Q1 2025 Kinaxis Inc Earnings Call
Good morning and welcome to the Kinaxis Inc. Schiskel 2025 first quarter results conference call. Currently all participants are in a listen only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at the time for you to queue up for questions.
Speaker Change: I'd like to remind everyone that this call is being recorded today. First day, May 8, 2025. I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis, Inc. Please go ahead, Mr. Wadsworth.
Speaker Change: Thanks operator. Good morning and welcome to the Kinaxis earnings call. Today we will be discussing our first quarter results which we issued after close of markets yesterday. Lift me on the call or Bob Courteau, Interim CEO and Chair and Blaine Fitzgerald or Chief Financial Officer.
Speaker Change: Some of the information discussed on this call is based on information as of today, May 8, 2025, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. [inaudible]
Speaker Change: 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 Cedar Plus filings.
Speaker Change: During this call, we will discuss IFRS results in non IFRS financial measures, including adjusted EBITDA, a reconciliation between adjusted EBITDA and the corresponding IFRS result, is available in our earnings press release in MDNA, both of which can be found on the investor release.
Collection of our website, Kinaxis.com, and on Cedar Plus.
Speaker Change: The webcast is live and being recorded for playback purposes. The archive of the webcast will be made available on the Investor Relations section of our website. Neither this call nor the webcast may be re-recorded or otherwise reproduced or distributed without prior written permission from Kinaxis.
Speaker Change: To begin our call, Bob will discuss the highlights of our quarter and recent business developments followed by Blaine who will review our financial results in outlook and open the line for questions.
Speaker Change: We have a presentation to a company today's call which can be downloaded from the Invest Relation homepage of our website. We'll let you know when to change slides. Over to you, Bob.
Bob Courteau: Thanks, Rick. Good morning, and thanks for joining us today. I'm pleased with the first-quarter results, and I wanted to highlight three key items.
Bob Courteau: First, it was a solid quarter for new business, including Record Expansion Business Volume for a first quarter. [inaudible]
Bob Courteau: Our ARR grew 14% as reported, and in constant currency, SAS growth was 16% or 17% in constant currency.
Bob Courteau: Second, we continue to make progress with profitability as adjusted even though it was up 46% and the margin hit 25%.
Bob Courteau: Lastly, it was our third consecutive quarter delivering rule of 40 plus performance.
Bob Courteau: We view this consistency as key to evaluation, that better reflects our elite position in the vertical software universe.
Bob Courteau: This performance allowed us to maintain all guidance elements for the year, including Sass Revenue Growth, Total Revenue, and Adjusted E bit of margin. And we are also on track
Bob Courteau: As always, we added important new customers in the quarter and enterprise class companies continue
Bob Courteau: We're so fortunate to be able to name a sample of our new customers today.
Bob Courteau: For example, we've helped orchestrate the supply chains for global leaders like Sun Pharma.
Bob Courteau: which extends our success in Asia. Based in India, Sun Pharma is the world's leading special tea generis company with $5.8 billion in revenues at more than 40 manufacturing facilities.
Bob Courteau: Sun Farmer provides high quality, affordable medicines to more than 100 companies around the globe.
Speaker Change: Workwear Outfitters, based in the U.S. is a leading manufacturer of innovative work apparel and footwear for workers, with brands like Kodiak and an exclusive licensee for Dickies Apparel in the B2B channel.
Speaker Change: Delta Fossil Company, also headquartered in the U.S., and who we know through Delta and peerless brands among others.
Offer purposeful practical plumbing fixtures that solve our everyday needs.
Speaker Change: Demand AS, Headquartered in Denmark, with over 22,000 employees as a global leader in hearing health care and manufacturing of hearing aids dedicated to improve the license people
Speaker Change: Fiolia, a US subsidiary of a French-based company, which provides water treatment and sustainable solutions for industrial and municipal clients.
Speaker Change: Finally, we've signed in one of the world's largest companies in the semi-conductor in this ecosystem by both revenue and market cap.
Speaker Change: Our market share keeps growing from successes like this, as we continue to win the most important and competitive opportunities across all markets and geographies.
I'm going growth of the Custer and Maste.
Speaker Change: Balance across geographic and vertical markets, and revenue tiers remains a significant opportunity for Kinaxis.
Speaker Change: As we briefly mentioned on our last call, we've stuck a new partnership with INFOR to help accelerate that growth, and I'm pleased to be able to share more details today.
Speaker Change: The new relationship within for is focused on mid-market to street manufacturing companies and the high-tech industrial consumer durables, automotive and aerospace and defense verticals.
Speaker Change: Together, we are integrating in for cloud suite for discreet manufacturing with Kinaxis planning one.
Speaker Change: The Maestro Solution Package that offers court fundamentals like supplying the band planning and inventory management.
Speaker Change: This partnership will create an entirely new channel by activating a mid-market team of sellers in North America and Europe within in four. We're excited to see this and I should have moving forward.
Speaker Change: While winning new customers will be a major part of this access story for many years, I'm very pleased that in Q1 and for the second consecutive quarter, over a half of gross additions they are, came from existing customers. [inaudible]
Speaker Change: Exciting new product launches, and an increased focus under Mark Morgan, we can do to see more expansion business than ever in our pipeline.
Speaker Change: I'm also very pleased with the meaningful improvements we've made to our go-to-market team and approach.
While it started several years ago through geographic expansion.
Speaker Change: Adding vars and solution extension partners, and moving the public cloud among other initiatives, we took another major stepwise here.
Speaker Change: by adding Mark and key regional leaders who know how to operate at scale and who are sharply focused on for guessing our best opportunities.
Speaker Change: We're winning the market and together with the most referenceable customer base in the supply chain software industry. These improvements have seen us become best in class and how we approach the market and service our customers.
Speaker Change: As always, one critical reason we win remains our product leadership.
Speaker Change: We are thrilled that Kinaxis was recognized as a leader in the 2025 Gardner Magic Quadrant for supply chain planning solutions for the 11th consecutive time.
