Kinaxis Inc

TSX:KXS

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen. Welcome to the Kinaxis Inc. Fiscal 2019 Third Quarter Conference Call. [Operator Instructions] I'd like to remind everyone that this call is being recorded today, Friday, November 1, 2019.I'll 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]

Thank you very much, James. Good morning, and welcome to the Kinaxis earnings call. Today we will be discussing our third quarter results, which we issued after close of markets yesterday. With me on the call are 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 on this call is based on information as of today, November 1, 2019, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release as well as in our SEDAR filings. During this call, we will discuss IFRS results and non-IFRS financial measures. A reconciliation between the 2 is available in our earnings press release and in our MD&A, both of which can be found in the IR 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. 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. I'm very pleased to report our third quarter results, which include SaaS revenue growth of 28% to $31.2 million, total revenue growth of 29% to $47.1 million and adjusted EBITDA of 26% of revenue, which includes a $2.5 million onetime charge we took following the amicable resolution of our previously disclosed arbitration with a former Asian customer. Adjusted EBITDA was 31% prior to this charge.Our strong results in Q3 were driven by several new customers we closed in the second quarter, including British American Tobacco, Honda, Yamaha Motors, and Teva Pharmaceuticals, to name a few. Additional net new customers and expansions in Q3 have given -- have been instrumental in further driving our backlog to new heights, which provides exceptional visibility into the remainder of 2019. Based on this success, we are increasing all aspects of our guidance with higher expectations for subscription revenue, term license, and total revenue as well as a higher EBITDA target for the year. Richard will provide these details in a few minutes.Our business performance demonstrates traction from our strategy to expand our global sales team in 2018 and again earlier this year. Momentum and digital supply chain transformation continues and I believe Kinaxis holds a unique leadership position using RapidResponse, our powerful concurrent planning platform, as a vehicle to solve modern-day supply chain planning challenges. Since our last call, we also announced several new strategic partnerships designed to both scale our implementation capabilities and advise new prospects when they are considering their own digital supply chain transformations. We recently announced a very unique partnership with one of our long-term customers, Flex. They are demonstrating the power of RapidResponse to their extended customer base from their global Flex Pulse centers. We've already had a couple of initial wins, thanks in part to their supportive referrals. We also announced that JFE Systems of Japan, a subsidiary of one of the world's largest steel companies joined our partnership enablement program to accelerate opportunities in that region. We have worked closely with JFE over the past decade and have joint customers in high tech, automotive and consumer products industries. Crimson & Co, who are specialists in global supply chain management consultant were added to our growing partner ecosystem this past quarter. They serve clients in a number of vertical markets we share, including consumer products, high tech, and electronics, industrial equipment and life sciences.While we are thrilled with our growing customer base and partners, I am equally excited by the increased pace and depth of our product innovation. Within the first half of 2020, we will dramatically increase the extensibility of RapidResponse with the launch of our development platform. Partners and customers will be able to harness the power of concurrency by building new capabilities and applications that are tailored for their specific needs. These extensions will plug directly into and leverage all the power of RapidResponse's unique always-on concurrent planning engine, all without customization of the core RapidResponse code. For customers and partners, the benefits are obvious. For Kinaxis, it means that we can better position to offer our leading SaaS-based supply chain planning platform to a broader market. And as part of our latest product announcement, we also introduced compelling new data visualizations, including a unique interactive supply chain network visualizer, with a patented way to present performance data on different screen formats, ranging from desktops to mobile devices. These innovations will enable planners to shrink the time it takes to gain insight from hours to seconds. These innovations were extremely well received by customers, prospects and partners when we announced them at our recent and record-breaking Connections User Conference.Our success this quarter and to date is driven by our focus on investing for sustained, long-term growth. Expanding sales teams, leveraging partnerships and accelerating product innovation all take significant time, investment and focus. As shareholders of Kinaxis, we appreciate you supporting our long-term view.With that, I'll turn the call over to Richard for an overview of the financials for the quarter. Richard?

[Richard George Monkman]

