Kinaxis Inc

TSX:KXS

Earnings Call Analysis

Kinaxis Q2: Strong Customer Growth Amid Market Challenges

In Q2 2024, Kinaxis reported a 12% revenue increase to $118.3 million and an 18% growth in SaaS revenue to $75.4 million. Adjusted EBITDA increased by 44% to $21.9 million, resulting in a 19% margin. The company added $12 million to ARR, of which 75% came from new customers. Despite foreign exchange headwinds, ARR grew 15% year-over-year to $339 million. However, longer sales cycles and smaller initial deal sizes led to a revised SaaS revenue growth guidance of 15-17% for 2024. Nevertheless, Kinaxis remains focused on profitability and long-term growth through strategic partnerships and reinvestments.

Impressive Quarterly Growth and Resilience

In the second quarter of Fiscal 2024, Kinaxis demonstrated solid performance, reporting total revenues of $118.3 million, which is a 12% increase year-over-year. The highlight was the growth in SaaS revenue, which reached $75.4 million—a notable 18% increase despite external pressures like foreign exchange headwinds. This increase in revenue is notable, especially given that approximately 75% of new annual recurring revenue (ARR) growth was attributed to new customers, indicating a strong demand for their supply chain solutions.

Strong Profit Margins Amid Strategic Changes

Kinaxis successfully increased its adjusted EBITDA to nearly $22 million, achieving a 19% margin—up from 14% a year prior. This is reflective of their ongoing initiatives to enhance profitability, showcasing their ability to adapt and streamline operations. As they focus on operating leverage, they also indicate that restructuring initiatives have contributed positively to this margin improvement.

Record Customer Acquisition and Market Leadership

During this quarter, Kinaxis not only won a record number of new customers but also managed to maintain a leadership position in supply chain orchestration. Significant wins included major companies like Eli Lilly, showing their expansion into pivotal industry sectors. Moreover, their remarkable success in customer retention, with rates hovering around 95% to 100%, demonstrates the strong loyalty and satisfaction of existing clients.

Navigating a Challenging Environment

Despite the impressive growth, Kinaxis acknowledged that the broader buying environment remains challenging, particularly for large enterprise deals. They noted elongated sales cycles and a slight decrease in deal sizes, requiring more scrutiny for high-value contracts. This trend has necessitated a reevaluation of expectations, leading to a revised SaaS revenue growth guidance of 15% to 17% for the year, down from prior estimates.

Future Prospects and Adjusted Guidance

Looking ahead, Kinaxis aims to harness their growing ARR, which reached $339 million—an increase of 15% year-over-year. The firm anticipates that the maturation of new customer contracts and the deployment of their recent technological advancements, particularly the AI-infused Maestro platform, will accelerate growth in the next few years. They expect to raise their adjusted EBITDA margin guidance for 2024 to between 19% and 21%, signaling confidence in enhanced profitability moving forward.

Strategic Partnerships and Investment in Growth

Kinaxis is actively seeking partnerships to boost their market reach and sales engine capacity. They announced a new strategic relationship with a major consultancy aimed at significantly expanding their joint go-to-market opportunities, indicating a robust pipeline of initiatives designed to drive long-term business growth. These efforts, combined with an active share buyback program representing a substantial investment, showcase their commitment to maximizing shareholder value.

Conclusion: A Strong Position for Future Growth

In conclusion, Kinaxis has navigated a challenging quarter with agility, showcasing record customer acquisitions and a strong onboarding of enterprise clients. Despite facing external pressures, the firm remains committed to growth through ongoing investments in partnerships, product innovation, and market strategies. Investors should monitor the upcoming quarters for signs of sustained revenue growth and profitability enhancement as Kinaxis adapts to shifting market conditions.

Earnings Call Transcript 2024-Q2

[Operator]

Good morning, ladies and gentlemen. Welcome to the Kinaxis Incorporated Fiscal 2024 Second Quarter Results Conference Call. [Operator Instructions] I'd like to remind everyone that this call is being recorded today, Thursday, August 1, 2024. I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis Incorporated. Please go ahead, Mr. Wadsworth.

[Rick Wadsworth, executive]

Thanks, operator. Good morning, and welcome to the Kinaxis earnings call. Today, we will be discussing our second quarter results, which we issued after closing markets yesterday. With me on the call are John Sicard, our President and Chief Executive Officer; and Blaine Fitzgerald, 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, August 1, 2024, 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, including adjusted EBITDA.

A reconciliation between adjusted EBITDA and the corresponding IFRS result is available in our earnings press release and in our MD&A, both of which can be found on the Investor Relations section of our website 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 in the quarter as well as recent business developments followed by Blaine who will review our financial results and outlook.

Finally, John will make some concluding statements before opening up the line for questions. We have a presentation to accompany today's call, which can be downloaded from the IR homepage of our website, kinaxis.com. We will let you know when to change slides. Over to you, John.