Speaker Change: Based on analysis of both our completeness of vision and our ability to execute.
We take pride in consistently strong position.
and this important report.
Speaker Change: but there is no time or place where our product and go to market leadership shines more than at connections.
Our flagship industry conference. This year, for record 1,000 attendees...
Speaker Change: Or almost 30% more than 2024 came to Austin to hear, see and interact with the latest in our market leading innovations.
At Connections, we announced an important partnership with Databricks.
Speaker Change: Accelerate AI adoption and bring together information from core systems like inventory and procurement.
Speaker Change: So bold to businesses at any stage of their AI maturity.
Speaker Change: Conference Core's also saw firsthand, how new generative AI functionality.
Speaker Change: We'll make interacting with supply chain data even more intuitive.
Speaker Change: In addition to create and customizable dashboards C suite users to technical experts will be able to query digital twins.
Speaker Change: By asking questions and dozens of natural languages and receive instant insightful answers to complex questions.
Speaker Change: Allows interdisciplinary teams to analyze scenarios assess risk and make informed decisions without requiring a I expertise.
Speaker Change: But naturally at connections.
Speaker Change: Is impossible to have conversations with supply chain leaders.
Speaker Change: Without discussing the global tariff issue.
Speaker Change: As long time followers of the company you understand that maestro has been specifically built to.
Speaker Change: A handle disruptions of any kind.
Speaker Change: And few have been more significant for our customers than the current tariff crisis.
Speaker Change: Consequently.
Speaker Change: We recently launched can access tariff response.
Speaker Change: Professional services offering for prospects.
Speaker Change: That allows them under a limited time engagement to provide can access experts with key supply chain data.
Speaker Change: We can show how maestro can stimulate tariff exposure.
Speaker Change: Run strategic scenarios and make data informed decisions quickly.
Speaker Change: The service can be live in as few as 21 days.
Speaker Change: Kevin planners access the tariff modeling without the cost or complexity of building it internally.
Speaker Change: Interest in this campaign from prospective customers has been encouraging.
Speaker Change: Tariff response provides a meaningful preview.
Speaker Change: The power of Maestro. So we expect some engagements from this program.
Speaker Change: Convert to new subscription business in the coming months.
Speaker Change: Overall.
Speaker Change: I'm very pleased with the progress in the first quarter and for the remainder of the year.
Speaker Change: We entered we aim to deliver on a few key items.
Speaker Change: Ongoing deliver of quarters that support our full year 2025 outlook and midterm ambitions.
Speaker Change: More new market, leading customers, coupled with a more balanced contribution to quarterly a our growth from expansion business.
Speaker Change: Many new named accounts.
Speaker Change: We are setting up initial customers.
Speaker Change: For our exciting new generative AI and a gentex AI products.
And and initiating a new pricing framework.
Speaker Change: To better reflect and take advantage of the more universal integration of AI through Mace Maestro.
Speaker Change: And the higher value it brings.
Speaker Change: And lastly, a new full time CEO.
Speaker Change: Where we're seeing we're adding exceptional talent to our company now.
Speaker Change: We're working well as an experienced collaborative senior team and delivering rule of 40 quarters.
Speaker Change: All of which gives us the privilege of being patient.
Speaker Change: And finding the absolute best person for the role.
Speaker Change: As with any global software company, we do remain mindful of the significant challenges our customers face.
Speaker Change: In the new era of global trade.
Speaker Change: But we are confident in our elevated go to market team and approach our.
Speaker Change: Our product leadership.
Speaker Change: And the breadth of growth opportunities in front of us.
Speaker Change: Can access today is better organized than ever.
Speaker Change: To take full advantage.
blame: Of the incredibly dynamic supply chain orchestration opportunity that lies ahead and with that said I'm going to turnover the call to blame.
Speaker Change: Okay.
Speaker Change: Thank you Bob and good morning.
Speaker Change: As a reminder, unless noted otherwise all figures reported on today's call are in U S dollars under Ifr.
Speaker Change: If you move to slide nine in our Investor presentation for Q1 and.
Speaker Change: I am very pleased to report solid Q1 results that set us on a good path to achieve our fiscal 2025 goals.
Speaker Change: On an as reported and constant currency basis.
Speaker Change: New business remains strong sustaining the upward trend in our AUR growth.
Speaker Change: Our profitability in Q1 with strong again.
Speaker Change: Our trailing 12 month free cash flow margin, particularly if you adjust for the impact of onetime outlays related to our tax restructuring.
Speaker Change: And litigation government, both of which we discussed on our last call.
Speaker Change: Our mid term profitability goal of consistent full year normalized 25% adjusted EBIT margin and consistent annual rule of 40 performance aspirations are clearly in view.
Speaker Change: Now let me walk you through our Q1 2025 results compared to the same period last year.
Speaker Change: Total revenue was $132 8 million up 11%.
Speaker Change: SaaS revenue was $84 $9 million up 16%.
Speaker Change: Our subscription term license revenue was $9 million in line with our expectations, given our neuropsychology and up 34%.
Speaker Change: Professional services revenue was 330, sorry, with $33 3 million.
Speaker Change: Down 3%.
Speaker Change: We see this largely as a reflection of ongoing success in our long term strategy to move an increased share of professional services work to our partner network.
Speaker Change: Okay.
Speaker Change: Maintenance maintenance and support revenue was $5 5 million up 15%.
Speaker Change: Our gross profit with strong up 19% to $86 5 million or 65% gross margin compared to 61% in the same quarter last year.
Speaker Change: The software margin was 80%.
Speaker Change: Up from 76% due in part to higher subscription term license revenue and lower amortization. Thanks to an intangible asset we retired last quarter.
Speaker Change: Yes.
Speaker Change: Professional services gross margin was down to 21% from 24% consistent with partners taking on more of the services work.
