Kinaxis Inc

TSX:KXS

Earnings Call Transcript 2020-Q1

[Operator]

Good morning, ladies and gentlemen. Welcome to the Kinaxis Inc. Fiscal 2020 First Quarter Conference Call. [Operator Instructions] I'd like to remind everyone that this call is being recorded today, Thursday, May 7, 2020.I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis Inc. Please go ahead, Mr. Wadsworth.

[Rick Wadsworth, Vice President Investor Relations]

Thanks, operator. Good morning, and welcome to the Kinaxis earnings call. I understand that there have been some technical issues getting people logged into the conference this morning. We appreciate your patience. Today, we will be discussing our first quarter results, which we issued after close of markets yesterday. With me on the call are John Sicard, our President and Chief Executive Officer; and Richard Monkman, our Chief Financial Officer.Before we get started, I want to emphasize that some of the information discussed in this call is based on information as of today, May 7, 2020, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release as well as in Kinaxis' SEDAR filings. During this call, we will discuss IFRS results and non-IFRS financial measures. A reconciliation between IFRS results and non-IFRS financial measures is available in our earnings press release and in our MD&A, both of which can be found in the Investor Relations section of our website, kinaxis.com, and on SEDAR. Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations section of our website. Neither this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed without prior written permission from Kinaxis. To begin our call, John will discuss the highlights of our quarter as well as recent business developments, followed by Richard, who will review our financial results and outlook. Finally, John will make some closing statements before opening up the line for questions.I'll now turn the call over to John.

[John Ernest Sicard, CEO, President & Director]

Thank you, Rick. Good morning, and thank you for joining us today. First, let me say that our thoughts during this crisis are primarily for the health of our employees, our customers, partners, shareholders, suppliers and all of their loved ones. Nothing could be more important than their well-being. We also extend our deepest thanks to frontline and essential service workers everywhere. We are deeply saddened by the horrible losses being experienced globally, and sincerely hope that you and yours are healthy and safe.Notwithstanding these unprecedented times, I am pleased to report that our first quarter results were very strong across the board, including SaaS revenue growth of 24% to $34 million, total revenue growth of 15% to $52.8 million and adjusted EBITDA of 29% of revenue. These results were driven by our expanding base of multiyear subscription contracts and their corresponding long-term backlog. It is a business model that is serving us well during these unique and difficult times. During Q1, we were happy to experience a growing sales pipeline. We continue to expand relationships with customers, and we won several new customers, including one of the world's largest consumer products companies, a household name we hope to be able to share more in the future.We were able to announce that Paris-based Technicolor, one of our new customers in 2019, has finished the first phase of its global deployment of RapidResponse for its Connected Home business. We also continued to announce new partnerships, including one with 4flow, a European-based software and consultancy firm with more than 20 years of supply chain expertise in 15 locations globally. I am very pleased that our team has responded so well to the restrictions imposed by COVID-19. Our level of engagement with customers and prospects remains high. Throughout the quarter, we were able to effectively deliver professional services to our customers and advanced sales engagements despite the unusual circumstances.Even in more ordinary times, we typically undertake many of our sales and services activities remotely. While nothing is normal right now, I am very pleased with our progress. While some opportunities have experienced some delay, as companies adjust their ways of working, our confidence in our pipeline remains high, and sales activity continues to progress. I believe there has never been more attention on global supply chain resilience and the need to respond to daily disruption. As a result, we are seeing healthy growth in overall pipeline from every sector and every geography. Ultimately, it is challenging to predict how current circumstances will affect deals in motion. However, based on our best information, we are very confident in achieving our initial revenue guidance for the year. Richard will elaborate on this shortly.We are full steam ahead on our planned hiring investments for 2020, all of which were initially committed to based on their long-term value to Kinaxis. We are continuing to build our R&D team. We are adding sales and marketing personnel. We have made recent hires into our professional services group. No plans have changed. The hiring process is different, as interviews take place remotely and as candidates very carefully consider making a change in this uncertain environment. But we are pushing forward to ensure that we are ready for the strong demand that we anticipate ahead.As a team, we are heartened by the notion that Kinaxis is helping our customers to pilot through these turbulent times. Many of you would have seen our blog post on the recent sharp increase in customer usage of RapidResponse. During the first quarter, the usage rate increased by over 20%. We are seeing much more collaboration on new planning scenarios to respond to this incredibly dynamic situation. We have seen increased usage roll across geographies and vertical markets, following the path of disruption in the wake of this virus. These spikes in usage speak directly to our growing value to customers.With that, I will turn the call over to Richard to provide further commentary on the financials for the quarter and our outlook.