[John Sicard, executive]

Thank you, Rick. Good morning, everyone, and thank you for joining us today. Let's get started on Slide 4. We delivered solid results for our second quarter, including $75.4 million in SaaS revenue, representing 18% growth. Total revenue grew 12% to $118.3 million, an outcome that reflects being in a lower part of the normal term license renewal cycle. We reported almost $22 million in adjusted EBITDA and a 19% margin, a strong result.

I'm very pleased with the steps we've taken to enhance our profitability. We added approximately $12 million to our ARR balance despite foreign exchange headwinds and an ongoing choppy buying environment, particularly for large enterprise prospects. It is worthy of note that roughly 75% of our ARR growth this quarter came from new customers, which will provide exceptional fuel for future expansion opportunities.

On to Slide 5. We won a record number of customers for our Q2 and the second highest number of any quarter in our history, a tangible reflection of the strength and persistence of demand for supply chain orchestration and of our superior position in the market. We continue to have strong win rates against all of our key competitors and continue to sustain in a lead customer retention rate.

Let me share a sample set of those new customers with you now. I'm absolutely thrilled to announce that we were selected to orchestrate the supply chain of Eli Lilly, a medicine company turning science into healing to make the life better for people around the world. Our dominance among pharmaceutical companies continues. Today, only half of the top 20 pharma companies by 2023 revenue are customers of Kinaxis, a truly impressive accomplishment.

We recently announced a Q2 win at Syensqo, an enterprise-class specialty chemicals company that contributes to safer, cleaner and more sustainable products. such as EV battery materials and sustainable technologies in agriculture.

The Asia Pacific team contributed an all-time record quarter for their region, including wins at Brother Industries, you may own one of their well-known printers or sewing machines or other electronics.

Kioxia, a leading provider of flash memory products and Daedong, an agricultural machinery manufacturer. We won Italian mid-market pharmaceutical company, Zambon which manages the production of drugs for Parkinson's, cystic fibrosis and other challenging diseases.

KimRay, a U.S.-based manufacturer of valves and controllers for oil and gas companies joined the customer base also. We added Arcor, an enterprise-class maker of consumer food products, agro industrial products and packaging.

All these successes and more have been earned in an environment where buying decisions, particularly for the largest enterprise opportunities continue to be subject to elevated levels of scrutiny.

I'm pleased to announce that we've started executing on the go-to-market reinvestment plans we talked about last quarter. For example, we just finalized a new strategic relationship with one of our largest and longest-standing consultancy partners. Together, we will co-invest towards significantly expanding our joint go-to-market opportunities in key verticals and create new deployment capacity and expertise for delivering our solutions.

Details will come soon. We see this strategic partnership and other similar relationships we're exploring as potential game changers for our market reach and sales capacity. Stay tuned as we expect to formalize and publicly promote these very, very soon.

Moving to Slide 6. Gartner's Supply Chain Top 25 was released in May, and we are extremely proud that the top 3 have chosen Kinaxis as their supply chain orchestration partner as did half of the top 10.

Gartner also reserves an even higher level category called Supply Chain Masters for companies that have maintained top 5 scores for at least 7 of the preceding 10 years. It's an absolute honor that Kinaxis serves 2 of those prestigious companies as well. In short, being the leader in ability to execute is leading us to becoming the trusted choice for supply chain leaders globally.

Over the last 3 years, we've more than doubled the customer base, growing at a fast-paced 28% cumulative average rate. This simple fact positions us extremely well for the long term as we increase our emphasis on expansion sales to a rapidly expanding base.

On to Slide 7. Connections our amazing annual community conference held this past June, is another excellent reflection of both our long-term opportunity and the strength of our current demand.

Once again, we experienced record attendance with over 730 attendees, including a healthy number of prospective customers. They made their way to Miami for a jam pack 3 days of thought-provoking leadership, networking and some major announcements. This year, our big announcement at Kinexions was the introduction of Maestro. The evolution of our flagship product, RapidResponse.

Maestro is an AI-infused supply chain orchestration platform that provides full real-time transparency and agility across the entire supply chain, fusing together planning and execution and managing everything from multiyear planning horizons to down to the second factory execution and last-mile delivery. Just as we broke down silos and supply chain planning functions, with Maestro, we'll break down silos across the full supply chain end to end.

Maestro will be the conductor, taking in data from the full supply chain ecosystem, ultimately, including functions like network design, procurement, production, planning, finance, risk management, sustainability, fulfillment and other areas and serving the full supply chain community concurrently throughout as only Kinaxis can. So that manufacturers have on real-time view of their supply chain network at any moment in time.

This is what it takes for a supply chain to be in tune on time and orchestrated in total harmony. Through fully integrated AI engine, we will automate the obvious actions, sense issues and opportunities as they arrive. Proactively suggest optimum course corrections and democratize access to the machine learning power behind Maestro to even the most high level of users. A recent IDC study sponsored by Kinaxis revealed that 97% of global supply chain leaders agreed that better orchestration would have a positive impact on supply chain performance. So we're thrilled to be leading the industry towards that future.

I'll now turn the call over to Blaine to review the financials for the quarter. and discuss our updated outlook in detail. I'll conclude with a few remarks after that. Blaine?