Thank you, John, and good morning. As a reminder, unless otherwise noted, all figures reported on today's call are in US dollars under IFRS. On a comparative basis, total revenue in the third quarter increased 29% to $47.1 million, driven primarily by SaaS revenue, which grew 28% to $31.2 million. This growth was due to contracts secured with new customers as well as the expansion of existing customer subscriptions. We recorded $3.3 million of subscription term license revenue in Q3, consistent with our previous comments regarding the expected cadence of this year's customer-hosted subscription renewals. As we have previously noted, subscription term license will vary quarter-to-quarter in line with the timing of the individual customer renewal terms.Professional Services grew by 8% to $9.3 million compared to Q3 2018. Professional Services revenue is driven by a number of factors, including the number, size and timing of customer projects as well as the level of deployment engagements supported by our partner network. Overall, we remain pleased with the diversity and strength of our revenue base. On a year-to-date basis, our 10 largest customers accounted for 33% of our total revenues with no individual customer accounting for greater than 10% of total revenues.Gross profit grew 36% to $33.3 million or 71% of revenue compared to 67% in Q3 2018. This increase resulted from the growth in SaaS revenue and other revenue, partially offset by an increase in costs of revenue such as the related headcount, partner, third-party costs and expanded data center capacity. Profit grew by 70% during the quarter to $4.5 million or $0.17 per diluted share compared to $0.10 per share in Q3 of 2018. Adjusted EBITDA for the third quarter grew 29% to $12.1 million or 27 -- 26% of revenue in line with Q3 2018. These results were due to an increase in revenue and gross profits, partially offset by an increase in operating expenses, including investments to support the company's long-term strategic growth initiatives.Included in the third quarter G&A expense was the write-off of $2.5 million in receivables booked in 2017 related to the resolution of the arbitration proceeding with a former Asian customer. Excluding this charge, adjusted EBITDA was $14.6 million or 31% of revenue and profit was $6.3 million or $0.23 per diluted share. This matter is now fully resolved.While up 34% on a year-to-date basis, Q3 cash from operating activities of $1.1 million was 41% lower than Q3 2018, largely due to fluctuations in operating assets and liabilities. As of September 30, 2019, cash, cash equivalents and short-term investments totaled $202.2 million, an increase of $20.7 million from $181.5 million as at December 31, 2018. Our minimum contracted revenue backlog continued to strengthen. As of September 30, 2019, it was $289.7 million as detailed in Note 12 to our financials. This amount is driven by the $246.9 million of future contracted SaaS revenue as well as bookings for maintenance support and subscription term license revenue.The backlog will be recognized over the following periods: $46.6 million will be recognized in the fourth quarter of 2019, of which $31.2 million relates to SaaS business and $12.1 million relates to subscription term license; $111.9 million will be recognized in 2020, of which $97.4 million relates to SaaS business; and $131.2 million will be recognized in fiscal 2020 and thereafter, of which $118.3 million relates to SaaS business.Total bookings in Q3 were $80.2 million, of which SaaS bookings were $48.9 million. We are very pleased with this performance. As you know, bookings will vary between periods as they depend upon the timing of the closing of the underlying subscription and other contracts. Based on these results and our business outlook, we are pleased to increase our revenue and adjusted EBITDA guidance for fiscal 2019. We now expect total revenue will be $188 million to $190 million. SaaS revenue will grow approximately 22% over fiscal 2018. Full-year subscription term license revenue will be approximately $26 million. With our ongoing accelerated investments in sales and marketing, we now expect sales and marketing will be between 23% to 25% of total revenue. Continuing our product team expansion and new product innovation investments, we expect that research and development will be in the range of 18% to 19% of total revenue. Based on these revenue and investment expectations, we now expect full year adjusted EBITDA margin between 27% and 29% of revenue.Finally, our business model is supporting capital expenditures in the range of $11 million to $12 million, the majority of which we have already invested in Q2 on planned data center expansion and R&D investments.Thank you for your continuous support of Kinaxis. And with that, I'll turn the call back over to John.

[John Ernest Sicard, CEO, President & Director]

Thank you, Richard. In summary, we are pleased with our meaningful progress so far in 2019 and believe that we are well positioned to deliver on our increased full year targets. I'm encouraged by market conditions and ongoing sales activity, the growth in our stable of top-tier partners and their level of engagement, and our accelerating product innovations. Most of all, I'm humbled and encouraged by the top-quality brands who continue to trust Kinaxis with their supply chain transformation initiatives. On behalf of Kinaxis, I would like to thank you for your support and as always for taking the time to join us on the call today.With that, I'll turn the line over to the operator for Q&A.

[Operator]

[Operator Instructions] And your first question comes from the line of Richard Tse from National Bank Financial.

[Richard Tse, MD & Technology Analyst]

Are you guys being very conservative here with guidance because your implied Q4 numbers on revenue pretty much seem like they are in backlog? So maybe you can kind of give us a bit of commentary on that, please.

[Richard George Monkman]

Thank you, Richard, for the question. We are very confident with regards to the guidance that we have provided. The nature of the subscription does provide the long-term visibility and the -- as I think you appreciate, Richard, sometimes it's the timing within a year that can vary. And so while our model has really been predicated for many years and still is, on that 80% of the forward visibility of the next 12 months. With regards to within the next 3 months, it's in the -- it's traditionally been in the very high 90% range. So this guidance is consistent with that type of model. As we now disclose the backlog, you, as a reader, have greater insight. So I'll just say that we're very confident. Our goal is to continue to not only secure business but to secure it on a timely basis within the quarter. And any of that performance will impact ultimate results.

[Richard Tse, MD & Technology Analyst]

Okay. And, John, you guys had some great product announcements at Kinaxis recently, I'm kind of curious to see whether you can kind of give us some post-conference feedback in terms of the reception. Obviously, it has been good, but I'm more curious to see your sense that, that interest level cascades into incremental revenue in 2020 from those new products here?