[Richard George Monkman, CFO & VP of Corporate Services]

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 IFRS. Total revenue in the first quarter increased 15% to $52.8 million, driven primarily by SaaS revenue, which grew 24% to $34 million and by 54% growth in professional services revenue. Professional services revenue is driven by a number of factors, including the number, size and timing of customer projects underway as well as the amount of work being directed by partners. As John noted, our depth of experience in working virtually with customers allowed us to quickly adjust and leverage our people and processes to ensure continued customer deployment and ongoing support.Our subscription term license revenue in Q1 was $4.9 million, consistent with our previous communication. As our investors and analysts appreciate, subscription term license revenue varies quarter-to-quarter and year-to-year, simply based on the timing of the individual underlying subscription contract renewal dates for our customers who host their subscription on their premises. Our investor website has an example of this accounting. We remain pleased with the diversity and strength of our revenue base.For the quarter, our 10 largest customers accounted for 32% of total revenues, with no individual customer accounting for greater than 10% of total revenues. Gross profit grew 10% to $36.9 million. The increase was driven by the growth in SaaS and professional services revenue, partially offset by increased investments in our delivery and support teams as well as our data center. Cost of revenue grew largely due to headcount additions, including the acquisition of Prana in late January 2020. Q1 2020 gross margin was 70% compared to 73% in Q1 2019 due to a higher level of subscription term license in 2019. A reminder that as subscription term license revenue represents the right to use component of the multiple year subscription agreement, it is fully recognized in the first month of the term and effectively contributes 100% margin. Profit decreased by 20% during the quarter to $5.6 million or $0.20 per diluted share, compared to $0.26 per share in Q1 2019. Adjusted EBITDA for the first quarter was down 6% to $15.1 million or 29% of revenue compared to 35% in Q1 of 2019. These changes were primarily related to the margin impact I just noted regarding the timing of subscription term license revenue as well as the increased investment in our sales and marketing, product and delivery organizations. In addition, travel and certain event costs were lower in the last month of the quarter, and we anticipate these savings to continue whilst restrictions are in place. As John noted, we continue to hire across the globe in line with our investments and our target. Q1 cash from operating activities was up 12% to $21 million from December 2019 close. As at March 31, 2020, cash, cash equivalents and short-term investments totaled $233.6 million. Our minimum contracted revenue backlog remains strong. As of March 31, 2020, it was $344.9 million as detailed in Note 13 to our financials. This amount includes $310.8 million of SaaS revenue backlog. The backlog will be recognized over the following periods: $118.6 million will be recognized in the remainder of 2020, of which $102.4 million relates to SaaS; $108.1 million will be recognized in 2021, of which $98.2 million relates to SaaS business; and $118.2 million will be recognized in fiscal 2022 and later, of which $110.1 million relates to SaaS business.Total bookings in Q1 were $47.5 million, of which SaaS bookings were $34.2 million. As you know, given the nature of our enterprise sales model and its extended sales cycles, bookings vary by period depending upon the timing of new customer wins and existing customer expansion and renewal schedules. Based on our strong backlog and our assessment of current market conditions and business outlook, we are pleased to be in a position to reiterate all aspects of guidance for fiscal 2020, the details of which you will have seen in our news release today and our Q4 2019 news release. We continue to invest in our business, adding people and capabilities. We have a very strong backlog and funnel. At the same time, given current travel restrictions, we do anticipate realizing some cost savings. While these factors may support stronger adjusted EBITDA achievement for 2020, in light of our investment plans and recognizing the uncertainty in the current environment, we believe it is prudent to reiterate our 20% to 23% adjusted EBITDA expectations for 2020. We will continue to monitor and respond to conditions, and we'll provide an update during our 2Q conference call. Thank you for your continued support of Kinaxis. And with that, I turn the call back over to John.

[John Ernest Sicard, CEO, President & Director]

Thank you, Richard. Never before has the term supply chain been more prominent in the public consciousness. We all feel its importance every time we enter the grocery store or pharmacy and hope that the essential items we need are on the shelves. Like no event before it, COVID-19 has highlighted the need for supply chain agility and the continuous synchronization gains through the uniqueness of our concurrent planning value proposition. The need for end-to-end, real-time supply chain visibility and planning flexibility is now obvious even to us as consumers. I assure you that it's much more obvious to the manufacturers of the critical goods we are seeking, many of which are becoming Kinaxis prospects. While it hasn't been the start of the year that anyone expected or would ever hope for, I certainly feel grateful. Grateful primarily that the Kinaxis team has, to date, been healthy, and grateful to all the frontline workers that have helped ensure that. We're grateful that we offer a software platform that is being leveraged more than ever to help our customers pilot through these unprecedented and turbulent times. Grateful that our business, while not immune to this environment, continues to add major customers expand existing relationships, build pipeline and demonstrate resilience during this time. Finally, on behalf of Kinaxis, I am grateful for your support, as always. Thank you for taking the time to join us on the call.With that, I'll turn the line over to the operator for Q&A.

[Operator]

[Operator Instructions] And our first question comes from the line of Gus Papageorgiou from PI Financial.

[Gus Papageorgiou, Head of Research]

Congrats on a great quarter. Just -- I guess, the question is this. I mean, historically, your sales and marketing strategy has been direct sales going directly to companies. But I'm just wondering, in the current environment, given the heightened importance that we're seeing in supply chain, is there any value to maybe changing the sales and marketing strategy? Like is this a time maybe where you can start to advertise more broadly to make new customers and new industries more aware of your solution and what it can do? And then I guess also, given, again, the heightened importance of supply chains, is there any chance that you are seeing your 18-month sales cycle perhaps contract a bit?