[Blaine Fitzgerald, executive]

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. Starting on Slide 8. I'm pleased to report solid Q2 financial results, which included strong profitability and free cash flow. ARR growth was dominated by new customer wins, including some large enterprises, while we continue to see exceptionally strong growth in our RPO balance. All despite some foreign exchange headwinds, restructuring charges and ongoing elevated scrutiny in the buying environment.

Total revenue in the first quarter was up 12% and to $118.3 million, reflecting a normal low in the subscription term license renewal cycle. Our SaaS revenue grew 18% to $75.4 million and would have been 1% higher without the foreign exchange headwind in the quarter, particularly around Japanese yen.

Our subscription term license revenue was $1.4 million, which is in line with the outlook we provided at the outset of the year. Subscription term licenses largely follow the normal cadence of renewals among our small group of on-premise customers are those that have the option to move the deployments on-premise.

Professional services activity resulted in $36.5 million in revenue for 22% growth over Q2 2023, a reflection of strong customer additions and expansions in recent periods. Maintenance and support revenue for the quarter was up 9% to $5 million. First quarter gross profit increased 10% to $70.2 million and gross margin in the quarter was 59%, down slightly from 60% in the comparative period. The lower gross margin is attributable to the decline in high-margin subscription term license revenue in the period and a lower software gross margin reflects our ongoing transition to a public cloud first hosting model.

This is partially offset by a very strong 27% professional services gross margin. Adjusted EBITDA was $21.9 million, up 44% from $15.2 million and representing a strong 19% margin compared to 14% in the second quarter last year. The higher margin reflects our heightened focus on profitability and relates to very successful initiatives aimed at gaining operating leverage as we scale. Our profit in the quarter was $3.4 million or $0.12 per diluted share compared to a loss of $2.5 million or $0.09 per share in Q2 last year.

Profit this quarter includes $5.5 million related to the restructuring initiative we previously announced. So the improvement would otherwise have been much more significant. Cash flow from operating activities was $13.1 million compared to $13.9 million in Q2 2023. Cash, cash equivalents and short-term investments were $282.3 million, compared to $293 million at the end of 2023.

Moving on to Slide 9. Given the nature of our business, free cash flow margin tends to vary considerably period-to-period based on billing and collection cycles, capital investments and other factors. As a result, I focus on the trend of our last 12-month free cash flow compared to our last 12-month revenue rather than just current period results.

As you can see, on this basis, our free cash flow margin is at 15.1% and has been improving nicely since 2022 and reflects our heightened focus on profitability. Our cash flow from operating activities and our cash balances would have been even stronger this period without the restructuring charges. And in the case of our cash balances, our very active share buyback program, too.

On Slide 10, our annual recurring revenue, or ARR, grew to $330 million (sic) [ $339 million ], an increase of 15% from Q2 2023. Thanks to winning a record number of new accounts for Q2, we observed that over 75% of the incremental ARR generated during the quarter came from new customers. I would also like to note that the ARR balance was impacted by just under 1% by foreign exchange fluctuations. We are delighted to have secured some large enterprise customers this quarter. With these accounts, we continue to observe phased deals, which start with a smaller initial subscription amount and include increases in both value and project scope in later years of the contract term.

As a result, the incremental average annual contract value, or ACV, of all deals we won in the first half of 2024, outpaced the incremental ARR that we recognize by a factor of 1.18x, the highest we have seen yet. To illustrate, if a 3-year phased contract starts with $1 million subscription in year 1, an increase to $2 million and then $3 million in years 2 and 3, the ACV is $2 million. but we would pick up only $1 million in ARR.

We look forward to adding the free ARR related to these phased deals in future periods. Turning to Slide 11. At quarter end, our total RPO and SaaS RPO remained extremely healthy at $748 million and $705 million and grew 28% and 30%, respectively, year-over-year. One reason that RPO is growing faster than ARR is the phased deal phenomenon I just mentioned as RPO includes the fully ramped contract values. The 3-year CAGR for both our total RPO and our SaaS RPO is 25%.

I encourage you to focus on these excellent longer-term results as quarterly RPO can fluctuate significantly with normal customer renewal cycles. Further details on our RPO can be found in the revenue note to our financials. On Slide 12, while Q2 new customer wins were robust and RPO growth remains strong, we needed more large enterprise deals at higher average amounts to preserve SaaS guidance for the year.

Kinaxis and many of our peers have recently talked about longer sales cycles and smaller initial deal sizes with large price prospects in several recent periods, and we haven't seen the environment change yet. As a result, we now expect SaaS revenue growth of 15% to 17%. We are maintaining our total revenue guidance though fully expect the result to be at the lower end of the range.

Subscription term license guidance is unchanged, and we still expect to recognize roughly 15% of the full year amount in Q3 and a similar amount in Q4. For SaaS growth to accelerate meaningfully in 2025, the large enterprise buying environment needs to return to normal conditions by the end of this year and persist. A steadier foreign exchange environment would also be beneficial.

We fully expect the reinvestments we are making in go to market, including the recently signed strategic partnership with one of our major solution integration partners to have a positive impact, but more substantially in 2026 and beyond.