[John Ernest Sicard, CEO, President & Director]

Yes. We were thrilled, obviously. I think, at Connections, at least in recent memory, I can't remember another Connections that was that successful. And I can't remember ever announcing that many innovations in -- at one event like we did. And that was, obviously, the work we've done around self-healing, machine learning, auto ML and other elements related to those mass functions as well as the new user experience. And, obviously, I've been talking over the past couple of years about preparing for RapidResponse as a platform. So these are all slated for, I'd say, general availability inside of the first half of 2020, and obviously, everything we do in R&D gets monetized in some way. On the -- RapidResponse is a platform initiative. We have early adopters, I will say, in a beta program working with us already and working on customer-initiated applications. And so that is absolutely thrilling to me. It's exactly what I had always dreamt of, if you will, having that kind of mass run-time configurability. So it's no longer just the visualizations but the ability to build customer-specific IP safely in a SaaS environment, something that is safe from upgrades. You upgrade safely even though you have those extensions. So the adoption has been very strong. The -- obviously, we had the demo booth at the event and they were very highly busy, I would say. So we're really excited with what we've launched.

[Richard Tse, MD & Technology Analyst]

Okay. And just last one for me just in terms of the partner channel. You guys had a bunch of partners. I'll kind of use the baseball analogy. What inning would you say you are in with the broad partner group when it comes to that group sort of reaching critical mass here for Kinaxis?

[John Ernest Sicard, CEO, President & Director]

Yes. So I am consistently saying the same words. We are in chapter 1, book 1. We -- at the event itself, we announced and we showed we have 25 partnerships now, all at varying stages of maturity. And so for me, it's not so much about the quantity. It's about their maturity as they continue to work with us. And so frankly, I don't look at it as okay, we're done, we can slow down the partnership initiative. They are -- some of our greatest partners are boutiques in different parts of the world in Europe. And so -- we're thrilled with the uptake in that space where we continue to see more and more consultants get certified and badged as consultants and ready for implementation services. And so I don't look at it as us being deep in the game whatsoever. It's still early days for us.

[Operator]

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

[Thanos Moschopoulos, VP & Analyst]

John, can you update us on what you're seeing with respect to spending environments? I mean clearly, it didn't seem like there were any macro issues this quarter. But as you talk to customers currently, are there any concerns that might be affecting pipelines and sales cycles or not at this point?

[John Ernest Sicard, CEO, President & Director]

I'm not seeing any negative effect. The pipeline remains very, very strong. The pipeline is very diverse, continues to be. I said the same words at the last earnings call. But looking at the pipeline today, very strong, very diverse, both in geography, Europe, Asia, North America all very, very healthy. And then a great distribution across the market segments we serve as well. We're seeing particular increased interest in the CPG, in the consumer packaged goods arena. And so, yes, we're not seeing a negative effect whatsoever at this point.

[Thanos Moschopoulos, VP & Analyst]

Maybe in terms of Asia, I mean clearly, you've had some wins there. If you could provide some more color, is the cadence of sales cycles in Asia comparable to other regions? Are the industries that you're targeting there that you're having traction there similar to the other geographies? And how is that pipeline progressing?

[John Ernest Sicard, CEO, President & Director]

Yes. So I would say there's a slight acceleration, if you will, in Asia and Europe predominantly. We're investing heavily in those regions. And we talked about that a year ago, putting our foot on the gas. And so we're seeing the fruits of that labor as a result. And obviously, we can't announce every single account we win. Obviously, thrilled to be able to announce Honda and Yamaha in Japan, almost back to back. This is very, very significant for us in the automotive space in Japan. And again, the work that we've done in Europe around CPG with BAT and others is really strengthening those verticals in that region as well. So we're continuing our investments in those regions. And again as color, I would say we're seeing perhaps the slight acceleration in Europe and Asia predominantly. But I think it's reflective of our investment in those regions.

[Thanos Moschopoulos, VP & Analyst]

Great. And 2 quick ones for Richard. You raised your term license guidance for 2019. Did that reflect the extension of existing on-premise customers? Or did you sign new one?

[Richard George Monkman]

With the subscription terms that they have been on a renewal basis and it's not uncommon to see expansion and growth on renewal. So that really was the driver for the higher-than-anticipated performance.

[Thanos Moschopoulos, VP & Analyst]

And then finally you had previously given us a term license guidance for 2020. It sounds like that was in vicinity of $11 million term licenses for next year. Is that still your expectation?

[Richard George Monkman]

Well, with regards just to guidance in general, we're still going through our development plan and initiatives. And so we're going to be providing that when we comment on Q4. But in terms of the broad range, yes, that holds because that is -- those would be renewals that we would look forward to completing throughout 2020 and then obviously, in the out-year 2021.

[Operator]

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

[Daniel Chan, Research Analyst]

So you saw a nice acceleration in the backlog building up there. Can you provide some color on the seasonality of the deal closures and should we expect the backlog to continue to accelerate as we get through Q4?