[John Ernest Sicard, CEO, President & Director]

Great questions, Gus. Thank you. To be clear, actually, our sales cycles and our sales process, if you will, are to work hand-in-hand with our partner ecosystem. And so again, in Q1, as we've experienced in previous quarters, the vast majority of net new business has been in direct collaboration with our partners. And so this is what is allowing us to expand at a more rapid pace in terms of getting a broader pipeline. So we continue down that path. And certainly, I think that it is serving us well. In terms of contracting sales cycles, we haven't necessarily seen a contraction. In fact, I mentioned that we have seen some delay. And I wouldn't say we have seen any derailment at all, I would say we have seen some delay as prospects in a very short time period were forced to change their ways of working and deal with things like absenteeism in factories going up, all kinds of challenges hitting their day-to-day business, notwithstanding a completely -- I'd say, a very disruptive shift in demand patterns and demand signals. And so I think that we will ultimately come out of this stronger. I think we are seeing more than ever before the need to respond to disruptions. As I'd like to say, every supply chain practitioner has their hands on the wheel right now. You can't map your way out of this, right? You've got to have your hands on the wheel and feel every vibration and respond accordingly. And obviously, our value proposition has been very much steeped in that philosophy.

[Operator]

Our next question comes from the line of Daniel Chan from TD Securities.

[Daniel Chan, Research Analyst]

Congratulations on a good quarter. I think it's great, you didn't withdraw guidance, let alone maintain the numbers when most companies are withdrawing it. So how have things changed since you gave your last update in February? And what are you seeing that's giving you the confidence to reiterate it?

[Richard George Monkman, CFO & VP of Corporate Services]

Well, thank you, Dan, and we appreciate that. And our confidence is driven by a number of factors. First, the benefits of subscription -- particularly subscription with enterprise customers and their long-term nature. As you can see from the -- between the revenue recognized in Q1 in SaaS and then the backlog, the $102 million backlog, that represents about 92% of the midterm of the consensus that's out there. And it's actually a little bit -- is in that range for our guidance as well. So that's sort of first and foremost. The health of the funnel that John indicated and the capabilities of our extended sales team, so not only our direct sales team, but those working in tandem with our partners as well as marketing efforts. So it's a number of factors. As prudent business professionals, we do have to recognize that these are different times. And there are a number of factors that, that sales cycle. But it's primarily, first and foremost, with regards to that. The second element then is clearly on the expense side of things. And we are very fortunate that we've been able to continue to attract and retain some strong employees and continue to build a new theater. So we have a good visibility with regards to that expansion of costs. And so it's those 2 factors. We're privileged to have that type of visibility.

[Daniel Chan, Research Analyst]

Okay. And does the competitive landscape change at all in the current environment, given that maybe some solutions aren't as well suited to a work-from-home environment?

[John Ernest Sicard, CEO, President & Director]

We haven't necessarily seen a shift there. We're all essentially in the same circumstance. I will say that the value proposition that we provide, this notion of concurrent planning and agility is definitely getting a lot of attention. There are many articles being written about this. The most recent one I read yesterday from Crimson & Co was fantastic. It really, really drives home the need for this philosophy, if you will, in planning supply chain and governing supply chain planning. And so our -- as I stated, the pipeline has grown. It just has. And our sales activity, and this comes back to your first question, remains very high. And everyone is in the same situation. So we have been virtual for quite some time, running demonstrations on a virtual platform for us. This isn't foreign. We're just doing more of them. And so I think that's what's driving our confidence.

[Operator]

Our next question comes from the line of Paul Treiber from RBC Capital.

[Paul Michael Treiber, Director of Canadian Technology & Analyst]

I just wanted to -- or hoping if you could elaborate a little bit on your last comment. What's interesting this quarter, professional services rose sequentially. Could you speak to your ability to complete deployment in this environment with the work restrictions? Historically, how much have you been able to do remotely? And can you effectively go from prospect to full deployment all completely remotely?

[John Ernest Sicard, CEO, President & Director]

Yes. So just a quick answer to your last question, it's yes. We have been actually doing a lot of remote work over the years. As it relates to our current state in professional services, and obviously, we posted a healthy performance there, I will tell you that while we have seen some delay in project activity, it has been more than offset by acceleration in other projects as our customers are desperate to go live because they know that RapidResponse will make them feel better. It will handle the current condition that they are in. And so to some extent, while people are spending less time on airplanes, they are spending more time with their fingers on keyboards. And that is having a positive effect. So hopefully, that answers your question, Paul. It's a great one. The answer is yes. We're certainly seeing a lot of sales activity go 100% virtual right now with video conferences and the like, and video-based demonstrations, all of which are increased at the moment, and deployment activity as well. So it's a virtual world.

[Paul Michael Treiber, Director of Canadian Technology & Analyst]

That's helpful. Second question for me is, can you speak to the magnitude of the drop in travel and expense and event costs in Q1? And then just from a ballpark point of view, what percent of revenue in a typical year is travel and event costs?