I'm very pleased to raise our 2024 adjusted EBITDA margin guidance for the second consecutive quarter. We now expect to achieve a margin of 19% to 21% for the year. It is gratifying to see our heightened focus on profitability translate to results. I remain confident in our goal of consistently delivering 25% adjusted EBITDA margin in the midterm normalized only for expected subscription term license variability and expect to take another step towards that next year, too.

Finally, on Slide 13, we have continued to be very active on our normal course issuer bid which allows us to purchase up to 5% of our stock or approximately 1.4 million shares by November 5 of this year. We repurchased over 529,000 shares in the first half of 2024. Representing an investment of $57.4 million. Since inception, we have repurchased approximately 858,000 and of roughly 567,000 shares still available for purchase under the program.

We're very happy with our investments. Overall, I am very pleased with our longer-term trajectory. We've made many important strategic changes in recent periods that will have a positive impact on results ahead.

We look forward to a more typical buying environment that will allow the full potential of our new strategies to be realized. I'll now turn the call back to John.

[John Sicard, executive]

Thank you, Blaine. Hopefully, you all saw our recent announcement in June that José Alberto Duarte has joined the Kinaxis Board. Jose lives in Portugal, he has worked in France, the Netherlands and the U.S. and comes to us with over 30 years of senior leadership experience, including as CEO for 3 separate companies. He's held multiple leadership roles at SAP, including President of EMEA and India and President of Latin America.

Among his Board positions, Jose currently serves as Chair at ProAlpha. Kinaxis is a global company, and I look forward to seeing Jose bring his unique global experience and perspectives to bear in his new role as director. Despite the large enterprise deal delays that we're experiencing alongside many SaaS peers, we remain focused on our excellent long-term opportunities and are making important progress. We're winning customers at a record pace, including marquee names like Eli Lilly.

And when we win a customer, we keep them for a very long time. This success is reflected in a committed backlog of business that has grown at a 25% 3-year CAGR. We started to reinvest in targeted go-to-market initiatives, including the first of multiple major new partnerships with global SI partners that we anticipate will greatly expand our joint opportunities and significantly expand our selling capacity.

Our heightened focus on profitability has translated to steadily improving free cash flow and a second raise in our annual adjusted EBITDA guidance. We've launched a groundbreaking AI-infused platform that is leading the market towards a much needed end-to-end orchestration of their supply chains. And we're still only in the early days of the digital transformation of supply chain.

In short, we remain very excited about the excellent growth opportunities ahead and seeing our strategies come to full fruition. As always, thank you for your ongoing interest and support in the company. I welcome your questions, and we'll turn the line over to the operator to start the Q&A session.

[Operator]

[Operator Instructions] Your first question comes from the line of Paul Treiber from RBC Capital Markets.

[Paul Treiber, analyst]

I was just hoping, could you elaborate further on the delayed large enterprise deals? Typically, how many do you see per quarter that are delayed and take longer than you expect? And then how long are the delays on average? And then have you seen any of the delays turn into deals just being lost and never materialized.

[John Sicard, executive]

Yes, it's a great question, Paul. And first, we started seeing these, I'd say, in 2023 and they persisted in 2024. I would say that the timing between being sort of vendor of choice and getting ink dry on paper, I'd say, has elongated by roughly twice. We see sort of a 2x delay in getting those deals signed. I wouldn't categorize it as losing opportunities as much as I would categorize it as scrutiny on the signing process, often requiring Board-level approval for things that, quite frankly, we didn't see in 2022 or prior to 2022.

We're thrilled, obviously, with Eli Lilly and the magnitude of that opportunity. That's a classic representation of an extremely large enterprise deal, phenomenal win for us, very long, I'd say, longer than normal contractual terms and a pretty steep ramp. So we're pretty thrilled with that. going forward.

There are multiple enterprise -- large enterprise opportunities ahead of us for the remainder of the year. And obviously, we're tracking those and the timing of those very, very closely.

[Paul Treiber, analyst]

And I think the change in '24 SaaS revenue guidance is obvious in light of those delays. But Blaine, you mentioned '25. There could also be some impact. The question really is, if these are delays in closing and also phased deals, it's a timing issue. So why wouldn't at a certain point, the growth normalize even if it just takes longer for the deals to close into ramp.

[Blaine Fitzgerald, executive]

Yes. Well, you're -- what we're seeing is we're looking for a stabilization of that sales cycle at this stage and indicators that things will go back to normal from what we've seen before. We haven't seen those indicators as of this age. And so we're continuing on the path based on our best assumptions.

And obviously, what we're building in 2024 will have the biggest impact on what we do in 2025. And so regardless of 2025 picks up, which we do have some belief that, that will happen based on a lot of early discussions and also the Maestro discussions that we've been able to communicate to the our prospect base.

We do think that it's -- based on what we've built on ARR right now, what we see is a slightly depressed 2025 unless there are some indicators that the Q4 numbers are much higher than we would have anticipated at the beginning of the year.

[Paul Treiber, analyst]

And just a quick follow-up slightly depressed relative to the -- your longer-term outlook that you previously gave for SaaS growth.