Speaker Change: Adjusted EBIT was extremely strong up 46% to $33 1 million.
Speaker Change: Or a 25% margin versus 19% in the comparable quarter.
Speaker Change: This reflects numerous factors, including our revenue growth higher gross margin and lower operating expenses as a percentage of revenue.
Speaker Change: As we continue to focus on profitability and gain further operating leverage as we scale.
Speaker Change: Yeah.
Speaker Change: Our growth and profitability performance resulted in rule of 40 performance for the third consecutive quarter.
Speaker Change: Calculated by adding SaaS revenue growth and adjusted EBIT margin our usual approach.
Speaker Change: Our profit in the quarter was up 157% to $15 9 million.
Speaker Change: <unk> 55 per diluted share versus a profit of $6 2 million or.
Speaker Change: <unk> 21 per diluted share a year ago.
Speaker Change: We are proud of the significant improvement.
Speaker Change: Profit benefited largely from the same factors that supported our strong adjusted EBITDA performance.
Speaker Change: Yeah.
Speaker Change: Cash flow from operating activities.
Speaker Change: $31 6 million that compares to $32 million in Q1 2024.
Speaker Change: Cash cash equivalents and short term investments were $314 $6 million.
Speaker Change: Up from $298 $5 million at the end of 2024.
Speaker Change: Despite the onetime payment made in Q1 related to tax planning and litigation settlement.
Speaker Change: If you move to slide 10.
Speaker Change: Our trailing 12 month free cash flow margin remained strong at 18, 7%.
Speaker Change: Absent the tax planning and settlement amounts trailing 12 month cash flow margin would have been 24, 4% a great reflection of our increased focus on profitability.
Speaker Change: On to slide 11.
Speaker Change: Our <unk> or annual recurring revenue grew to $372 million.
Speaker Change: Representing 14% growth, both as reported and in constant currency.
Speaker Change: The split of gross additions to <unk> between new name accounts and expansion business was 47% to 53% in Q1.
Speaker Change: This is the second consecutive quarter, where expansion business, whereas the bigger contributor.
Speaker Change: Our pipeline for 2025 remains more tilted towards expansion opportunities than in prior years, which we believe is a reflection of recent growth in our customer base.
Speaker Change: More product to sell.
Speaker Change: And our heightened focus on this important sales motion.
Speaker Change: Moving to slide slide 12.
Speaker Change: SaaS and total <unk> balances remained very strong growing to $767 million and $812 million respectively.
Speaker Change: With three year CAGR of 20% and 19%.
Speaker Change: This metric continues to highlight growth in our subscription business and our elite gross customer retention.
Speaker Change: More details on our <unk> can be found in the revenue note to our financials.
Speaker Change: Looking at slide 13.
Speaker Change: While mindful of the impacts to our markets of the volatile macro environment.
Speaker Change: I am pleased to reiterate our 2025 guidance.
Speaker Change: Total revenue of $535 to $550 million or by around $45 million to $560 million in constant currency.
Speaker Change: SaaS growth of 11% to 13% or 12% to 14% in constant currency.
Speaker Change: We continue to anticipate seasonal trends to apply with Q4, historically being our strongest bookings quarter.
Speaker Change: Subscription term license revenue of $16 million to $18 million.
Speaker Change: Approximately one quarter of the total amount will be recognized in the second quarter and the remainder split over the back half of the year with Q3 being somewhat higher than Q4.
Speaker Change: We continue to expect adjusted EBIT margin to be between 23% to 25%.
Speaker Change: Yeah.
Speaker Change: Finally on slide 14.
Speaker Change: We have continued to be active on our normal course issuer bid.
Speaker Change: For the quarter, we purchased 157428 shares at an average of U S dollar price of 110.
Speaker Change: 49.
Speaker Change: For an investment of roughly $17 4 million.
Speaker Change: Our entire IV goes through November five 2025.
Speaker Change: Overall.
Speaker Change: I am pleased with how the business is executing this.
Speaker Change: This is our third consecutive rule of 40 quarter.
Speaker Change: Despite the challenges to customers of a constantly changing tariff environment new business in the quarter was solid and kept our air growth rate on a good trajectory.
Speaker Change: Adjusted EBIT margin and free cash flow continued to move in the right direction, reflecting dramatically improve profitability and.
Speaker Change: And our mid term financial aspirations are all intact.
Speaker Change: I am excited for the coming AI transition and what it will mean for our differentiation and growth ahead.
Speaker Change: As always.
Speaker Change: Thank you for your ongoing interest in <unk> four to date.
Speaker Change: I will now turn the line over to the operator to start the Q&A session.
Speaker Change: Thank you we will now begin the question and answer session. At this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad, we will pause for just a moment to compile the Q&A roster.
Speaker Change: Okay.
Speaker Change: And your first question comes from the line of cigar Carey with BMO capital markets. Your line is open.
Speaker Change: Hi, there. Good morning, this is saga onshore and panels.
Speaker Change: First question is regarding to your softer margin. So the margin was the highest in several quarters. So how should we think about that trajectory as we continue as you continue your migration to public cloud.
Speaker Change: Go ahead.
Speaker Change: Sure.
Speaker Change: And just talk about.
Speaker Change: We've always had a discussion, saying our software margins should be over 80% and obviously the migration to public cloud.
Speaker Change: In the early days put us a little bit south of that.
Speaker Change: We're really happy with where it's going to obviously, it's still early days I think the subscription term license revenue it helps us out a little bit in this quarter. So we need to make sure that we take that into consideration as we move forward, but we are consistently focused on trying to move that at a consistent rate above 80% as we move forward the public cloud.
Speaker Change: <unk> is going very well, we're seeing some <unk>.
Speaker Change: Economies of scale as we continue to move that forward with.
Speaker Change: Our APAC team already moved over and Europe is next in line, where we are.
Speaker Change: Well on our way to migrating that that customer base.
Speaker Change: Thanks, and just to ask another question I know you're hedged from an FX perspective.