[Richard George Monkman]

Well, our goal -- thank you, Dan. Our goal is absolutely to see sustained growth in the backlog. Now it's -- as you, I think, appreciate, the timing of the deals, in other words, what goes into that amortization schedule that long-term subscription revenue is going to be dependent upon the timing of the arrangement. We don't really see seasonality so much with regards to the subscription side of things. It just continues to be billing. It is fair -- I would say more than common that those transactions occur later in the quarter and hence my earlier comments about contribution within the quarter or within even sometimes the fiscal year. But as John commented, the health of the funnel is very strong. The investment we've made in sales and marketing is considerable and continues. And so that our coverage of representatives, both not only in sales but in marketing and related support globally continues to expand. So our expectation and focus is just to continue to drive that backlog.

[Daniel Chan, Research Analyst]

Okay. Great. And then for the large deals that will take multi -- multiple years to deploy such as the BAT 3-year deployment. Are those deals fully reflected in the backlog? Or do you add it in phases as you complete parts of the deployment?

[Richard George Monkman]

Well, the -- our backlog, just to clarify, is minimum firm contracted revenue. And it is -- it follows, as disclosed, the corresponding revenue types. So albeit subscription or the on-premise subscription term license. It is not common for professional services to be really committed in the long term. And in fact, most of our arrangements and deployments are at a much shorter period of time and are on a term -- on time and material basis, so they're not reflected in the backlog. They are reflected in our broader guidance but not in the backlog. So really the focus is the ongoing subscription license revenue is as noted. And that is the driver for, as we noted, the $80 million bookings in total and $48 million related to SaaS.

[Operator]

Your next question comes from the line of Deepak Kaushal from GMP Securities.

[Deepak Kaushal, Director and Technology & Communications Analyst]

I have a quick follow-up on Thanos' question on the term licenses. So did you guys say that you are expecting it to drop next year? And kind of what's the intuitive sense of growth on the...

[Richard George Monkman]

Yes. So -- yes. So in broad ranges, our arrangements are longer term, as you can appreciate, Deepak. And generally speaking, most of them average around 3 years. And so subscription arrangements, a number of whom we actually have been working with well over 10 years, in some cases even converted to subscription when we went to subscription model in 2005, continue to be deployed and continue, in a number of cases, to expand on a customer hosted basis. And those are the agreements even though they'll pay us in annual installments over 3 years, under IFRS, we do have to bifurcate and present that revenue as subscription term license and maintenance support. And it just happens that the cadence is really higher in this year and would also be higher our expectation in 2022. And as we have indicated previously, that level is going down to about a 50% level in 2020 and then going down further in 2021. And our goal is then to be on the renewal cycle so that would again increase. Cash, the business, everything else, remains consistent throughout that period. We just have that bit of a curve. And it, obviously, depends on a number of factors, the extent to which customers renew and expand. And it's not -- we have in, a number of cases, actually worked with the customer to help them understand the additional benefits of us hosting them in the cloud, and we've converted their customer premise arrangements to that cloud, in which case then they follow into that broader SaaS model that you can see is just the sequential revenue growth.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Okay. Excellent, Richard. That's very helpful. So I have a couple of questions for John. John, Flextronics, so I asked them a couple of years ago if they were seeing a network effect with their downstream supply chain partners by using RapidResponse. They kind of smiled, but they didn't say yes or they didn't say no. Clearly, if they're a partner now, they're seeing some kind of benefit. Can you give us a sense of what's the benefit to -- maybe not in specific terms, but what's the benefit to a major company to push RapidResponse to its partners? What does the partner see? What does the main customer see?

[John Ernest Sicard, CEO, President & Director]

Yes. It's great question. Thank you, Deepak. It's -- when you think about the macro-level value that we're providing, we're essentially collapsing time -- cycle time, the speed to detect, the speed to correct. It's really one of the core tenets of RapidResponse. It's one of the core tenets of what we call concurrency and concurrent planning. And obviously, our customers focus inside their walls first. And the speed at which they can connect, demand forecasting, demand planning to their master schedule and capacity planning and inventory and so on. It's where they achieve tremendous, tremendous value. It's not uncommon for them to say, "Hey, what used to take 2 weeks, now takes less than 2 hours. Or what used to take 2 hours, now takes 30 seconds." It is a giant leap forward. Now when you start thinking about extending that speed, that concurrency outside your 4 walls, therein lies a level of indirection value, if you will, so the speed at which either the customers or suppliers of a contract manufacturer could be connected, right? So if there is a demand change from one of Flex's customers, for example, the speed that Flex can absorb that having been connected -- having a rapid response to RapidResponse-connected environment, collapses tremendously, right? You eliminate a lot of that lead time. And the same is true the other way around, right? So if you're a brand owner leveraging a contract manufacturer, the speed at which you can see downstream effects of the supply chain is directly correlated to the speed at which you can course-correct when those adverse conditions occur. And so it's all about speed and time, the speed at which you can connect learning. And therein lies the network effect, if you will. And so Flex has been a great customer of ours for many, many years, well past the decades, maybe even closing in on 20 years. We know them extremely well. They're wildly mature, especially in the world of concurrency. And so I think they obviously benefit internally through the use of concurrency, but they see the potential of extending that concurrency beyond their own 4 walls to include their partners. And the same is true for the partners themselves, their customers. It's extremely valuable to have that absolute transparency and high-speed visibility up and down the supply chain.