[Blaine Fitzgerald, executive]

Well, so we don't have a longer-term outlook right now. We obviously continue to look at our next 12 months in 2024 is the guidance we provided. We do think that there is an opportunity to grow from where we're at right now. And I think that's something that we're continuing to look at in terms of our prospect discussions that we're having.

However, there is, I think 2025 is going to be contingent upon how ARR does this year. And right now, from what we see on ARR we want to make sure that we're not getting too far in front of our skis. We do see that there is a good opportunity, but I want to make sure that we use the metrics in the data in front of us right now.

[John Sicard, executive]

Let me just add to that. We've been extremely pleased with the win rates that we're experiencing and the customer adds we had multiple large enterprise deals closed in the first half of this year. The other thing that we're seeing alongside scrutiny, we're signing authorities and things of that nature, just like Eli Lilly, they started much smaller than perhaps we would have seen them start 2 or 3 years ago. And so the ramps tend to be a little steeper.

So there's 2 sides to this large enterprise phenomenon. One is the elongation of signing contracts; and two, starting with smaller footprints and ramping steeper along the way, which is why we've been focusing also on RPO growth because the RPO number has the full amount in it.

[Operator]

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

[Thanos Moschopoulos, analyst]

The RPO growth was obviously very strong. Just wondering, was there a renewal tailwinds for the quarter that was more pronounced than perhaps we saw in the March quarter? Or was that not the case?

[Blaine Fitzgerald, executive]

That's a good question, Thanos. Obviously, renewals would help an RPO quarter -- a strong quarter. We didn't have a strong or a big renewals quarter in Q2. It was one of our lower renewal quarters in the last year.

So this is more related to you the strong TCV growth or total contract value that we got from the new logos that we brought in the door.

[Thanos Moschopoulos, analyst]

Okay. And you don't disclose an ARR, but qualitatively, can you speak to whether that's increasing just given the investments you've made in customer success and perhaps with some of those year 2 ramps starting to kick in starting to see an ARR pick up or not yet?

[Blaine Fitzgerald, executive]

Yes. Right now, it's pretty consistent with what we've seen historically. I think that I mentioned in the script or in the discussion that 75% of our ARR came from new logos. We are continuing to hit the gas on bringing in as many new logos as possible. And that expansion and upsell muscle is something that we are continuing to strengthen. And that strategic partnership that I mentioned, which I think is going to be extremely important has identified a number of opportunities on the upsell and cross-sell. Obviously, that impacts our expansion needs ARR in the future. So we think that piece is kind of our back pocket trump card that we're getting ready to use.

[Thanos Moschopoulos, analyst]

Great. Finally, John, just to be clear, you obviously had a bunch of mid-market wins and so would you say that mid-market remains a lot more resilient relative to the macro condition? Or what's the macro dynamic in that segment?

[John Sicard, executive]

Yes, it's a great question. I'd say, first, we categorize mid-market separate from what we would categorize enterprise separate from what we would categorize large enterprise. And I'd say roughly 50% of the quarter came from enterprise and 50% came from mid-market or the SMB kind of space. And so more importantly, and obviously, some of the wins came from large enterprise as well as we just announced the Eli Lilly and there were others.

In any case, it's the win rates that we continue to focus our attention on as Blaine said, and fueling future expansion opportunities. That's really the primary focus. I'd say that to apply a little bit of color on to Q2 slightly less contribution than we have had in the previous quarters from our VAR initiative, which is more of the S of the SMB. So it was primarily, I'd say, mid-market and enterprise.

[Operator]

Your next question comes from the line of Doug Taylor from Canaccord Genuity.

[Doug Taylor, analyst]

Yes. Blaine, I'll ask perhaps you to clarify on an earlier line of questioning, I think it was Paul's, when you speak to 2025 potentially being also exhibiting some depressed traits due to lower -- slower large deal signings. I just want to be crystal clear, you're referring to growth below maybe your longer-term growth aspirations and not necessarily lower relative to the performance we're expecting here in 2024?

[Blaine Fitzgerald, executive]

Yes. No, I think that's absolutely right. We were looking at large enterprise. The particular impact that we have for 2025 happens on how we grow ARR in 2024. And as of right now, we're seeing large enterprise coming in on a longer sales cycle. We do expect to benefit from the go-to-market reinvestment that we've just been going through. That's a big contributor to where we think ARR can reaccelerate in 2025.

But I want to make sure that everyone understands that there is a strong correlation to our short term based on the ARR that happens in a particular period. The long-term RPO that we have, it obviously points to a direction that we do expect to have a lot of committed opportunity that's in front of us because that's growing absolutely quite quickly right now. In fact, I'll just go back to that new logo comment. The new logo TCV or ACV or ARR, incremental ARR, that whatever you want to use, is one of the highest we've ever seen. In fact, I think it's in the top 2 of what we've ever seen in a particular quarter.

So we're building that group to be able to grow in the future. That committed backlog is in our forecast right now. But we still want to make sure that everyone understands that ARR drives the short-term RPO drives long term, and we have a good future in front of us.