[Richard George Monkman, CFO & VP of Corporate Services]

So Paul, the -- we are not going to be precise, providing percentage directly just because it's going to vary. And as you can appreciate, there are certain events. For instance, our annual customer event and other third-party events are quite heavily weighted towards Q4. So they're going to vary quarter-to-quarter. But at the same point in time, we're growing our expense base with new people, investments and so on. And so the focus really is blending that visibility that we have with our current expenses going forward. We are seeing some opening up now in geographies, so we also would anticipate there will be some return to travel level. So it's sort of a combination of those factors. So continued investment in the business, the visibility of the margin, that's where we're providing that guidance.

[Operator]

Our next question comes from the line of Thanos Moschopoulos from BMO Capital.

[Thanos Moschopoulos, VP & Analyst]

John, can you expand on what you're seeing with respect to partner engagements? I would think you are one of the few software categories that might benefit from the pandemic. And consequently, are you seeing the large SIs ramp up the level of resources and attention that they're directing towards you relative to prior to the pandemic? Or has their engagement level been pretty consistent, both pre and post?

[John Ernest Sicard, CEO, President & Director]

Both pre and post, I'd say, pretty consistent. I think the only thing that, again, we've said is that the pipeline has grown. And I would say that activity continues -- current sales engagements and current sales campaigns are continuing, notwithstanding the conditions we are in. They're just happening remotely. And so I would say we've had a very healthy relationship. The partner, the Global Alliance team, has been growing very steadily. And as we have consistently reported, our net new business comes in vastly through the collaboration with the alliance partners.

[Thanos Moschopoulos, VP & Analyst]

Great. And in terms of the deals that are experiencing some delays, are there any common themes with respect to the verticals? Are you seeing that? Or does it really just vary customer-by-customer based on their unique circumstances?

[John Ernest Sicard, CEO, President & Director]

Yes. It's a great question. It has been very interesting to watch how the usage increases occurred over time. It started with high tech, as you can imagine, with a lot of Chinese-based raw material manufacturers and so on in that space, and then moved into life sciences and the CP spaces, while -- subsequent to that. In terms of what we're seeing by vertical, I would say there's not a difference there. We're not seeing any one vertical over another experience anything unique.

[Thanos Moschopoulos, VP & Analyst]

Okay. And finally, there has been some press about how the algorithms and the black boxes have been failing in the current environment given volatility. And I think you sort of alluded to this. Consequently, are you seeing customers resonate a lot more with your scenario-based approach? Or was that already happening even prior to the pandemic?

[John Ernest Sicard, CEO, President & Director]

Well, I think it was already happening, for sure. And that's -- I think the evidence is just our continued success and our continued growth as a company. Obviously, during times like this, as I said, every practitioner has their hands on the wheel. This is not a situation where full automation under a storm like this actually works. And more interestingly, there will be a very, very large gap in the calendar where all the data doesn't matter, mass-based models that rely on historical performance, it will be very difficult to take this year's history into next year's projections. And so again, it comes back to something that we have been espousing for many years that it is far more potent to be infinitely agile than to focus on pure accuracy. And our model has -- around concurrent planning has been just about that. Hyper-agility wins the day. Think about it in terms of a sports team, right? You can practice your skill and be an expert at your craft, but when you step on the field, the team that wins are the ones that handle the conditions on the field. And you never know what's going to happen. Every day is a different day. And so this notion of agility, hyper-agility, continuous synchronization of your supply chain, absolute end-to-end visibility, zero blindness across all functions, this is the philosophy, I think, that will ultimately win the day.

[Operator]

And our next question comes from the line of Richard Tse from National Bank Financial.

[Richard Tse, MD & Technology Analyst]

I recall you guys had a really strong pipeline last quarter. So when it comes to this quarter, were there any inbounds since the lockdowns that you had not been expecting? So what I'm trying to get at, were there sort of incremental sort of inbounds coming -- given this backdrop and some of the challenges that some of those prospects may be facing?

[John Ernest Sicard, CEO, President & Director]

I would say nothing that we haven't expected. We continue to be -- Richard, you know us to be hyper-razor focused. And so we continue to be hyper-razor focused on the market verticals and the geographies in terms of target marketing and the like. And so the pipeline has grown in every geography, and I would say, in every sector. Notwithstanding, there have been some delay in deal closures, again, as I mentioned, largely due to companies just having to pause and readjust their ways of working. In many cases, we had some customers saying we're short 40,000 laptops. We have -- it's those types of challenges that folks are having to deal with. But I would say nothing unexpected.

[Richard Tse, MD & Technology Analyst]

Okay. And I -- a question earlier about the conditions that you're maintaining guidance. But can you maybe touch on some of the broad external assumptions you made around maintaining guidance? So you are thinking things are going to open up broadly in June? Like is it going to happen at the same time around the world? Like maybe sort of share with us what you're thinking on that.