Speaker Change: Although given the appreciation of the Canadian dollar how do we think about the potential impact on Opex and margins as those hedges start to roll over.
Speaker Change: Okay.
Speaker Change: Yes, great question.
Speaker Change: <unk>.
Speaker Change: Over the next six months I feel pretty good.
Speaker Change: What we do is we hedged about six months in advance so.
Speaker Change: As you're well aware the Canadian dollar was in that 68% to 69.
Speaker Change: Place that helped us out quite a bit on the bottom line.
Speaker Change: And we do have a substantial amount of expenses that go through our our P&L that.
Speaker Change: That come from Canadian dollars, so we're going to benefit from that advantage over the next six month.
Speaker Change: Obviously, we're sitting closer to 72 right now.
Speaker Change: So in the back half of the year well, we'll continue to monitor that but I think we're in a great great spot, obviously with everything going on in the macroeconomic environment. We are not exactly on Terra firma. So I think we have to recognize that there could be still some volatility in exchange rates, but I think we're in a great spot with the Canadian dollar and our hedging program is <unk>.
Speaker Change: Exactly what we hoped it would at this stage.
Speaker Change: Perfect. Thank you and I'll pass the line.
Speaker Change: Okay.
Speaker Change: Your next question comes from the line of Lachman Brown with Redburn Atlantic Your line is open.
Speaker Change: Thanks.
Speaker Change: Hi, Bob.
Speaker Change: Good morning to you.
Speaker Change: Our strong delivery on bookings and what is usually a seasonally light quarter could you just talk to the success behind it.
Speaker Change: And did they trade uncertainty bring a pull forward of demand where a lot of these bookings volumes to the pipeline at the end of 2024.
Speaker Change: Okay.
Speaker Change: Maybe I'll go first Rick and then you can jump in like we had we had an unbelievable connections you already saw.
Speaker Change: The level of increased interest.
Speaker Change: The number of people that attended the event.
Speaker Change: We just finished the Gardner group conference this week.
Speaker Change: The level of enthusiasm as measured by the attendance at our part of the events just the sheer quantity of people in our booth on a relative basis was terrific terrific.
Speaker Change: We've won.
Speaker Change: Some of the most important customers in each of the industries, we're serving.
Speaker Change: Over the last four to five quarters that create an incredible reference base and our go to market.
Speaker Change: Execution is obviously in a really good place and then the last part of it is we've got some really great.
Speaker Change: Products.
Speaker Change: Now we've already released in.
Speaker Change: 2024 that are starting to pick up and it gives us another bookings.
Speaker Change: Capacity, so like look I feel like.
Speaker Change: The demand is good.
Speaker Change: Our competitive win rate is strong our references are the best so we <unk>.
Speaker Change: Dave.
Speaker Change: Yeah.
Speaker Change: We believe.
Speaker Change: No.
Speaker Change: Our guidance is in good place and the wildcard is the economy and how that plays out but generally.
Speaker Change: I would say that.
Speaker Change: The company is in a really really good period right now.
Speaker Change: Maybe I'll I know Thats fair.
Speaker Change: Color on that if Thats alright.
Speaker Change: But when we got through Q4.
Speaker Change: We had a great run obviously in Q4 and we.
Speaker Change: We emptied the cupboard stage in terms of there was very few pushed deals that moved into Q1.
Speaker Change: So the fact that they had an amazing Q1, our highest incremental IRR for Q1 that we've ever seen as a testament that the team is executing at a different level than we've ever seen before.
Speaker Change: Thank.
Speaker Change: One of the big things that I've noticed over the last couple of quarters as some of our metrics are going to change the conversion rates that we're seeing especially.
Speaker Change: Especially in Q4, and Q1 are much higher than we've ever seen before.
Speaker Change: The pipeline is healthy I am pretty excited about some of the names I see in the Q.
Speaker Change: Q2 pipeline in that large enterprise cohort that we always seek.
Speaker Change: To to win.
Speaker Change: We're seeing a lot more of that in our in our pipeline, which is great and we're winning the best deals that are out there right now I think.
Speaker Change: Our Q1 deal that we didn't name the name of the company, but that was the deal that everyone everyone want to win and we're very proud that came to us. So things are things are rolling right now.
Speaker Change: That's very clear this is a strong outcome.
Speaker Change: And maybe on the guidance that does good delivery on a constant currency <unk> year, and yet you maintained the 25 guidance of 12% to 14%.
Speaker Change: Understand perhaps taking a cautious view on the title revenue given in call practice to discretionary professional services now given that revenue is recurring and more feasible just any commentary on the reiteration of the guidance would be helpful.
Speaker Change: I mean I can give you my.
Speaker Change: No we didn't.
Speaker Change: Blaine and I didn't talk about it before the call but.
Speaker Change: And a ton of detail, but just given the economic backdrop that we're seeing.
Speaker Change: We put in what I would call a responsible.
Speaker Change: Our view of 2025, and if we were going to revisit it it'd be better to do that.
Speaker Change: And coming out of the second quarter.
Speaker Change: That will that will really give us a good opportunity to.
Speaker Change: Understand what the macro effect is going to be but against the backdrop that I just described.
Speaker Change: Or.
Speaker Change: Feeling very good about our guidance.
Speaker Change: Very helpful. Thanks for the questions.
Speaker Change: Your next question comes from the line of Richard <unk> with Scotiabank. Your line is open.
Speaker Change: Hi, Good morning. This is Richard in for Kevin Today. So my first question can you talk about the drivers of your expansion momentum and how that compares to previous quarters I'm. Just wondering how much of the expansion is coming from an uptick in customers running scenarios versus.
Speaker Change: Say, adding new modules, the expansion or adding new geographies.
Speaker Change: Yeah.
Speaker Change: I think it's coming from.
Speaker Change: Our balanced.
Speaker Change: Well organized.
Speaker Change: Hi, highly performing software company.
