the answer is really both you know.
When we meet a brand new prospect the first thing I say might sound odd coming from not only a software engineer, but coming from.
C E O of a software company. The first thing out of my mouth, the software doesn't matter.
You have to bond on technique first.
And you know.
I drive the conversation above software on purpose.
Obviously I have it as a method perhaps to the madness.
You know and so people are coming to us not because of one particular module that we happen to offer it's not like my algorithm, it's better than your algorithm that's absurd.
I will say that the techniques the techniques that can access offers around concurrency.
Are vastly superior than anything else on the market I fundamentally believe that in my heart and in my head.
And so we start there now as it relates to things like enterprise scheduling.
Well, that's an expansion of concurrency.
What makes that most valuable as the fact that it's inextricably connected to everything else.
And and certainly that that benefits expansion for sure because customers that already use us as I mentioned, it around enterprise scheduling and contract manufacturing space.
There is tremendous interest there.
One of our confectionery customers very very interested because they have many factories that can manufacturer the same goodies.
You know in the same way.
And so being able to schedule across factories is unique those things just don't exist otherwise and again built on top of a concurrent engine that's what.
Gets the industry excited that's what I think will power the future supply chain and that will power future supply chain excellent. So now you mentioned demand at AI and I do want to touch on that one because that in the space of retail has been.
Really really potent where we are disrupting.
We are disrupting systems and replacing systems that have been in place for 30 years and we are stepping in with the system of solution an environment that is not that runs not only faster, but it's more superior as it relates to forecast accuracy.
And so that you know around machine learning and AI, we have a very very strong bench exceptionally gifted engineers.
I want to say, we have 50 ish patents and play at the moment.
Vast majority of which are associated with machine learning and AI. So where you know this is what I talked about this fusion of M. L. A I on top of a concurrent engine I think is where excellence is going to live in the future.
Great and you said that color.
I think question for me is really on the line and expand opportunity. It's good to hear that you guys are dumbing down on your expansion efforts Uhm is there anything that you would flag.
<unk> the nature of the expansion activity that you see now that may be different than you see in prior years, just wondering if there is.
Something related to the the the pace or the size of these opportunities and and then.
And ultimately how does that.
<unk> does that and I also need does that sort of drive any change to what you see in the medium term outlook that that you've got to talk about previously.
Yeah, So I'll I'll start an M. B ask blamed had further color, but one of the things that we did.
Very recently is build a dedicated team.
To focus strictly on the installed base.
And with a leader and that happened and earlier in 2023. So we are.
<unk>.
Taking a very let's just say focused approach at addressing the base and addressing expansion.
I'd say at the at the moment, roughly 50% I want to say and again I'm looking at Blaine to to keep me honest here roughly 50%.
A R. R. R. At least this quarter was in the expansion.
Expansion versus.
Net new is close enough anyway, let's just say.
And so we continue to stay very close with the base and again as I mentioned earlier, we doubled the size of our customer base inside of a three year period.
And so that that is giving us a great sort of internal market to go after with with net new products blame you want to add anything to that commentary.
Maybe it's jumping to hear the last part of your call me you talked about mid term guidance and we expected that we would be asked some questions around that'd be.
We obviously talked about 30% a year over year size growth and twenty-five percent adjusted EBITDA, we're not changing for that we've tried skills covina as the midterm, we're barely not even at at one year from when we first announced that that that midterm guidance. So we still think.
It's gonna be there I would say.
The only thing that's probably shifted is that the size revenue growth, we had foreseen it to be in the short term and I wish I could have been sitting here today and saying we've already knocked it out of the park.
But we do <unk> and that midterm predictions at this stage.
Great.
Thank you.
<unk>.
Our next question comes from Mike shipped out from <unk> capital markets. Your line is now open.
Hi, Thank you for taking my question John in the prepared remarks. It was noted that you know Q forced typically a big.
R R a quarter for the company and and given the more challenging macro environment, maybe just talk a little bit about what gives you confidence that <unk>.
You can bring in the <unk> this year in Q4.
Well there there's a couple of things one we know what we're negotiating uhm and so when we have <unk> in hand, and and lawyers assigned.