[Doug Taylor, analyst]

And so just as we step back and look at that phenomenon, you mentioned with the staged deployments we've seen over the last couple of quarters or a year I just want to again ask maybe a different way about the question of when we should expect that to normalize. I mean if you're talking about 3- to 5-year contracts, I mean, would it take through a total of 3 years for that to completely wash its way through the model and you're picking up as much revenue from previously signed contracts as you might be having held back from new contracts. Is that a fair way to think about that in that '26, '27, we should be -- this should completely washed its way through the model? Or could it happen sooner?

[Blaine Fitzgerald, executive]

I think '26, '27 is a fair assumption of when the majority will wash its way through. But as we keep adding, obviously, that extends over time. I think obviously, we don't try and ramp our deals at the very, very end of the contract. We want to make sure that our users are able to get the benefits of using additional modules or having more users and how that before -- before they come up for renewal.

So yes, I think it's a good assumption that the ramp impact will happen generally in the first half of the contract.

[Doug Taylor, analyst]

That's helpful. Last question for me. I just wanted to clarify. I mean EBITDA guidance, once again raised I just wanted to ask, I mean is that to any degree a positive benefit on the bottom line from currency. Is that a factor at all? Or maybe you can expand on where you're finding savings if that's not the case.

[Blaine Fitzgerald, executive]

Yes. Currency is -- we have one of those weird phenomenon as the top line is getting depressed because of the weakness against USD so Japanese yen and euro are the 2 corporates on that side. Canadian dollars is benefiting. But right now, what we're seeing is a complete offset because of the revenue side. What we're actually seeing is a lot of efficiencies as a result of the restructuring that we've just gone through.

We think that we found some areas that we're able to manage the costs a little bit better based on like changes in where our workforce will be dispersed throughout the geography as well as the fact that we've had some inefficiencies that we've rectified as a result of the restructuring.

[Operator]

Your next question comes from the line of Lachlan Brown from Redburn Atlantic.

[Lachlan Brown, analyst]

I was just wondering, just in terms of bookings, it seems like it was quite a healthy quarter with several large new customer wins but obviously, you've called out a soft buying environment going forward. What in particular has changed from what seems to be a good buying environment this quarter to expectations it'll be soft in the second half?

[John Sicard, executive]

Yes. The biggest thing to point to here is large enterprise. And obviously, when we look at the results and record number of logos for Q2 in the history of our company, second largest in the history of our company across any quarter, to me, I see that as a healthy sign of the market. There are certainly a lot of companies out there that are recognizing the need to transform.

And people have asked me this before, what's the likelihood that people are going to move away from this cascade waterfall, lethargic kind of a model towards one that is fully concurrent and fully connected. I answer the same way every time. There's a 100% chance that people are going to move there. The question is timing. It's kind of like when the Internet was born and people could send e-mails, there were still some people looking stamps.

But eventually, people realize that maybe e-mail is a better way to go. And so we feel the same way about supply chain. So to your question, I'd say that it's still a very healthy buying environment, we have some wonderful logos in the pipeline right now in the large enterprise space that we're working on. And the enterprise and mid-market and SMB space aren't necessarily suffering, I'd say, the same level of scrutiny that we're seeing in the extra large deals that we have on the table.

So that's how I would color the circumstance that we're in. And as Blaine said, we're constantly monitoring this to see a more normalized approach into the future. We do think that this may persist through the remainder of this calendar year at least but we'll monitor things as we go. It's not affecting our win rates. Our win rates are north of 60% across all our cohort, say, competitors. All that is very, very healthy. So really, it's large enterprise where we're seeing this particular phenomenon.

[Lachlan Brown, analyst]

That's very clear. Do you feel like the uncertainty around the U.S. presidential election is having an impact on the timing of these large deals?

[John Sicard, executive]

Yes. I'm not sure whether it's having an impact on the scrutiny of spend. It may. I feel somewhat unqualified to link the 2, quite frankly, but it very well may in the U.S. as monetary policy and fiscal policy are being sort of evaluated depending on who is in power. Quite frankly, I've not say specifically experienced that as the underlying phenomenon.

[Lachlan Brown, analyst]

Yes. And last question. [ LeanDNA ] yesterday made a comment in its release that customer investments in response to COVID-19 supply chain disruptions are showing signs of leveling off, I'm just curious in your view, are you seeing this in the market? Or it's just the soft buying environment purely attributed to the macro delayed timing?

[John Sicard, executive]

It's the latter for us. Like I said, we have a healthy pipeline. We have healthy prospects across the spectrum in multiple geographies. We're thrilled with the Asia Pacific contribution an all-time record from that region with some phenomenal names. Some were allowed, obviously, to mention others not so we're thrilled with the activity there. And again, we keep looking at this saying, well, we're gaining market share.

There's a healthy market and a healthy demand. And so if we scrutinize where the challenges are, they tend to be in that large enterprise area. And again, we continue to be very successful in large enterprise. We had obviously, more than Eli Lilly in the quarter, but this one, we're thrilled to be able to announce. And we have others in the second half that we're working on and look really, really good for us.