Speaker Change: We basically are focused on making customer getting to the outcome that customers are looking for.
Speaker Change: We're continuing to drive the highest level of reference with our customers.
Speaker Change: Our product and engineering team is delivering on new innovation at a higher speed.
Speaker Change: <unk>.
Speaker Change: Our competitors.
Speaker Change: We have a core.
Speaker Change: Capability with Maestro that is solving the problems of today.
Speaker Change: And we put our go to market discipline in that is.
Speaker Change: About <unk>.
Speaker Change: Really making sure.
Speaker Change: We're creating attention for company through marketing.
Speaker Change: Working on the pipeline.
Speaker Change: In a way that we're doing what I call company the company execution.
Speaker Change: Median CLS, we're meeting the Cfos and we're supporting the chief supply chain Officer.
Speaker Change: We've extended our pipeline through partners, that's something we've been working on for years and we're starting to see the payback on that.
Speaker Change: <unk>.
Speaker Change: The most striking thing about connections was how many world class customers.
Speaker Change: Now that we're on stage, describing the value and impact of our solutions on their business and all of that comes together.
Speaker Change: In a way that we can continue to really take this company forward.
Helane: Hello, Helane would you add to that.
Helane: No thats exactly yes.
Helane: I, sometimes put in order and I will give you a little more.
Helane: Clarity on some of the drivers.
Helane: Neumeister environments as customer expand with us as was the biggest contributor to some of the expansion but.
Helane: I'm really happy about is the new applications.
Helane: And we got to see that firsthand that was like a number two scenarios and number three but.
Helane: The new applications.
Helane: We saw firsthand at connections where.
Helane: I'll give you an example enterprise scheduling.
Helane: There is a number of deals signed while we're at it.
Helane: And just before we got into the connections, which which helped out supplied out AI one of our newer modules. So.
Helane: Reprice renamed at some point to supply.
Helane: Optimization, but that.
Helane: That new module is on fire right now in terms of how it.
Helane: Being brought on by by customers. So.
Helane: Environment applications and scenarios was the main drivers, but we're really happy that obviously, the new applications or are especially that enterprise scheduling and supply optimization are doing extremely well at this stage.
Helane: Just just one thing one thing on the volume of scenarios that are being run due to tariffs.
Helane: Direct rig related to the value.
Helane: Our clients are getting from our solution. So yes. It brings in some revenue, but it reinforces what we heard consistently from our customers is is that.
Helane: They are so happy.
Helane: That they have can access in these times.
Helane: That leads to an even greater reference ability of our customer base.
Speaker Change: Alright, that's helpful and can you also provide some commentary on net retention I know you disclosed that it's higher than 100%, but how far like how it's been trending so far in 2025.
Helane: Can you talk a bit about any relative differences between retention for our largest clients for instance, more of the mid market.
Helane: Yes.
Helane: There's obviously two components that our gross retention. When you think we are best in classes between 95% to 100%. We're extremely proud of that and it's a reflection of why we are in a position we are with the Gartner MQ.
Helane: But then when you go to your <unk>, we've only disclosed were over 100%, it's moving in the right direction getting better and better obviously that happens when you have two quarters in a row, where the expansion part of the business and contributing more to <unk> than the new logos.
Helane: We're starting to see a little bit of a flywheel starting in seem to see some.
Helane: Improvement on that NR.
Helane: But at the stage, where we're still sticking to our disclosure, which is it's consistently over 100% and we have a nice healthy margin right now.
Helane: Got it. Thank you for taking my questions I'll pass the line.
Richard: And your next question comes from the line of Richard <unk> with National Bank Financial Your line is open.
Speaker Change: Hi, Good morning, it's Mike Stevens on for Rich here Congrats on the quarter very strong just wanted to dig into you mentioned the revenue tier opportunity and I.
Speaker Change: I don't know if you could provide some color on kind of how much of your customer base. Now is on revenue tiers are volume based pricing and where you see that going with some of the AI products upcoming.
Speaker Change: And then as a follow up you know how many you think that could impact the revenue model.
Speaker Change: Going forward.
Speaker Change: Well sure.
Speaker Change: Do you want to go ahead go ahead Blake.
Blake: I'll start and you can drive inbound yes, yes sure.
Speaker Change: The.
Speaker Change: So we do have some volume based pricing that occurs.
Speaker Change: <unk> two is a new pricing package that and some.
Speaker Change: Planning that we're working around with the <unk>.
Speaker Change: Some of the new AI modules are coming out.
Speaker Change: So we do get.
Speaker Change: Extra variable revenue from number of orders number of scenarios, but as we move forward. We are looking at a hybrid puts too.
Speaker Change: With consumption based pricing.
Speaker Change: That will be effective.
Speaker Change: With the deployment of our AI solutions.
Speaker Change: Obviously connections we did.
Speaker Change: Tim did a great job of showcasing why it's so important why it's going to help a lot of organizations become more efficient more effective and more accurate as a <unk>.
Speaker Change: As a plan for their supply chains.
Speaker Change: We do have a healthy amount of demand right now we are capping the amount of initial custom.
Speaker Change: Customers that are going through this just to make sure that.
Speaker Change: The.
Speaker Change: I'll just go through I have an appropriate data.
Speaker Change: Deployment of this but we have more than enough demand to cover that and so we're at this point where over 50% of them will not have.
Speaker Change: The tool in the initial our initial months, but then we expect to have a pretty a pretty nice onslaught of of customers coming on board with that we have been testing. This out already we I think I've talked about this in the past we have a.
Speaker Change: Almost like a <unk> or a chatbot that what it does is it takes 14000 pages of of.
Speaker Change: Can access documentation on how to use maestro effectively and.
Speaker Change: That's being used more than we've ever seen before is the highest adoption we've ever seen of any module.
Speaker Change: For the customers that could potentially use it we're sitting right now at 75% that are using it.