Does it mean anything is guaranteed I assure you because of the macro conditions and often you know getting signatures and getting inked to dry getting board members in some cases to sign.
Are things that were continuously monitoring and questioning and doing all of those things to make sure that we're not just quote guessing.
On what's gonna happen, we certainly know what's in place and you know we know exactly what expansions. We're working on is Blaine mentioned.
Is a rather large expansion that slipped out of the quarter.
Which now looks like it'll be in November timeframe, and so we're feeling pretty confident that all of that is in good standing.
And and third we know what the pipeline is you know ahead of us and that's what's giving us that that.
That level of confidence now obviously the thing we can't predict is exactly what is happening to these macro conditions uhm on a moment's notice and and so we'll be able to comment.
You know at the next call when we know exactly what history, you know with history ultimately looks like but that's what's really driving our confidence we know what's in front of US we know what we're working we have pens and hand.
We have some rather exciting accounts that were working.
And yeah, that's that's what's fueling our confidence.
Great. Thank you.
Our next question comes to <unk> <unk>.
D I D C. Your line is now okay.
Alright, <unk> and Kyle on first definitely pricier uhm.
Maybe if I could ask ask one question on the professional sandwiches crouse prior few quarters be thoughts described fall below subscription crowd and then this card and we thought check back up again at 28 per cent. So could you could you talk a bit about what the higher growth. This corner and maybe just how we should think about for national San Francisco looking into the 2024.
Mmm.
Good question and Uhm.
I want to say that I think.
Peter to the team the team to an extremely well at executing with what's in front of them right now, they're bookings number which we don't disclose.
Hit an all time high.
This past quarter the year of your growth on that side is phenomenal, we're using third party contract trunk contractors less and less but say all that we do want to be partner first we do want to push it as much of our professional services work in their direction and we are having.
Executive discussions on trying to figure out how to how to achieve that going forward even more than we are right. Now training enablement is obviously one of the biggest factors that you have out there, but we want our our partners to be able to step in and have the exact same level of service that our team is doing right now the issue we have.
Is that our team is so good and it is a testament to the strong retention that we have in place I can say right. Now this year, we have less than a handful of customers that we've lost which is I don't know how many companies of our size could actually brag about that but that's a large large parts because of how strong that Russell services team. So that's a long way of saying.
That.
We're growing that that revenue base still pretty quick quicker than we would like but we need to get our partner organization at the level of service to ensure that they have the trust from our customers and our prospects to go with them first before going with us.
Thank you that's that's helpful color there.
And then maybe I can just ask one more here on the on the license revenue in a corner and I. Appreciate your kind of updated connecting your prepared remarks that that last part I need to speak about it sound like the customer that you are in the process of determining how that contract Avenue should be recognized and when it would come in and then your debit card or we can see that the higher expected lightning shot through <unk>.
You said me out with your guidance that to at at excluding.
<unk> <unk> <unk> <unk> I changed so is that related to the term license customer that you would latency last quarter and then maybe at the fall of lying to you do you have any more of these contracts I find that could cause it seemed like a good evening.
Yeah. So.
That way I'll I'll answer first the <unk>.
Answer is no it's not related to that one customer that customer we are still.
In negotiations we are we believe it will fall into 2024, but there is a chance of can still come in for 2023.
In terms of where we have the majority of that revenue hitting so it's a good sign that we have some.
Some extra revenue just sitting out there waiting to be recognized relating to that customer, but no. It doesn't have anything to do with the how we didn't in Q3 at a stage.
Okay. Thank you very much I'll top line.
Our next question comes from the checks that sound N B ask your line is Nelson.
Hi, This is you're calling in for Richard Congrats again on the corner just wondering if you could talk about how the heavy partnership is trunking.
We're <unk>.
Frankly thrilled with it I was very recently on stage with Rodney Browne their chief supply chain officer at a zero 100 event anybody who tracks Rodney on linked in with a scene.
A great photo of of him and I on stage chatting about not only the partnership with the value that we're delivering this this iconic brand.