In the quarter it's always, I'd say -- I'll give you this, sometimes a surprise to the executives that we're working with, the grants of authority have changed magically during the process. And we find out very late in the stages of signing a contract that it has to go to the Board. So that's how I would describe or answer your question.

[Operator]

Your next question comes from the line of Richard Tse from National Bank Financial Markets.

[Richard Tse, analyst]

Yes. So I'm going to sort of continue on that large enterprise side. If we just step back a bit and you sort of look at the growth in the large enterprise pipeline, what does that look like today versus what it's been in the past?

[John Sicard, executive]

I'd say it hasn't really changed all that much, notwithstanding the sales cycle. The sales cycle -- and even in the sales cycle -- within the sales cycle, the distance between vendor of choice, VOC, what we call VOC and negotiations begin and having signed contracts is roughly 2x and in some cases, longer than 2x is really what we're seeing. I don't see -- I'd say, a difference where large enterprises is no longer interested in and transforming their supply chain. That is not the case whatsoever.

[Richard Tse, analyst]

Okay. And then I appreciate you being really upfront about the mechanics of how ARR scales, but you've got all these sort of initiatives here. You're investing in the go-to-market. You've got the strategic partnership. You've got these sort of delays right now, deals are starting out smaller. Is it fair to say that when that market normalizes here that your SaaS growth rate is going to be potentially even north of the former peak?

[Blaine Fitzgerald, executive]

I will say that we do have models in that direction. I think what we've talked about earlier on is we do see -- I think that there is an inflection point with ARR, and we see that coming in 2025 where that momentum starts to push. And when that momentum changes, we will see the follow-on effect which comes from -- comes into SaaS revenue.

So everything we've been talking about in terms of the normalized conditions and the large enterprises that sales cycle starting to temper down a little bit, we think is going to start pushing us in the right direction for, again, increased momentum.

We're obviously seeing a little momentum right now, but we will see even more momentum on the ARR front. And right now, based on the pipeline and the opportunities we see in our pipeline and the reinvestment we're making -- we think that 2025. And then 2026, when you get into the strategic partnership that we have and it's a 3-year deal that ramps over time where we have targets that we've allocated to both our side and our strategic partner, we see some very big opportunities that will help with the acceleration on the growth right now.

And this partner that we've dealt with the -- they've been around the block enough times and they're big enough that we have a lot of confidence that they can help us get to that next level. And we're very actually honored that they've chosen us as the right partner for supply chain orchestration.

[John Sicard, executive]

Yes, we're one of them, literally less than a handful. And so we're thrilled with that, that announcement, I -- hopefully, the tone of the earlier commentary and the primary focus of this strategic relationship is to augment our selling engine quite significantly. It's really the motive behind it. Early days, and we will be announcing in very short order, at least this 1 and perhaps another.

[Richard Tse, analyst]

Okay. Just one last quick one for me. You're obviously incredibly successful in the pharma market. In the case of Eli Lilly and perhaps the other sort of wins that you've had. What's really the main thing that you're offering in this market that the incumbents are not able to do?

[John Sicard, executive]

Well, there's a few things that matter in that space that are unique to pharma industry. Notwithstanding, I'd say it starts at its foundation with the belief that end-to-end orchestration is the way of the future, right? This cascaded, lethargic functional way of doing supply chain of the past isn't going to survive what's required in the future.

So it starts with our foundational belief that concurrency end-to-end orchestration is the way of the future. Beyond that, there are specific areas like jurisdictional control, for example, where the same product being manufactured in 2 identical factories in the world, those 2 products can't necessarily be sold exactly to the same country, right? So there's areas like that. There's expiry type, I'd say, analytics associated with that space that is very unique.

Stop sell dates very unique to that industry that you end up leveraging when you sell to a life science customer. Now above and beyond that, we speak their language. With the success that we've had in life science when we walked through the door, what we're offering because we, unlike many of our competitors who do a lot of custom code, we leveraged the combined intellect of all others in one connected platform.

And so when you -- when we walk into an Eli Lilly, they know that is the sum of the collective intellect of all of their peers that has been infused in our platform. And they get to leverage that. It's not like you walk in and say, What would you like me to code for you like so many other competitors do. I think that's really, really the anchor as to why we've been successful.

[Operator]

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

[Stephanie Price, analyst]

We've been hearing from some other software peers that they experienced some implementation delays or longer implementation cycles as customers undergo large strategic projects, such as migrating ERP systems to preparing for AI investments. Is that something that you've been seeing in the context of implementation cycles around RapidResponse?

[John Sicard, executive]

We haven't seen that necessarily. No. I'd say once we win a customer, it's quite the opposite. They're exceptionally eager to get us live -- to get them live. And we've been leveraging, obviously, our partner ecosystem to support that.

In general, we are seeing customers start with a smaller footprint, partially -- and again, partially it is to get live faster, right, rather than attempting to boil the ocean and do too much inside of the first year.

They focus on what's urgent to them and focus on getting live as quickly as possible. So we haven't seen that friction, frankly. We just haven't seen it.