Speaker Change: And that's just a testament to the demand that we have with our AI products now when we move on to chat with data and adjourn take AI, which are both coming out this year.
Speaker Change: That pricing and packaging.
Speaker Change: Tool.
Speaker Change: Sure.
Speaker Change: In an urgent mode, right now and prioritizing that you'd get that out to make sure that people understand how this will work with the revenue tiers and the consumption pricing that'll be.
Speaker Change: Along the way with that as well so we think that will help with our our revenue growth but.
Speaker Change: I think.
Speaker Change: We have a little bit of planning and work to do to make sure that it rolls out effectively.
Speaker Change: Yes.
Speaker Change: Lag to it it's not going to have an impact.
Speaker Change: On the short or medium term.
Speaker Change: Revenue.
Speaker Change: To start changing your models.
Speaker Change: Bob.
Speaker Change: The industry is moving this way.
Speaker Change: And the reason for it is that is it ties value to consumption.
Speaker Change: It is becoming a more normal way of making sure.
Speaker Change: That.
Speaker Change: As you consume capacity.
Speaker Change: You get the appropriate cost base with that capacity, particularly around AI solutions.
Speaker Change: More where we're exploring and we've been working on transactions.
Speaker Change: Allow that.
Speaker Change: Increase the contract increases with consumption.
Speaker Change: The solution, both traditional SaaS and consumption pricing and so look at it.
Speaker Change: This is something that were.
Speaker Change: It's starting to.
Speaker Change: Develop.
Speaker Change: As a modern company.
Speaker Change: It's not as dramatic as.
Speaker Change: The kind of economics that you saw when you went from on premise to cloud.
Speaker Change: Terms of how the revenue tracks.
Scott: Scott similar economic.
Scott: Opportunities that I've seen in the companies that have helped make that transition.
Scott: And customers are asking for it they are seeing it from other vendors and so we're working we're in the early days of working through this and you should think about it as a as a company that.
Scott: As committed to modernization.
Scott: Is listening to our customers.
Scott: And finding ways to make sure that as our customers get value, we get paid but also give them a path to get value.
Scott: A way where they can control consumption more simple ones out there as a construct called.
Scott: Product led marketing, where if you can let customers have broader access to your solution.
Scott: Then theyre going to find ways to use it more.
Scott: Within their organization and so all of these things are things that are honor.
Scott: On our mind as we look towards the future and as we.
Speaker Change: We lead this market around AI artificial intelligence and Jen AI solutions.
Scott: Yes.
Speaker Change: Okay. No really appreciate that color. Thank you just just one last one you guys have obviously talked a lot about what you guys are doing differently and how youre innovating.
Scott: Just in terms of like a big win like the semiconductor company.
Scott: Maybe if you could just narrow down the top couple of Differentiators that you think led them to go with you guys versus competitors.
Scott: I mean.
Speaker Change: I'd Love to tell you about all the problems are competitors, but I'll hold myself on this call.
Scott:
Scott: We.
Scott: Okay, I'd, probably say the number one thing is these are very educated.
Scott: Clients. These are the most sophisticated consumers of software and some of the most important companies in the world that have consistently picked us over the last four or five quarters.
Scott: And the first thing that they look at is <unk> going to be successful with the project.
Scott: Is this a solution that I can get quick time to value and we do that better than anybody in the industry.
Scott: Secondly references count.
Scott: If you cross go across our industry sector as the ones that we've done.
Scott: Double down on and are focused on we have the leading companies.
Scott: In virtually every one of those industry cost categories already using our solution and they talk to each other.
Scott: And Theyre.
Scott: They're not just looking to understand the differences in our product versus others.
Scott: <unk>.
Scott: By listening to can access thanks a lot.
Scott: And do the research and see the value that the biggest companies in the world they're getting.
Scott: Number number three.
Scott: The differentiation really against them.
Scott: When you started looking at the challenges of.
Scott: The challenges that are faced in things like this tariff complexity and when I was at <unk>.
Scott: Connections.
Scott: One of the very very senior executive from one of the biggest farmers in the World lifestyle Science Company told me we are so happy.
Scott: That we picked can access.
Scott: And.
Scott: The only mistake, we made is waiting too long. So when you have customers in a conference telling other customers that that is the way.
Scott: They should've gone or should go.
Scott: That's helpful and then these large companies.
Scott: Already have experiences with some of our competitors like <unk>.
Scott: And others.
Scott: Yes.
Scott: They can see the differences in the way we.
Scott: The business.
Scott: As our competitors so right now we've got a going like we're winning all the important deals.
Scott: And because of the product just kind of a culture because of references and we expect to keep that going.
Scott: Okay.
Scott: Great Awesome color I appreciate the insight guys cheers.
Speaker Change: Your next question comes from the line of <unk> Kumar with Stifel. Your line is open.
Scott: Okay.
Scott: Okay.
Scott: Good morning Gents.
Scott: And congrats on the quarter I wanted to touch on go to market.
Scott: You guys talked about seeing higher higher conversion rates.
Scott: Now you're rolling out.
Scott: Tariff response, offering, which I think should should benefit your pipeline.
Scott: Can you speak a little bit about some of the more recent changes in your go to market approach to support this elevated demand backdrop that you've seen what's what's working what do you need to improve on.
Scott: I mean look we're always going to try and improve that.
Scott: Yes.
Scott: Okay.
Scott: We did a lot.
Scott: Over the last year, if you look at the differences in execution, It's just Pollo Bowl right. So.
Scott: Where do I start.
Scott: We have added talent throughout the organization. We're supporting we're already went in a lot of big customers. We were focused on net new this is not a new phenomenon that I just described with the most important companies in the world.
Scott: Decided on.
Scott: Can access but now we're supporting.
Scott: The existing teams and added into those existing team with a huge amount of talent.
Scott: Input, we've got better process.
Scott: More company the company is selling.
Scott: Our pipeline is growing the way we work with customers to.
Scott: Make the decision has improved.