[Richard George Monkman, CFO & VP of Corporate Services]

Sure, Richard. The -- so at a sort of really a high level, I guess, there's obviously, our revenue on the top line. And again, we've talked about the strong visibility with regards to just the foundation of our revenue. And as you can appreciate, from a SaaS model, it really becomes a bit of an annuity. So there may be some lumpiness when you secure those large annuities, but then they play themselves out over that typical 3-year period. And so with, again, that's sort of the 92% that we have between recognized and backlog, that's where we're saying the 8% is going to be this juncture from renewals that we have visibility towards, the level of new name customer wins and then the expansion of new name business. It's also then driven by our view as to the -- for the rest of the revenue element, primarily by the level of activity on the professional services because the other 2 revenue elements, maintenance support are also with strong visibility as well as subscription term license.Then it becomes a matter of our burn, if you will, in terms of both operating and cost of sales. We've talked in terms of the visibility that we have to not only the current base and the expansion and allowance for continued growth. We do see, again, opportunities to maybe not spend at that level, depending upon events, but at this point in time we think it's prudent to continue to invest at this high level in the business, and so we're accounting for that. And then the third element is on the capital side of things. And we've already made our significant capital. We are still planning capital expenditures in the $14 million to $16 million range. So our nature of our business, I won't say it's simple, but it is less open to these variabilities of, say, perpetual business or product business. And so we are fortunate that we can model that with a higher degree of confidence.

[Richard Tse, MD & Technology Analyst]

Okay. Just the last one for me. I think you were going to be unveiling a bunch of sort of new products. I think [ DemandSense ] was one that we saw last year at your user conference. Has the backdrop sort of changed in the rollouts there? And that's it for me.

[John Ernest Sicard, CEO, President & Director]

Yes. So we continue -- the R&D factory hasn't really missed a beat. This is very interesting. We were running as a largely mobile organization even prior to this situation happening. We'd run out of space in our building. And so we had last year established a work-from-home protocol for a very large group of individuals. And so transitioning the R&D factory to a full work-from-home protocol happened extremely swiftly for us. We had already established a protocol, and we just extended it to everyone. And so I'd say we remain on course in terms of our product road map, and we continue to be engaged with customers in alpha and beta programs across the board. So I'd say, we're on track.

[Operator]

And our next question comes from the line of Paul Steep from Scotia Capital.

[Paul Steep, Analyst]

John, could you talk just a little bit about what you've seen with the level of engagement with C-level executives? Would you say -- I hesitate to use the word normalization. But have the engagements, now that we're sort of into May, sort of leveled back out that people are now actually looking at pushing capital and pushing faster and further on deployments of RapidResponse? Or are we still in sort of this uneasy period for the next little while do you think?

[John Ernest Sicard, CEO, President & Director]

Well, I think time to value is on every senior executive's mind right now. And with RapidResponse and our agile approach to deployment our customers can achieve, like Technicolor, a pretty rapid time to value. And as I stated earlier, the one thing that we have seen and with senior executive motive, I'd say, the motivation came from the senior executive, some acceleration in the first quarter, and we continue to experience that acceleration in project activity to get to go live milestone faster. And as you can imagine, they recognize the first day, this is live, this is the first day we start feeling better under these current conditions. And so I'd say, we continue to see that theme, if you will, of dialogue with senior executives. As it relates to prospects -- and, again, we're seeing senior executives pushing towards a more rapid, if ever, more so a more rapid time to value, how quickly can we get to a go-live state. And we might forego some scope in order to get to a go-live state and regain some control over what they might describe as COVID risk to supply chain.

[Paul Steep, Analyst]

Great. And then maybe for either one of you. What's been maybe the biggest surprise in terms of order intake that surprised you, either in terms of clients doing seat expansion maybe faster than you thought or module expansion in the last little bit where you would have thought, okay, maybe we'll see a little bit of a pause on some of these things, but it's gone the other way?

[Richard George Monkman, CFO & VP of Corporate Services]

Well, Paul, I think we do have a number of vertical vectors for growth. And so I thank you for touching on those. So yes, we have seen expansion. We've seen expansions in users. We see expansions in sites. We've seen expansion from existing customers and new applications. And obviously, we've seen growth from new customers. What we're also seeing is and what we've been supporting is what we call report access users, and we've created a program whereby without -- at least in the interim, without charge, we're allowing users to expand their report access. So these are basically users that can see the results from the simulations and other activity that's going on. And we're seeing success there. So ours is a fixed determinable revenue model. But it is driven by those factors. So we're seeing uptick across all those vectors.

[Operator]

Our next question comes from the line of Deepak Kaushal from Stifel GMP.

[Deepak Kaushal, Director and Technology & Communications Analyst]

John, Richard, just curious historically, new deployments of RapidResponse have been tied to ERP transformations, whether SAP or Oracle. Just wondering if this dynamic has changed or is expected to change post-COVID from what you are seeing from customers with their ERP plans and the pace of those deployments?