So we're really really happy with with that partnership we're happy with the work that we're doing with them, we believe that well frankly, I think how hobby.
Their trailblazing a new standard for quick service restaurant as it relates to supply chain excellence not only on the demand side, but the simultaneous replenishment side and that's what has this very excited it has them excited.
You know serving one brand is just the first step they obviously have.
Many many other brands that they serve and that they're talking to.
And and so.
Stay tuned for more.
Exciting news as it relates to that partnership.
Okay, maybe I'll just add in there I was fortunate I talked with a heavy last week and we were talking a little bit more about.
Uhm, what our go to market our co go to market strategy it looks like in the foreseeable future.
There's a lot of exciting things, we talk about Cuba, sorry, but there's more vertical is besides curious sorry that we potentially could move into with them and we're having those discussions as well.
Okay. Thanks for that and then just one follow up I guess this one's more for you, but you talked about the software margins are and how the transition.
He kind of compressing them. So over the next few core issue you still expects offer emergency <unk>.
I think we're pretty close to where where are we expect I mean, it could go a couple of percentage points lower but I don't think we're we're expecting to go with much more we are spending a lot of time to make sure that we we optimize that that migration as much as possible.
But you are absolutely right that guy, we don't see a rebound for the next at least the next four quarters.
As a result of the duplicate duplicative.
You could have cost that we have with public cloud.
We're doing our best I mean, we were the hardest things they were doing anything we're ahead of schedule and we have more customers I'm, hoping cloud and we expect this time, which then that adds up to more and more duplicative of cost that we have at this stage. So we're happy that we're.
Being so successful right now with those migrations, but we know that it doesn't really help our our margin profile at this stage.
Okay. Thanks, so much for that color all possible.
Before you move onto the next question is you remind you if you would like to ask a question. Please pass by a number one on your telephone keypad. Our next question comes from me <unk> per line Okay.
<unk> <unk> <unk> you called <unk> can you talk about the maturity of this channel will have someone to talk with you sitting for them.
We all started to join jump in so it's still very immature. We're excited that we're getting new records with the virus and that is growing we have over 40 virus that we have in place, but we're also trying to make sure that they are appropriate appropriately performing at the levels that we want.
And so there it will there'll be at an assessment of how they do as we as we go forward. We have some that are just already hitting the ground running into an extremely well it's interesting to see the number of new geographies that we're entering into that we would have never imagined before but we are seeing that.
I hate using hockey sticks, even though I'm Canadian but we are starting to see a little bit of a hockey stick a situation with forest because they are now getting to the level of maturity that they need to execute and they need to win win over some new new engagement. So.
Yeah, we're extremely excited about where this could go the pipeline is is way bigger than we had a year ago and excited to see where this this and I think this could be.
Very strong piece of our business that has grown very fast and the recent recent periods yeah. The only color I will add and.
You know I I wouldn't want this to be lost on investors the the notion.
<unk> can access has produced a.
A solution that not only is what I might call revolutionary as it relates to the techniques. It.
Mm supports the notion concurrency.
But we're serving companies that do under $100 million in revenue in companies that do over 150 billion in revenue we could serve them all.
Whether you make tofu jet engines automotive pharmaceuticals, shampoo, you know on and on it goes industrial equipment.
You know again with exactly the same software, we're doing that around the world the notion of bars.
So for US is Blaine says not only providing an arm a sales arm and geographies for which we are not in it as an arm that is going after S. M. B, a small to medium sized businesses.
On our behalf and and so that's the other thing that we're quite excited about where will the expectation is to see some acceleration in net new wins.
Small companies become medium companies medium companies become enterprises.
We so we love. This I think this is what builds resilience in a business.
Thanks, guys. That's helpful call Us I'm, just gonna click on <unk>, what other reasons outside the conference that influence Opex sequentially, how do you think about <unk>.
Yeah. So I guess you just going on what we have for the corner. This I think very few times in my history that I've seen.
Company, that's growing and being successful have off exits quarter over quarter, lower I'm in <unk> sales and marketing and you're seeing R&D and G&A, a little bit lower obviously I talked about operating leverage we had her big conference in queue, too, which is obviously not something we repeat every quarter and so that helped us out with our.