Speaker Change: Celebrate them and their ability to make decisions faster. So we've got Mark Morgan. This Lady that is world class.
Speaker Change: Arguably bias, but one of the most experienced and <unk>.
Speaker Change: Capable executives in this category.
Speaker Change: So all of those things are working for US and then on top of that we've really really upgraded.
Speaker Change: And set a different set of expectation.
Speaker Change: For our install base working with our customers some of the most important companies in the world who are using us in may.
Speaker Change: Maybe two or three divisions, when they've got 30, and our game plan coming into this year starting.
Speaker Change: Q2, and Q3 last year was to really mine team's incredible customers that are global.
Speaker Change: So I think looking at it. It's just every quarter, we're just trying to get a little bit better.
Speaker Change: And we feel like we are.
Speaker Change: Great. Thank you for the color.
Speaker Change:
Speaker Change: Blayne maybe this question is for you on cash flow can you remind us on your capex commitments in.
Speaker Change: And of course, the head here and how do you expect free cash flow margins to track relative to EBITA margins over the near to midterm and longer term.
Speaker Change: Yes.
Speaker Change: That's a good question so we have done.
Speaker Change: Nice.
Speaker Change: Helping different this quarter and we'll have a probably a difference for the rest of 2025, just because of the.
Speaker Change: How the trailing of those two payments we made in Q1 will play out.
Speaker Change: But as you as we the reason why we gave the adjusted free cash flow was just to show how close it is to adjusted EBITDA.
Speaker Change: So if we adjusted up to where we think it will it will be normalized going forward, we're actually fairly closely.
Speaker Change: 25 versus $24 four which is.
Speaker Change: Kind of what we our expectations were so as we potentially see our adjusted EBITDA continuing to to rise in the number of years ahead of us free cash flow should be pretty close to it.
Speaker Change: I.
Speaker Change: Can be a little bit higher on Capex this year versus what we've had.
Speaker Change: In 2024, just for some of the end of life of some of our data servers that we have to play out for especially on the North American side.
Speaker Change: To make sure that we get over the line before the full migration is done.
Speaker Change: But we don't anticipate that we.
Speaker Change: We will get much higher than where we are in 2025, so that capex piece should be a little bit thinner and as I said at the beginning of this we expect that EBITDA and free cash will be fairly close together compared to maybe some of our peers.
Speaker Change: Yeah.
Speaker Change: Thank you very much.
Speaker Change: Hello Gents.
Speaker Change: Your next question comes from the line of Stephanie price with <unk>.
Speaker Change: Your line is open.
Stephanie Price: Hi, good morning.
Speaker Change: I wanted to chat about professional services revenue.
Speaker Change: Revenue this quarter it looks like it declined year over year I assume part of this is.
Speaker Change: San Francisco plagued by SA Si partners, just curious if there's anything else to call out there.
Speaker Change: And also I guess the current guide assumes that PFS growth will Reaccelerate and hope you can chat a little bit about the drivers that you see for the rest of the year.
Speaker Change: Yes look it.
Speaker Change: We have.
Speaker Change: Dove in on this if you look at it.
Speaker Change: What's going on in the general economy do you want to make sure that this is not a leading indicator.
Speaker Change: <unk>.
Speaker Change: On.
Speaker Change: A challenge for our professional services organization, but you got to understand like I've done this before.
Speaker Change: And the first thing that you check is.
Speaker Change: As our backlog.
Speaker Change: And it's phenomenal.
Speaker Change: The combination of.
Speaker Change: What you would look at in in net new wins, plus the extension of the opportunities that we're creating with our installed base to extend the capability.
Speaker Change: The the <unk>.
Speaker Change: Clearly.
Speaker Change: When you make a shift to partners to give a little bit more color on that.
Speaker Change: A double its a double impact.
Speaker Change: The first impact as you've seen fairly significant partners to some of our revenue to some of the most important partners in the world that can take equally take on.
Speaker Change: These major transactions I E.
Speaker Change: And why in Accenture, and then and then more and more we're also seeding revenue, where we're doing joint implementations and.
Bob Courteau: That's going to become more of the phenomenon of Stephanie is that second category, where we.
Bob Courteau: We might have been prime and for purposes of skills transfer and customer outcomes that part of the revenue will also.
Bob Courteau: Go to the partners and we will lead them there.
Bob Courteau: In some cases, but in some cases there'll be lead so that that ends up being pretty quickly from say two years ago.
Bob Courteau: 60% of the backlog or the potential pipeline for services. So there's not a.
Bob Courteau: Demand issue I think in this macro environment and maybe it goes back to the guidance.
Bob Courteau: We gotta be we've got to be cautious.
Bob Courteau: <unk>.
Bob Courteau: Service is one of those things that you'll see the impact of a difficult period.
Bob Courteau: But it's more of the the economics of making a shift to give a lot more revenue to the professional services organizations that youre seeing and what Ive done this before which I did it safely we did at the Altice group.
Bob Courteau: It can be a little bit choppy.
Bob Courteau: Because youre trying to formulate your backlog into something that's going to make sense.
Bob Courteau: For the customer to make sure that they get a good outcome and so youre seeing some of that and like every quarter with professional services, sometimes there's some timing things coming out.
Bob Courteau: That go on around that so it's really the economics of that shift.
Bob Courteau: That makes sense and then just maybe touching on the broader space with this strategic acquisition announced recently.
Bob Courteau: Just curious about your thoughts on consolidation here and and your interest in M&A at this point.
Bob Courteau: While consolidation has not worst it's part of the reason that we're beating companies like Blue Yonder, either open which is a mess.
Bob Courteau: And if you look at our strategy and where we're going is that we want to serve all from the center of our supply.
Bob Courteau: Chain planning.
Bob Courteau: And through the advent of orchestrating orchestration.
Bob Courteau:
Bob Courteau: We were in a place where we can give the information we can drive the orchestration that through all parts of the supply chain without having to buy software and each of those categories and so the trends are such that we can be the control tower the orchestration point.