[Deepak Kaushal, Director and Technology & Communications Analyst]

Thanks, John. That's great insight. Just on that network effect, in the past, what I had heard is that there were some concerns around data sharing and data privacy and there is general hesitancy of the broader supply chain -- external supply chains to do that. Did you guys solve that problem? Or do the benefits outweigh that problem and customers are over it? Which path kind of have you gone?

[John Ernest Sicard, CEO, President & Director]

Yes. It's a funny thing. The technology is never the burden, if you will, or the friction. Connecting these partners, technology doesn't really get in the way. Relationships are what needs to get solved, and the trust between partners is what needs to get solved. So I would say that in terms of the ultimate decisions, if you will, of having that network effect occur is a funny thing. When you're a brand owner, you still own a number to The Street, you still own quality, you still own every promise you've made to every customer. Even if you don't manufacture your goods, you own all of that. You own quality. You own brand. You own promises. And if you are public, then you certainly own a number to The Street. So there's a terrific need to have that transparency and visibility downstream. There's an absolute terrific need for it. And so I don't think it is uncommon. It's not an uncommon occurrence today to have that visibility through subcontractors. We're seeing a lot of what we call the glass factory effect as more commonplace. And the result is really -- the reason is really that they need that transparency in order to maintain the promises they've made to The Street, the promises they've made to the customers and to understand everything from on time in full and inventory disposition and other elements like that.

[Operator]

Your next question comes from the line of Robert Young with Canaccord Genuity.

[Robert Young, Director]

You reported very strong EBITDA margin and raised your EBITDA guide for the year. So it looks like Q4 will also have strong margins. And so without giving guidance to 2020, how should investors think about your margin structure going forward? Are the initiatives that you have planned going to hold margins back? Or should we be thinking about operating leverage going forward? And then maybe if you could weave into your answer, how does the drop down in subscription term license impact that?

[Richard George Monkman]

Lot of questions there, Rob. But thank you for those questions. And first and foremost, it is with regards to the subscription. We are very pleased by not only the success of the recent quarters, but as John said, by what our future holds. And as I sort of touched on very briefly, we are, as a management team, right now, reviewing a number of additional growth initiatives and activities. And we're in the process of completing our appropriate budget cycle and our longer-term investment. And so we look forward to providing that wholesome guidance, not only the -- from a future revenue perspective, but also the margin perspective in when we provide our Q4 call. Absolutely, from an income statement perspective, the change in subscription term license revenue being lower will have an impact on the margins, but we are quite unique in that we consistently drive out very, very strong margins while we drive out that growth. And so the -- directionally, yes, as most -- as your and other analysts' model are projecting, we'll see still strong margins but at a lower level. That macro trend wouldn't -- would be there. But then as I noted, with regards to the subscription term cycle on -- really on a 3-year basis, one would also expect seeing through to 2022 that you will also see expansions in margins. So for us, it's really all about the long term. It's all about continuing this growth and initiatives to actually further accelerate the core business, which is the SaaS subscription growth and continue to drive out of the cash. So that's about the directional statement that we can provide. And again, when we complete our year-end call, we'll provide that broader guidance.

[Robert Young, Director]

Okay. I guess we'll have to wait for that. The $12 million in the backlog for term license in Q4. Like you said, that's firm contracted. Could you talk about -- are there any scenarios where that could push beyond the year? Or is your confidence there very high that, that will come through in Q4?

[Richard George Monkman]

Well, because it's -- we disclosed in backlog, Robert, it's contracted. And so again in terms of subscription, well, for the customer-hosted arrangements, once again, there is -- we're required to break that into 2 components. One, the right to use which is a subscription term license, which we'll recognize on the commencement of the renewal term. And then the residual, which is the maintenance support we'll recognize over, say, that 3-year term basis. So in a number of cases, it's within the quarters. So in other words, they'll sign the renewal, maybe they sign the renewal on -- hypothetically on July 2nd and the term starts in September, so it's all within the quarter. So you won't see that in backlog. But in other cases, maybe you sign on September 15 for November 1 start, in which case it would be, as we've disclosed, in the backlog. In fact, the $26 million number that we provided is simply the year-to-date number plus that $12 million. So I would say we're extremely confident. I mean it's contracted and loaded. I don't know what else I can say and that renewal terms again, 3-year terms, they're going to start. They do not want to interrupt their use of RapidResponse.

[Robert Young, Director]

Okay. That's great. And then like is there any hesitation that you think might happen in front of the -- you announced a lot of new products and a new Gen 3 of the software. And is there -- is it realistic to think that there would be hesitation from customers waiting to see how this turns out, make sure that there is no issues with that? Or is your funnel moving just as normally as it would without that?

[John Ernest Sicard, CEO, President & Director]

Yes. No, it's a great question. And we have a pretty robust alpha-beta program with customers well in advance. So by the time we hit GA of any product, it has seen its paces. So we -- we've been at it quite a long time. And again, it's SaaS-based software. So obviously the burden is on Kinaxis to upgrade and not the customer. And so they're excited to take up new releases as they come out. Now certainly, we have -- we're on a monthly cycle of releases. We -- which is common in SaaS. It doesn't mean every customer takes every release every month. But we do have a pretty strong upgrade program that keeps our customers up to date. And so, yes, I wouldn't say there's any friction there whatsoever. And the relationships that we have with our customers bring a lot of confidence to the releases when they hit GA.