[John Ernest Sicard, CEO, President & Director]

Yes. I would say, today, less so. We're not necessarily seeing the adoption of concurrent planning and RapidResponse as a direct reflection of ERP transformation. And quite honestly, we don't require it. It's not a prerequisite at all that our prospects are undergoing that kind of a transformation. And so I'd say, again, to reiterate, it's more so the recognition that what governs supply chain planning has to change. It has to change in order to absorb this level of volatility. And that's what's, I'd say, driving the activity today.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. Interesting. And then I just wanted to ask you about the pipeline. In terms of the vertical markets, obviously, markets like travel and aerospace are facing significant exposure in this environment, but food and supply chain are becoming even more critical. What are you seeing in terms of the puts and takes in those vertical markets related to your pipeline of opportunity? And I have one more follow up.

[John Ernest Sicard, CEO, President & Director]

Yes. So yes, great question, Deepak. Well I made that statement very deliberately that we have seen a growing pipeline in every geography and every vertical. And I'm not surprised, quite honestly. When you deal with volatility of demand signals or supply availability, both are disruptions. And so some verticals are seeing a tremendous spike in demand and also unprecedented volatility. You have no idea where the demand signals are coming from. They can't be predicted, so you have to respond to them as they arrive. And in some cases, demand may be slowing down dramatically, and the first order of business is to make sure that you're not absorbing excess and obsolete inventory as that occurs, right? You have to really be maximizing, if you will, your own factories and making sure you're eliminating all potential of waste. And so in both cases, you need to be able to respond. And so that's what's driving, I'd say, a uniform increase in pipeline across every geography and all verticals, including aerospace.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. That's very interesting. I appreciate that. And then my last question. Obviously, COVID has created a significant change in the world. How have you guys responded in terms of your thinking to change your strategy? Any changes on the M&A side or the mid-market opportunity and when you guys go after that or how you go after that? Any thoughts on that would be helpful.

[Richard George Monkman, CFO & VP of Corporate Services]

Well, that's a great question. So with regards to our M&A focus, as you know, with one product, the focus has been always how can we further accelerate the growth, how can we expand the capabilities of RapidResponse. And in the past, we've been sort of more opportunistic as opportunities were presented to us. With our expansion of the management team of late and our increased depth in a number of areas, including product management, R&D capabilities, thought leadership, we have been taking more of a deliberate, thoughtful view. And so we are continuing to evaluate sort of the classic do we build? Do we buy? How do we also extend our capabilities? And so it's not lost on us some of the opportunities that are out there in the market today. And so we're going to continue to evaluate and always with the view of how we can accelerate. It's not going to be necessarily a revenue buy. We're not that type of company. So it is going to be focused on how do we further accelerate our overall top line growth and capabilities of RapidResponse.

[Operator]

And our next question comes from the line of Robert Young from Coccord (sic) [ Canaccord ].

[Robert Young, Director]

You shared a bunch of elevated usage specifics, highlighted some complementary reporting access. And so I know you recently created a focused sales team, specifically on existing customer expansion. And so I was wondering if you would talk about how that's gone. How it's performing? How that's working out and if it's something that you now think you need to expand given this usage bump?

[John Ernest Sicard, CEO, President & Director]

We are absolutely -- first off, we are absolutely expanding that team. And so Paul Carreiro, our Chief Commercial Officer, part of the expansion of the sales team a while ago, and it has significantly expanded in the last 18 months, was a team dedicated to working with our existing customers and helping them understand additional use cases, additional opportunities to expand. So that team has expanded the geographic, and by the way, in different geographies. The new name customer base, the partners -- that our teams have worked directly with the partners, all areas of the sales and marketing have expanded. So we are absolutely seeing contribution from those teams. But the expansion of customers isn't just simply about the sales. I mean, the focus really is helping them to gain higher return on investment. And so that process starts actually with our customer support team, our customer success team and are also with our knowledge services and helping them understand how they can better utilize their current subscription and then through that really an expansion. So that team -- the sales team -- the internal sales team -- the existing base sales team works hand in glove with the other parts of the organization to really radiate the use of RapidResponse.

[Robert Young, Director]

When you're planning for the future, are you thinking of any difference in the way that the split -- I think you said 65-35 weighted more towards new logos. Is there anything that would give you a sense that, that should change?

[John Ernest Sicard, CEO, President & Director]

Well, it's -- yes, that's sort of weighting, and that's sort of over the last few years' average. And it will vary quarter-to-quarter. But I think that 2/3 -- that sort of 60-40 sort of feels about right. We are fortunate with the expansion, especially a number of our key names driving the new customer growth. That is still the key driver. And that's -- whether it's 35% or 40% expansion from existing customers, that's on a growing base as well and you can see the compound math. So I think as a management team, we'd probably be comfortable in that 60%, 65% continuing for new name expansion.

[Robert Young, Director]

Okay. And then lastly, lots of good commentary around the pipeline. Are you seeing any signs of a delayed wave of demand as people get on top of the fires, getting their business continuity plans in place and whatnot? I mean, a lot of your larger customers are big and complex machines. And so are you thinking about a delayed wave of demand? And are there any early signals on that? I think you talked a little bit about unaided inbounds, broadening of the funnel. Like are there any signs that you're going to have to materially expand to handle a higher level of demand maybe next year?