Bob Courteau: Autonomous <unk>.
Bob Courteau: Supply chain planning across the whole ecosystem.
Bob Courteau: And that's why we signed partnerships with data bricks. That's why we're doing work with Infor and more to come on that front, we think we can.
Bob Courteau: We can really really.
<unk> solves.
Bob Courteau: A complete view of the supply chain with our strategy and where people have tried to do M&A to do it and it's been a disaster.
Bob Courteau: And we probably if we look at.
Bob Courteau: M&A.
Bob Courteau: It's all with a view to the future and this work orchestration strategy that we're looking at.
Bob Courteau: And then secondly, you know.
Bob Courteau: We'll continue to do share buyback as we go forward, we're going to be generating a lot of cash.
Bob Courteau: And we do have opportunities opportunity.
Bob Courteau: After what I would call innovative companies.
Bob Courteau: This orchestration mindset.
Bob Courteau: Great. Thank you very much.
Bob Courteau: Okay.
Speaker Change: Your next question comes from the line of Mark Chapell with loop capital markets. Your line is open.
Mark Chapell: Hi, good morning, Thanks for taking my call.
Mark Chapell: And nice job on the quarter. Bob earlier, you noted that the firm was leaving guidance unchanged. Despite the solid start to the year, mainly due to macro uncertainty. So I'm just wondering if you could.
Mark Chapell: If you could provide additional commentary on what's changed with respect to buying behavior over the past 90 days or so.
Mark Chapell: I mean, we we've seen.
Mark Chapell: Seen enthusiasm.
Mark Chapell: Clearly for a product like virtually I talked about Gardner group I talked about connections Ive talked about our pipeline.
Mark Chapell: If anything.
Mark Chapell: As you know.
Mark Chapell: Maybe I would say that.
Mark Chapell: You've got to be on your again like I had mentioned this briefly to two.
Mark Chapell: Two.
Mark Chapell: Sustained not just our company for all software companies.
Mark Chapell: The growth that we want and.
Mark Chapell: Frankly to set us ourselves up for the future quarters and even into 2020.
Mark Chapell: You'd better be talking to the CFO.
Mark Chapell: You are competing.
Mark Chapell: Four.
Mark Chapell: Capital.
Mark Chapell: Against other priorities and these companies, there's definitely pressure on capital Youll see it.
Mark Chapell: Company, there's so many companies in.
Mark Chapell: And in other industries you know.
Mark Chapell: I can't even give guidance abandon the idea of giving guidance right. So.
Mark Chapell: Other things, we observe but we work pretty nicely through the quarter.
Speaker Change: It's consistent with how Mark and I think about <unk>.
Speaker Change: <unk> enterprise software companies should be talking to the CFO anyways and other parts of the company. So the the.
Speaker Change: Need to absolutely improve year execution and alignment with companies is enhanced in this environment and you know so.
Speaker Change: So far so good we feel you know.
Speaker Change: As you know we did confirm guidance.
Speaker Change: But we're also being cautious again sets for us so far great quarter things.
Speaker Change: Things are going well people see our solutions.
Speaker Change: Both existing customers and new is being really strategic not only for the environment. We're in now but it has reminded them that didn't need these kind of products to deal with other kind of complexities in the future.
Speaker Change: So you got to be on your game in this environment, there's no doubt.
Speaker Change: You know as our enterprise software company that you are competing for capital right now and a very cautious world.
Speaker Change: That's helpful. Thank you and then as a follow up I was wondering if you could just expand a little bit on your partnership with data Brooks.
Speaker Change: For instance, as the arrangement strictly a technology partnership at this stage or is our co selling component to it as well.
Speaker Change: Yes.
Speaker Change: Technology.
Speaker Change: Joint development, we're already in market together.
Speaker Change: Exploiting relationships.
Speaker Change: And developing that opportunity it's a it's a.
Speaker Change: Part of our buy build partner.
Speaker Change: Strategy.
Speaker Change: Meaning that when.
Speaker Change: Where there is some parts of the data bricks capability that in.
Speaker Change: The past, we might have tried to build ourselves.
Speaker Change: And by working with data <unk> Jose.
Speaker Change: We will find ourselves in a place where we can absolutely go faster if we can tap into their development talent.
Speaker Change: Their technical conference coming up.
Speaker Change: It's in June.
Speaker Change: We've got seven or eight people going to that they've been on site with us.
Speaker Change: And.
Speaker Change: They're very very excited about the partnership as we apps.
Speaker Change: It actually you know, there's three very senior executives that David Brooks that either directly worked for me or worked in my organization and similarly Marquez.
Speaker Change: A very good relationships with some of the data bricks team and and it comes back to what I described.
Speaker Change: With with customers now, where if youre going to be selling these kinds of complex high value high price solutions, you better have a relationship across the organization, while we set up with data bricks is.
Speaker Change: The situation.
Speaker Change: We are not only connected to the technical group with connected to the <unk>.
Speaker Change: Senior executives.
Speaker Change: Their company and agile Bell is gonna be speaking at their conference coming up as well. So yeah. It's got the makings of a great I'm not declaring victory, but it's got the makings of a great partnership.
Speaker Change: The form that we wanted to develop these kind of partnerships in the future.
Speaker Change: Thank you.
Speaker Change: Okay.
Speaker Change: Yeah.
Speaker Change: Thank you I'm not showing any further questions in the queue I would now like to turn it back over to Rick what Harris for closing remarks.
Speaker Change: Okay.
Rick Harris: Thanks, operator, and thank you everyone for participating on today's call. We appreciate your questions and your ongoing interest and support of <unk>. We look forward to speaking with you again, when we report second quarter results Bye for now.
Rick Harris: Ladies and gentlemen that concludes today's call. Thank you all for joining you may now disconnect.
Rick Harris: Please wait the conference will begin shortly.
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