[Robert Young, Director]

Okay. Last question, just maybe a broader one. I mean like you said that Connections was very well attended and it seems as though Kinaxis has a profile that's growing, the referenceability is maturing, a lot of great companies using their products and so. Are you seeing any changes in buyer behavior? We've always asked about an update on sales cycle. Is that changing? Is there more functionality being taken upfront? Is there less pushback on price? Is there anything you can talk about buyer behavior as Kinaxis matures as a company?

[John Ernest Sicard, CEO, President & Director]

Thanks, Rob. So yes, we're -- it was great seeing you at the event. It's great for you to witness what we witnessed at Connections and for sure it was definitely a record breaker across the board. And so that -- I would say, we're seeing a lot more maturity in our prospects as it relates to what concurrency means, and I think some of this is -- there's a lot of discussion around it. There's peers. And so I would say there's a lot of maturity around the potency of concurrency. And when we -- and so the conversations when we meet a prospect, I would say much more fluid. There's -- I'd say there is a bit of an acceleration in terms of understanding what does it mean for me to transform into a concurrent type of a model for my supply chain. And as it relates to shrinking sales cycles, and I think we started that discussion probably 5 years ago, we have been monitoring that closely. And these are still generational decisions that these customers are making. They're literally changing the business fabric of their process. And so they're -- we're still seeing in that 18-month type of a sale cycle, plus or minus, some have been faster. But some, quite frankly, take longer. And so I wouldn't be prepared to necessarily say that deal cycles are shrinking. I will say that the pipeline is quite healthy and quite broad. Something I study every week and it's great to see activity in every vertical we serve. And so I'd say there is a -- if I were to put some color on it, I'd say there is a maturity around what concurrency means. There is a -- I think people are becoming awake to what -- that there is a new way to solve supply chain problems. And you're right, and we just being able to announce these great customer names. Last year, we announced, as you know, Unilever and others. You saw P&G speak at our conference. It lends a lot of credibility to what it means to join the concurrency approach. So we're thrilled with where we are, obviously, and if and when we start seeing deal cycles shrink, that will certainly manifest in guidance.

[Operator]

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

[Stephanie Doris Price]

Can you talk a bit about where you are in the rollout of the sales team? And kind of what inning you are in terms of fully ramping that sales team?

[John Ernest Sicard, CEO, President & Director]

Yes. So we're -- we announced last year as we said 2018, we announced an acceleration on that team and in marketing, quite frankly. And then again in Q1 of this year, we made that announcement that we were going to further accelerate even beyond what we had thought just 3 months prior. We had open headcount in sales and marketing today. We're continuing to have acceleration to give us the coverage that we see in the pipeline. And so with, I'd say, an emphasis on Asia and Europe, but as well in North America. I mean all regions are growing. We're hiring in all regions. And I wouldn't say that there's a line in the sand somewhere in the future where I'm going to say that the sales force is now at capacity. Every quarter, I see a healthier and healthier pipeline and so as the quarters manifest, we're going to grow to make sure we have appropriate coverage in sales.

[Stephanie Doris Price]

Okay. Great. And then can you talk a bit about the implementation process for recent client wins. How has it changed versus a year ago? And can you talk a little bit about that time line for implementation?

[John Ernest Sicard, CEO, President & Director]

Yes. So we're -- we continue to see a lot of partner involvement. So this is where -- we talked earlier we now have 25 partners, formal partner arrangements. These aren't just marketing arrangements. And so we continue to see the vast majority of our net new wins coming in through partner influence. And we're also seeing more and more partners pick up the prime position for professional services, which is exactly what we had hoped to see. And so that is becoming more commonplace. It's not -- certainly not every single deal where a partner is prime, but I'd say the majority of them we're starting to see that behavior, where we're playing a supporting role. I will also say and this is, I just think is, best practice. One of the things we tell every single customer is not to boil the ocean, okay? And so the project plans that we look out that we work on their journeys. It's not uncommon to have multiple phases of rollout because again this is transforming business fabric and business process. And so the way we look at things is there has to be, what I would say, a go live stage inside of that 6 to 9 months window. It's not uncommon. It doesn't mean that you're done the full transformation for these large, large corporations. But they are experiencing a concurrent environment with significant value accretion of the solution, right, inside of that window. And then they build it from there. That's how I would characterize the way deployments traditionally roll out.

[Operator]

Your next question comes from the line of Paul Treiber with RBC Capital Markets.

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

This question is for John. Earlier in your prepared remarks you mentioned that you're encouraged by the macro conditions or environment. Previously tariff uncertainty that led to delays, I think it was last year. And there's still obviously a fluid environment in terms of tariffs. But just given the customer momentum that you're seeing as shown in the backlog, what's changed from a customer perspective in terms of how they are trying to address the changes in their environment?