[John Ernest Sicard, CEO, President & Director]

Yes. That's a great question, Rob. So yes, even during these times and at the tail end of the quarter, and it continues, we're seeing growth in the pipeline. We are just seeing it, right? It's healthy, and the sales activity continues as well. So we certainly see for this calendar year, we're confident -- our confidence is high enough to be reaffirming our original guidance. As it relates to beyond that, and we start thinking about the next year or 2 years beyond that, I do believe that this notion of changing the manner in which supply chain planning occurs, that will be a topic. Again, we're seeing a lot of articles being written about this. If anything, this is just highlighting a very significant proof point that supply chains have to be far more agile and resilient. And so people -- every boardroom -- I believe this, every boardroom will be asking their CEOs what will you do next time? What will you do next time? And they will be measuring their supply chain resilience and responsiveness and agility, right? That's what they're going to be after. And so I do think we'll come out of this stronger.

[Robert Young, Director]

Can I ask one last little question? When you're talking about handing out complementary reporting, I think the currency aspects of your product, people sort of slowly grown to think of it as a system of record. And so that has really good implications on how important you are through a crisis and how unlikely it is that customers would walk away from your software. And so I was wondering, are you seeing customers look at Kinaxis more as a system of record? And then I'll pass the line.

[John Ernest Sicard, CEO, President & Director]

Yes. I think to the point of even Gartner has a Magic Quadrant called system of record. So yes, I think our customers would definitely consider us to be, not only system of record, but mission-critical, and that's really probably an even more important distinction. They consider us to be mission-critical. And so I'd say, again, and this time, we -- part of our desire here was to be good global citizens during a time like this to offer our customers, I would say, untethered access -- report user access so that they could eliminate any and all possible friction to absorbing this massive disruption. That really was the motive to do our part. Everyone is attempting to do their part to help the planet recover. And that was our response.

[Operator]

And our next question comes from the line of Suthan Sukumar from Eight Capital.

[Suthan Sukumar, Principal]

The first question I had was actually more of a follow-up to an earlier discussion on brand awareness and with partner center teams kind of driving the charge here. But how has unsolicited inbound interest looked like for you guys during this period? And how has that changed pre-COVID?

[John Ernest Sicard, CEO, President & Director]

Yes. Both -- this is, again -- when I look at the precursor to pipeline, it's what happens during our lead gen activity, and that has also followed suit. In terms of our lead gen activities and our ability to engage with market qualified leads is up. It's just up in the quarter, period. And so that obviously is fueling the overall pipeline because that is a prerequisite. It's a precursor, if you will, to pipeline. And so I'm very pleased with the volume. I'm definitely very pleased with the volume, and even more pleased with the fact that there isn't a concentration. We're seeing it across Europe, Asia and North America, and we're seeing it across the 6 primary verticals that we focus on.

[Suthan Sukumar, Principal]

Okay. And given the lift in activity on the RapidResponse platform, maybe can you speak to some of the key learnings or insights, either internally or from customers on back of the pandemic [ bracket ] that could help guide or influence your product strategy and priority for rollout of features and functionality?

[John Ernest Sicard, CEO, President & Director]

Well, the first thing that we've noticed is the sheer volume of simulations that are occurring. That is, by far -- definitely more users and more simulations occurring. And we measure even the number of planning computations that occur and so on. They're measured in billions at the moment. So in fact, tens of billions. So I'd say that, as you would expect during a time like this, the people are assessing alternative course corrections in real time. And so the need to very rapidly run alternative simulations and scenarios is critical. It is not uncommon for our customers to be running hundreds of scenarios, hundreds of simulations a day, hundreds of them. And this -- for supply chain practitioners, I can assure you. This is not easy to do. If you look at the legacy approach to solving supply chain problems, you might be able to run 10 in a day, not hundreds, not 600, not 1,000, not across every function, not end-to-end. And so I would say that is the primary usage that we're seeing in terms of volumes.

[Suthan Sukumar, Principal]

Okay. Good. And are you guys seeing opportunity for any new use cases or acceleration of features and functionality that may be in the road map today?

[John Ernest Sicard, CEO, President & Director]

I think we are absolutely full steam ahead, if you will, on our original product road map. We feel like that is the -- we're on the right path there. And if anything, the usage of RapidResponse right now has more to do with its base functionality that was invented years ago. This notion of response management, scenario planning, end-to-end concurrent planning, these aren't the new things that we invented. These are the -- I would say, the prerequisite things, the baseline elements of RapidResponse that are most being used right now and less so, more of the, I'd say, the modern techniques. So I'd say, today, the usage of RapidResponse and what's driving our product road map hasn't changed. The priorities have not changed.

[Operator]

And our next question comes from the line of Stephanie Price from CIBC.

[Stephanie Doris Price]

I was hoping if you could talk a bit about the partner relationships in this environment and whether partners have become more focused on the supply chain given client concerns. And whether Kinaxis is positioning itself any differently with partners than they would in kind of these more normal times?