Sales and marketing number is going down but.
But we are we are being very thoughtful about the investment we have in our teams. We're in a fortunate position that we have been thoughtful and we we don't have to worry about changes in and that a lot of it I think our competitors in our peers and that have gone through it especially in this current environment.
So we're we're we've been looking at this for a long time, we've been we've been trying to make sure that we are growing at a at the right rate that we're gonna get to the profitability. So we want to this is a longterm plan that we've been building forward and I think that we are set up right now for success of it to get even more operating leverage in the future I think those numbers.
Where we see that on a normalized revenue for our Indian G&A still.
Still have room to to come down but.
We are we're gonna not do it all at once we're gonna continue to take baby.
Baby steps along the way.
I appreciate that been off onto the line.
Our next question comes from my two Tanya some ATB capital markets. Your line account okay.
Thanks, so much for for the question.
Just wanted to I wanted a little more detail on the improvement in professional services <unk> or sorry gross margins how sustainable are those.
And then.
A second question can you talk about the S T L strength and likelihood that it will continue.
Next year like relative to the normal cycle.
Sure So <unk>.
Professional services margins, again, where where I.
I did mention where we're very happy with the pricing power, we are utilizing that pricing either at our.
At our disposal right now and.
29% margins caught me by surprise I caught a lot of People's lives Fries, we didn't we didn't expect it to.
Tell me that high or utilization rate.
Right on track to what we expected.
Obviously, the big impact was the use of partners or a third party contractors that came down significantly uhm during that period of time.
And we obviously don't give are any guidance as to P. S margins, but we do think that we're starting to learn a bit more about the margins that we can we can expect going forward. So no real no real I don't want to say, we're going to be 29 per cent forever going forward, but I don't see why.
Why we can't either.
Okay Super how 'bout, a subscription to a <unk>.
So it's a subscription license at the beginning of the year, we said that it would be lower that next year. So we gave a little bit more of a an insight into where we saw the the next three years next year as a lower lower period, and we know that that will just based on renewals that is the case.
We have one deal that again I think I mentioned that we are trying to attract to figure out if it's gonna be either.
2024, or late 20th 23, but otherwise we should expect that subscription term license will be a lower your next year and then pop back up to somewhere around the range, where we are this year.
Great. Thank you very much.
Oh My next question comes from.
Uhm I can see your lines.
Okay.
Hi, it's shown on for Paul <unk>, just a question on yourselves investments that you're you've been making and I know you've talked to my past about.
How the teams are ramping so I just want to know if there's any updates there on what proportion of of your sales teams are fully ramped and what proportion of of Windsor coming through more recent sales hires as opposed to.
More tenured hires thanks.
Yeah. It's great question until we've been spending a little bit timeline, we look at cohorts.
Of our sales team between zero and 12 months of of experienced 12 to 18 months within 18 months plus.
And there is a significant difference for that 18 months plus versus the other two cohorts. Obviously as you can imagine, but a lot more experience. They have the higher productivity. They will have but there is a a number of multiples that you get when you have over 18 months and that's generally just when you go back to our sales cycle, which is now somewhere sitting around two.
Months.
It's ensuring they have that that sale cycled to run through plus a liberal ramping period to ensure they understand what connects to sell it out so.
It is a we're we're pretty happy with how they're they're ramping as of right now we've gone through.
The last six quarters, where are we at a decreasing amount of those 18 months plus.
Account exactly that's about to switch I think it's this quarter is the first step progression that we have for some increased AE that are getting over the 18 months area. So a higher proportion is seen right now but.
Generally uhm.
Roughly expect to somewhere around two thirds are supposed to be at 18 months plus and then the one third is developing overtime.
Alright. Thanks.
<unk> now like to hand back I'll take a call to the bloodstream. Thank you.
Thanks, operator, and thank you everyone for participating on today's call. We appreciate your questions and your ongoing support and interest and taxes. We look forward to speaking with you again, when we report our annual results. Thanks very much bye.
Please wait the conference will begin shortly.
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