[John Ernest Sicard, CEO, President & Director]

Yes. So -- at the event, we had one of our CPG customers, obviously, talking about what -- how large-scale global manufacturers absorb catastrophe. Like a global -- a weather condition -- a weather event that is impending. And without concurrency, you generally run out of time to absorb those types of unexpected events. That's a weather condition, but I would say that the tariff situations that occur, the regulatory adjustments that occur in life sciences, et cetera, can happen at a moment's notice. And so I would say, just drawing on what I previously stated about the maturity of concurrency and the potency of that approach versus the cascaded planning that people suffer today. I would say that it's the recognition of the importance of time. I've made statements like this before where the last 20 years manufacturers have been attempting to optimize their things and not optimize time. And to me I think time is the new oil. It's incredibly valuable. The speed to detect is directly related to the speed you can correct. And so I'd say there is definitely a maturity related to that. People are open to looking at the problem in a very, very different way.

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

Just for Richard, just in regards to increasing backlog, can you clarify if there was a customer that was disproportionate driver of that increase? Or if the increase was relatively evenly spread across the number of customers? Or if the average win was in line with the historical trends that you've seen?

[Richard George Monkman]

Well, yes. Just so on -- just on the SaaS side, again, it was -- the past quarter, $48 million in bookings. But that was across a number of customers, a combination of new and, quite frankly, expansion activities. As we noted, we do not have customer concentration situations. But deals will vary in size. It's -- sometimes it's multimillion dollars a year. Sometimes it's several hundred thousand a year. So individual deals will continue to vary, but we're pleased to report that, that backlog was a number of transactions across all our key geographies and verticals.

[Operator]

Your next question comes from the line of Paul Steep with Scotia Capital.

[Paul Steep, Analyst]

Could you chat a little bit more about your hiring trends, maybe where the number of staff is today? And then just what that trajectory looks like into '19 and '20? And then finally, where we think about you adding those staff and maybe some of the opportunities that you're seeing in terms of getting people to join Kinaxis as you continue to gain scale?

[Richard George Monkman]

Thank you, Paul. We are very, very pleased with the team and -- both our 30-year employees as well as our 30-day employees, the way we've been able to continue to expand. In fact, I think as John noted about a year ago that we had a milestone whereby the number of new roles created in the company were actually, in aggregate, higher outside of Canada than within Canada. And that's primarily because of the sales, the support and other professional services groups that we've hired. We continue to attract very, very strong candidates. They welcome the ability to contribute to the concurrent planning model. We currently are with a very strong co-op program, about 700 individuals. And we expect to continue to grow that primarily in Europe and Asia as well as throughout -- to continue to expand in the states. The exact level, though, Paul, again, is part of that mid, longer-term planning that the management team is currently working through. And so that type of information will be disclosed, again, when we provide our full year results.

[Paul Steep, Analyst]

Great. One final follow-up one. John, could you talk maybe about how you and Paul are thinking about the sales structure in terms of not only driving a number of the new wins that you've secured, but maybe the existing clients? And how we should think about the expansion in those accounts, not only in terms of numbers of seats, but maybe in terms of module adoption as well?

[John Ernest Sicard, CEO, President & Director]

That's a great question. And obviously, we've been scaling up pretty dramatically over the last 18 months, the entire sales engine. And with that by the way is a commensurate scale-up of marketing. And so both functions have actually been growing quite -- at quite a healthy pace. And obviously, that's fueling a lot of great activity. And as I said some degree of momentum in Asia and Europe as a result. As it relates to, what I would say, the separation between selling net new and expanding into the base, that is an area that Paul and I have been working on as we achieve scale in sales. It starts to make sense to have dedicated focus on the base itself and ensuring a very, very strong relationship continues well past the initial deal. So we are looking at sales structure, if you will, as well as marketing support by looking at it with that kind of a separation, looking at it from a net new account versus the base itself. Obviously, we have leadership in every geography, and so we have sales leadership in Asia, sales leadership in Europe and specific sales leadership in North America. So that's the way we're looking at it as we scale up.

[Operator]

Your next question comes from the line of Gus Papageorgiou from PI Financial.

[Gus Papageorgiou, Head of Research]

Congrats on the nice quarter. Just on the customer concentration. I wonder if you could give us an update on your customer count. You used to say you have around 100 customers. I'm wondering kind of if you could give us a direct sense of year-over-year, what has the customer count done? And on the customer concentrations, you're saying your top 10 is 33% of revenue. I'm wondering if you remove Professional Services, which I assume is heavily biased towards new customers. And so we look at revenue ex professional services. Could you give us a sense of what the top 10 would account for in terms of revenue, not a specific number but just how much higher or lower than the 33%?