[Blaine Fitzgerald, executive]

I'll just add in Steph, what John said is actually -- is very accurate in terms of like the implementation of our software once we get going is happing at record levels, and we're extremely happy with the fact that we invested in RapidStart a number of years ago and are able to almost templatize our way into deploying our product at a much more efficient manner than most of our competitors.

I think what you might be referring to, though, is another element of the longer sales cycles we are seeing, in particular around SAP's as for HANA migration. What we're seeing is that because those transformations are so big, obviously, you need to have a certain amount of resources to be able to deploy your products and to balance the migration of their ERP system as well as implementing a supply chain planning solution or orchestration solution.

And so that is part of the reason why we're seeing the elongated sales cycle. But once we get in the door, generally, the first thing they say is, can this be done tomorrow. And we're very lucky to have a very rapid deployment that we're able to leverage off of.

[Stephanie Price, analyst]

That makes sense. Great. And then Blaine, just one for you as well, maybe on capital allocation. It looks like share buybacks, you're pretty active in the quarter. Just curious how you're thinking about capital allocation here.

[Blaine Fitzgerald, executive]

We're really happy with our usage of capital on the buyback. We're going to continue that exercise. I did mention it's November 5 is when the end of that period comes up, and I don't mind saying that we'll probably renew for something in the future. We think it's good governance to continue to do this.

And otherwise, I mean, we obviously keep our eyes open for M&A opportunities. As of this stage, we haven't seen anything that makes any sense for our current midterm projections. But we do keep our eyes open, and we're active in that market.

[Operator]

Your next question comes from the line of Christian Sgro from Eight Capital.

[Christian Sgro, analyst]

Blaine, thanks for all the color around the phased deals and the mechanics and how they work through the model. And my question on that would be, is there a way you could maybe quantify or frame what the average increase year-to-year would be for these deals that are becoming more common?

[Blaine Fitzgerald, executive]

Yes, I won't get into the specifics of the numbers. I'll give always like giving examples of deals. I think I talked about last quarter, the largest deal that we had was a -- they were growing 2x in size. And so the ARR that we had, it was growing -- was going to give [indiscernible] be at least 2x in average. And then you can obviously imagine that over that time, there's an extra element of there's going to be a peak amount.

And as I said earlier on in the call, that's generally going to happen in the first half of these contracts. Now for this current quarter and the first half of the year, we're sitting at a 1.18x multiple for that ACV over the ARR and so we -- I think the biggest thing to kind of highlight is that's been a big trend. We've gone from 1.04x a number of years ago up to 1.18x. We are seeing a lot more phased deals. But answer directly to your question. We don't talk about exactly when those deals will play out over time.

[Christian Sgro, analyst]

Great. And that's all helpful color. For my follow-on here. Maybe I just ask about the duration of new contracts signed. Are, you seeing are there any shorter or longer than a historical trend for Kinaxis?

[Blaine Fitzgerald, executive]

I guess tipping up a little bit. We do have some long deals that have already been signed this year. Obviously, very happy with the -- our reputation and the loyalty of our customers have shown its way through this by committing to long-term deals. And that is part of the reason why our RPO is for SaaS, year-over-year growth of 30%, that CAGR at 25% in total RPO. A lot of that has to do with the fact that -- we have very committed and loyal customers that want to stay with us for the long term.

Now I will say that we don't include all of our contractual value in RPO because we don't include customers that come in with an option to terminate early. And so if they decide to do that, we won't include that in RPO. And so we do have some of that is coming due, which will help us with our RPO even more. So as of right now, we are continuing to focus on that long-term projection.

RPO is a very big impact from phased deals, longer deals, and really strong renewals, which we have that gross retention of what we always talk about 95% to 100%, which is, I think, one of the phenomenons that we have.

[Operator]

And your final question comes from the line of Mark Schappel from Loop Capital Markets.

[Mark Schappel, analyst]

John, the sales team has a lot on its plate right now given the recent talent rebalancing and the new head of sales that was announced last quarter. I was wondering if you could just provide some additional details around some of the go-to-market changes that are being implemented at the company to drive the execution.

[John Sicard, executive]

Yes. The most significant is this major partnership as part of our reinvestment strategy. And as I commented, it's primarily -- and I might say, dramatically increasing our sales engine capacity through that relationship, we were honored to be included in that. And so we're full steam ahead on those reinvestment plans.

And obviously, that includes internal sales as well. So we're not letting -- putting the foot off the gas. And again, coming off of a record Q2 new name logo, second largest in our history. There's a lot going on, and you add to that the strategic partnership, which we'll announce shortly and the motivations behind that strategic partner. This is not like a marketing kind of an agreement.

And so there's already a very tight collaboration and an expansion, I'd say, in the overall opportunity that we're going after together. And so that's the largest, I'd say, most exciting for Kinaxis, opportunity ahead.

[Operator]

Thank you. I will now turn the call back over to Rick Wadsworth for closing remarks.

[Rick Wadsworth, executive]

Thanks, operator. And thank you, everyone, for participating on today's call. We appreciate your questions and your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we report our third quarter results. Thanks very much. Bye for now.

[Operator]

Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.