[John Ernest Sicard, CEO, President & Director]

Yes. So we announced, I think, last year that our alliance -- our formal partner, [ Alliance Group ], is now roughly 25 partners in the Global Alliance practice for us. And I'd say, again, they -- I wouldn't say that we are increasing or decreasing. It's very steady, a steady state in terms of our engagement with them. In Q1, the vast majority of net new business came through their influence. Again, I would say that we continue to see an acceleration in partner certifications. So many of those, you can see on LinkedIn as people post their badges, not everybody posts their certification badges. But I would say, we are seeing some acceleration in the number of certified third-party consultants as they prepare. I wouldn't characterize it as being any giant leaps, though. I'd say, it's been very steady and very healthy.

[Stephanie Doris Price]

Great. And then just one final one for me on existing customers. So I was just wondering on kind of the more hard hit industries, such as high-tech and life sciences. What you've seen from those existing customers, if they're looking for broader rollouts or if there's been any customers that are kind of looking for some sort of deferrals or price concessions in the current environment?

[John Ernest Sicard, CEO, President & Director]

Yes. So we haven't seen anything unusual on price concessions or any of those things. I think we're privileged to be working with some of the largest manufacturers in the world. I would -- and your first question, I'm sorry, can you remind me the first side of your question, Stephanie?

[Stephanie Doris Price]

No problem. I was just asking around the increase. Have you seen any increase in kind of the higher hit industry. So they've been kind of increasing their usage.

[John Ernest Sicard, CEO, President & Director]

Yes. Nothing unusual, notwithstanding more simulations. And we certainly have been monitoring the number of scenarios, which is the first thing we saw a pretty dramatic leap in. And in terms of high-tech electronics, I'd say it was first in the wave where we started to see a spike, very quickly followed by life sciences and then consumer products as, I'd say, life essentials, soap and the like, the demand signals coming from the marketplace was pretty dramatically different than expectation. So I'd say those are the first 3 in that wave. And in terms of the usage of RapidResponse, I'd say the vast majority, if not close to 100% of the increase in usage, has been around running alternative scenarios and simulations.

[Operator]

And our next question comes from the line of Nick Agostino from Laurentian Bank Securities.

[Nick Agostino]

I guess, 2 questions for me. First, John, I think in the past, you spoke about Kinaxis and your channel partners are looking at other verticals on an ongoing basis. I'm just wondering if the current pandemic crisis maybe got either Kinaxis or some of your SI partners to, I guess, accelerate penetration or consideration into new verticals? Or are you still just kind of monitoring prospects on new vertical side, but you're just comfortable with the channels or the verticals you have right now?

[John Ernest Sicard, CEO, President & Director]

Yes. So we've always said that we remain hyper and razor-focused on the verticals and geographies in which we target. And at the same time, we do have customers that are outside those 6 verticals. We're always incubating and testing our value propositions across those verticals. And when we feel confident in our solution and our ability to manage those use cases, then we go after them more deliberately, and then we'll talk about those more publicly. Usually, there's a bellwether account we can talk about at that time. Obviously, we are thinking quite a bit about our growth levers and how we can accelerate growth in the future. We feel like the pipeline of activity is quite vast in the areas that we're already focused. And so we certainly don't want to become defocused and not take advantage of the activity we have immediately before us. I think over time, and I have said this before, we are not in every market vertical, but it's a matter of when, not if. I do believe that this notion of concurrent planning and this pursuit of hyper-agility is ubiquitous. And it will serve all supply chain markets at some point in the future.

[Nick Agostino]

And then my second question, wondering on the new wins, and specifically, the CPG client win that you announced. Obviously, you've got some sizable wins in that specific market. I'm just wondering, during the course of Q1, as the pandemic was making its way around the world, were there any specific customers that maybe are wins, including that CPG win, that maybe you won or was accelerated as a result of the pandemic? And so my question is specific on the CPG side, but also maybe any other vertical where you saw the acceleration of the win, where the customer said, we want to sign up today because of pandemic.

[John Ernest Sicard, CEO, President & Director]

Yes. I wouldn't necessarily categorize it like that. Many of the deals that closed in the first quarter were well down the maturity path. As you know, some of these companies are the largest in the world. They don't negotiate contracts in a 24-hour period. It just doesn't happen. I would say that in cases of CPG, life sciences, high-tech electronics, predominantly where we're seeing a lot of that disruption more so, the deals just didn't slow down. They did not defocus their attention on getting things accomplished. Once -- I will say that project SCOPE, that is an area that has been where we've seen some discussion where customers and prospects are looking for an accelerated time to value, right? So you see a grand scope of things, and yes, there's the Holy Grail. But at some point, you have to start feeling better. And so in some cases, we're negotiating a quicker time to value on projects, a Phase 1 that happens in a much faster time frame so that they can absorb the pandemic's effects.

[Rick Wadsworth, Vice President Investor Relations]

Well, I think that was the last question. So we want to thank everybody, again, for participating on today's call. And we appreciate your ongoing questions and support of Kinaxis. And look forward to speaking with you again when we report our Q2 2020 results. Thank you and goodbye.

[Operator]

This does conclude today's conference call. You may now disconnect.