[Richard George Monkman]

Yes. So Gus, thanks for the question. So yes, the model is and what we're following under IFRS is the disclosure of the total revenue, and total revenue, as you rightly noted, consists of a number of elements. So that would be professional services and say, the SaaS subscription fee. And our engagement with that customer in year 1, if we are the prime on the professional services rather than one of our partners, will actually probably be higher in year 1 than in year 2. And in some instances, they may come into the top 10 because of that, and then move out off the top 10 in the second year. So you do have that variance. We are not disclosing sort of the subcomponents of that and so I can't really address your part 2 question other than just comment on that general trend. We have seen that percentage continue to decrease as we've pulled on and secured the confidence of new customers. So directionally, yes, our customer count is increasing, and we can appreciate the value of sub metrics, but with the current customer level, it's difficult to truly regress sort of the future trends, and so we're not going to be providing guidance into the actual customer count other than to say that we continue just to grow and we're very pleased with the names that -- of new customers as well as our long-term experience with the existing customers.

[Gus Papageorgiou, Head of Research]

Okay. Would it be fair to say, though, if you remove professional services that your top 10 customers would account for less than 33% of revenue?

[Richard George Monkman]

Well, this year, one of the key drivers is subscription term license revenue. So if you were to remove that then you would see -- if that was in the old model, I think you would see a little bit of a different trend. But the reality is, that's what it is. So that is not a customer concentration. It's not a customer concentration in any geography, it's not a customer concentration in any vertical. And so I think the main takeaway that investor should take is that this is a very robust and growing customer base.

[Operator]

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

[Suthan Sukumar, Principal]

Congrats on the strong quarter. I just want to touch on the backlog. What was deep makeup of the backlog increased quarter-over-quarter by vertical? And how does that kind of compare to kind of what you're seeing in the pipeline today in terms of strength?

[Richard George Monkman]

And so again, thanks for the kind comments on the quarter. And thank you for noticing the growth in the backlog. The bookings, again, total in aggregate, were $80 million, $48 million on SaaS. What we can -- what you can see is the growth in overall backlog. And in fact, it's stronger than would appear if you just simply looked at the June 30 to September 30 growth because obviously, June 30 would've had Q3 numbers in it, which have now been clearly recognized. So our focus has always been on the incremental growth in the go-forward periods. We're not, at this juncture, contemplating breaking that out into a geo basis. We are pleased to see the increased growth though. And as you will read as well in Europe and Asia. And that continues to be a very strong growth and as to verticals, the growth in automotive and CPG is very strong, but right now it's high tech and life sciences that are still the 2 strongest verticals. But again there's not a concentration there because individually they are both sort of in that 30% range. So very good dynamics overall, very pleased with the broad distribution. I think it's just really reinforcing the message that RapidResponse is so applicable across the supply chain. In this concurrent planning, the same customer code can be used in different geographies, different verticals.

[Suthan Sukumar, Principal]

Great. That's helpful. And just one quick one for me on just RapidResponse platform. What new markets or verticals do you see the biggest opportunity in? And given that, obviously, partners will be leading the charge here, how much of a role do you guys expect to play from, I guess, a sales and a support perspective?

[Richard George Monkman]

Well, I am going to let John comment further on the platform initiatives and the broader base. But again, it's great that Unilever, P&G are using the same RapidResponse code as Ford or Merck or any other -- or Flex or any of our other great customers. It is -- well, we do go into a new vertical, it has generally been with the support of a marquee customer. And to develop those unique analytics and with the platform, it's going to be increasingly easier for customers as well as our partners to take those unique embedded analytics and really extend the use of RapidResponse as we move forward. John?

[John Ernest Sicard, CEO, President & Director]

Yes, certainly. Our partners -- when I think about the platform, I think the greatest way to describe it is to think about what happened when Salesforce.com announced Force.com, which is a platform in which you can build extensions to Salesforce, and it opened up the market to extend Salesforce into applications and new areas. And so I like in what we're doing. It's not like we invented the model. It's a great model. And as Richard said already, RapidResponse is being used to support 6 different verticals plus a few because there's always some that we're experimenting with we haven't yet announced. But as it relates to extending RapidResponse into new market verticals, this platform initiative would be key. This is sort of in combination and in concert with our partners. We're not in every vertical that matters, but our partners are. And so with this, with RapidResponse as a platform at their disposal, it will -- my opinion is -- at least my thesis is that it will accelerate our entry into new market verticals over time. And that's -- obviously, it's very exciting for our partners, very exciting for us. For existing customers, especially the larger ones that had unique IP in their business process, RapidResponse as a platform will allow us to codify that unique IP safely in a SaaS environment, safe from -- safe with upgrades. And so again, that -- the value to our customers is obvious, and for our partners, it gives them the opportunity to develop that unique IP for specific customers in a very safe SaaS manner. And so we've been at this a long, long time. We've -- RapidResponse has always operated as a platform. Our latest announcement at Connections was around the ability to extend the brain function, if you will, of RapidResponse with portable analytics. And essentially, that is what is going to fuel more and more partner engagement as we go forward.

[Operator]

And with that, that concludes today's Q&A portion of the call. I'd like to turn the call back over to Mr. Wadsworth for some closing remarks.

[Rick Wadsworth, Vice President Investor Relations]

Thank you. I understand some of you may have more questions yet, and please reach out to me with those and I'll get them answered for you. But we appreciate your questions on the call. They were good as always and your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we report our Q4 results. So goodbye for now.

[Operator]

This concludes today's conference call. We thank you for your participation. You may now disconnect.