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Kinaxis Inc
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Good day, and welcome to the Kinaxis Inc. Fiscal 2021 Third Quarter Results Conference Call. [Operator Instructions] I'd like to remind everyone that this call is being recorded today, Friday, November 5, 2021.I would now like to turn the conference over to Mr. Rick Wadsworth, Vice President of Investor Relations at Kinaxis Inc. Please go ahead, Mr. Wadsworth.
Thanks, operator. 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 Blaine Fitzgerald, 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 5, 2021, 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 IFRS results and non-IFRS financial measures is available in our earnings press release and in our MD&A, both of which can be found on the Investor Relations section of our website, kinaxis.com and on SEDAR. Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations section of our website. Neither this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed without prior written permission from Kinaxis.To begin our call, John will discuss the highlights of our quarter as well as recent business developments, followed by Blaine, who will review our financial results and outlook. Finally, John will make some closing statements before opening up the line for questions. We have a presentation to accompany today's call, which can be downloaded from the Investor Relations home page of our website, kinaxis.com. We will let you know when to change slides.I'll now turn the call over to John.
Thanks, Rick. Good morning, and thank you for joining us today. I'll start on Slide 3. I'm very pleased to report another solid quarter of progress for Kinaxis, including SaaS revenue growth of 14% to $44.7 million. Total revenue growth of 17% to $64.4 million and adjusted EBITDA margin of 19%.Moving to Slide 4. We continue to experience tremendous momentum in our business, which will benefit our growth in 2022 and beyond. In Q3, we won more new customers than in any quarter in our history, a notable achievement, given that the third quarter is often challenging due to summer vacations, particularly in Europe. Year-to-date, we have more than tripled new wins compared to the same point last year. We continue to see significant interest in RapidStart, our accelerated deployment package and a relatively balanced split between mid-market and enterprise wins. I'm also very pleased that we won new customers in six of our seven vertical markets in Q3. Once again, demonstrating the value that RapidResponse adds across an incredibly diverse universe of companies and industries.Supply chain issues continue to be at the center of boardroom conversations and the daily news, and we're pleased to be helping companies navigate these complexities. Together, all of this success is reflected in a slightly improved outlook for 2021, which Blaine will discuss and very strong growth in our annual recurring revenue. Our total ARR stands at $207 million, 23% higher than it was at this time last year. We believe that this metric provides excellent support for our view that the market can support 23% to 25% SaaS revenue growth in the midterm, including next year.On Slide 5, we are very proud to have released our global impact report in September. While we remain in the early part of our ongoing ESG journey, we are committed to it as a key strategic pillar, including oversight at the Board level. In our report, you'll see that we achieved carbon neutrality in 2020. We required that for rolls for all roles, 30% of candidates presented and 25% of candidates interviewed must be from underrepresented groups. We take care of critical customer data. We were the first Canadian company to receive the German C5 security standard attestation, an increasingly important achievement for cloud service providers.We aligned our ESG program with six Un sustainable development goals, and we recently joined the UN Global Compact. Which outlines 10 principles that address areas of human rights, labor, environment and anticorruption. I hope you'll have a chance to read this report. We're committed to improving our performance every year and believe that Kinaxis is a good home for funds that have a particular focus on sustainability. Please reach out to Rick if you have -- if you'd like to learn more about our ESG efforts.I'll now ask Blaine to discuss results for Q3.
Thank you, John, and good morning. As a reminder, unless noted otherwise, all figures reported on today's call are in U.S. dollars and IFRS.Moving on to Slide 6. Total revenue in the third quarter was up 17% to $64.4 million. SaaS revenue grew 14% to $44.7 million, driven by record new customer wins and the expansion of existing customer subscriptions. You may recall that in Q3 of 2020, we were required to accelerate the revenue recognized for one customer. Essentially doubling their quarterly amount because they had given us notice that they couldn't renew their subscription when it became due later that year. The customer is taking financial measures to mitigate the impact of COVID on their business. Normalizing for that accelerated revenue recognition, SaaS revenue growth in Q3 of 2021 would have fallen to the 17% to 20% range we expect for the year.So subscription term license revenue grew 93% in the third quarter to $2 million. Fluctuations in this revenue item are generally tied to the normal renewal cycle of our customer-hosted software subscriptions and will vary period-to-period as a result. Our professional services activity was strong gain, resulting in $14.6 million in revenue or 27% growth over the corresponding quarter of 2020. This revenue varies from quarter to quarter based on the number, size and timing of customer projects underway as well as the proportion of work assumed by partners. Maintenance and support revenue for the quarter was $3.1 million, largely in line with the result in Q3 of 2020 and reflects the ongoing stability of our base of on-premise customers. We continue to be pleased with the diversity and strength of our total revenue base.For the quarter and year-to-date, our 10 largest customers account for 26% of our total revenues with no individual customer accounting for greater than 10% of total revenues. Third quarter gross profit increased by 16% to $42.6 million as a result of our revenue growth, partially offset by investments in headcount and data centers that are helping Kinaxis support our ever-increasing base of customers. Gross margin in the quarter was 66%, the same as in Q3 of 2020. Adjusted EBITDA was up 22% to $12.4 million for a margin of 19% compared to 18% in the third quarter last year. We recorded a profit of $0.2 million in the quarter compared to $0.7 million in Q3 of 2020.Q3 cash flow from operating activities was $11.2 million compared to $4.5 million in the third quarter of 2020. At September 30, 2021, cash, cash equivalents and short-term investments totaled $240.6 million compared to $213.1 million at the end of 2020. We remain pleased with our outstanding track record of cash generation. Overall, Q3 was a very solid quarter, and we are pleased with financial results.Now please move to Slide 7. Turning to some key metrics. Our remaining performance obligation, or RPO, remained strong at $375.8 million, up 3% from September 30, 2020. Of that total, $358.1 million relates to SaaS business, which represents a 7% increase from the amount in Q3 2020. Despite strong incremental bookings during the quarter, our RPO growth rate was impacted by Q3 '21 being in a lower part of the renewal cycle. $48.6 million of our current RPO will be recognized as revenue in the fourth quarter of 2021, of which $45.4 million relates to SaaS business. If you add our fourth quarter of SaaS RPO to our year-to-date SaaS revenue result, you can see that we are in a very good position to end the year within our guidance range.Further details on our RPO can be found in the revenue note to our financials. While a valuable metric, remember that total RPO is impacted by, among other factors, the timing and duration of existing customer contract renewals. ARR is a better indicator of our momentum in winning new businesses, which, in turn, drives future revenue growth.So now moving to Slide 8. We are very pleased that our ARR reached $207 million in the third quarter, a 23% increase over the comparable period of 2020. As we mentioned last call, we fully expect ARR growth to fluctuate slightly between quarters, and we view the results in Q3 as another very positive data point in the longer-term trend of accelerated growth in this metric. Generally, we believe that total ARR growth of approximately 20% or higher is efficient metric to meet our current midterm objectives. I'll also remind you that SaaS ARR growth is higher than total ARR growth, generally due to lower growth in the ARR for a relatively small group of on-premise customers.And moving to Slide 9. Based on our strong performance so far this year, we are able to provide you with updated guidance for fiscal 2021. We now expect total annual revenue to be in the range of $248 million to $250 million. SaaS revenue growth to be between 17% and 20%, but likely towards the lower end of the range. Subscription term license revenue to be between 6 and $7 million and an adjusted EBITDA margin of 14% to 16%. Part of the increase in guidance relates to an exciting new customer we won after quarter-end, for whom we are delivering rapid response as a SaaS offering from a cloud environment, but who has the option to move on-premise. Under IFRS 15, revenue from any customer with such an option, even if not being used, has to be recognized under term license accounting.Beyond 2021, we are very confident that the positive trend in our ARR supports our assertion that 23% to 25% SaaS revenue growth is a sustainable target over the midterm, including for 2022. We look forward to giving specific guidance ahead.With that, I will turn the call back over to John.
Thank you, Blaine. As with earlier quarters in 2021, the real story for Kinaxis is the momentum we're seeing with new customers and with the accelerated growth in our annual recurring revenue. Given that Q3 is often a slower quarter due to summer holidays, we were particularly pleased to have won a record number of new customers in that period. More than ever, we're seeing companies understand the urgent need for an end-to-end digital transformation of their supply chain. And increasing numbers are considering the exceptional value Kinaxis offers with our entirely unique concurrent planning approach.As always, thank you for taking the time to join us on the call. With that, I'll turn the line over to the operator for Q&A.
[Operator Instructions] And the first question will come from Richard Tse with National Bank Financial. Please go ahead.
Of the RapidStart deals you won late last year, what portion of those have converted into sort of full RapidResponse deployment?
That's a great question, Rick. Of the ones that closed last year, they are live. I mean the RapidStart deployment methodology is designed to get customers from, I'd say, shaking hands at the beginning of a project to go lot inside of 12 weeks. And so -- and in fact, we've had one customer that was half that time to go live. And so we continue to believe that the RapidStart is a key differentiator, especially during COVID times, where many of our many of our prospects are asking to, as I've said on other earnings calls like this, lower their temperature, right, lower the fever, get them to a go-live state. And from that point, it gives them an opportunity to expand. And obviously, the thesis is once you're live inside of a three-month period, you'll move to an expansion. So the land and expand philosophy is in full swing there. I can tell you that we've already had expansions of those customers that have gone live with the initial RapidStart deployments.
Okay. Great. And my just other question would be in no doubt, the sector is clearly benefiting for obvious reasons here. Has there been any sort of change sort of in the competitive landscape in terms of maybe the tactics that are being used by your competitors? Is it sort of pricing? Like any change in the environment from that perspective?
No meaningful changes that we're seeing. We continue to see SAP as the dominant incumbent. That really hasn't changed. And honestly, I think the Gartner Magic Quadrant did a great job in showing where the competitors sort of fall. And I will say that we continue to compete on technique first. Most of our prospects, if not all of them are using words like resilience as a motivation for transforming their supply chains. And of course, we remind them that resilience isn't to competence. It's an outcome of a competence. The competence they're looking for is agility. And agility is achieved by adopting a concurrent planning technique as a foundation. And that narrative continues to play exceptionally well with Chief Supply Chain officers.
The next question will come from Thanos Moschopoulos with BMO Capital Markets. Please go ahead.
Good morning. John, just to give us a bit of a flavor for it. What proportion of new bookings would you see a RapidStart at this point? Is it kind of 50-50? Or is it trending even higher than that?
If we look at -- since the start of the program, I'd say, without having a specific percentage in mind, I'd say that's roughly 50-50. This past quarter, I'd say it was a little more on the traditional enterprise, traditional enterprise deployment, but make no mistake, RapidStart continues to be a healthy portion of net new wins. More importantly, they're driving a healthy portion of our pipeline. It's as a lead-in, generating a lot of interest.
And how does this play in with the partner channel? I think one of the premises is that RapidStart is maybe a bit easier for a partner to sell than a large enterprise deal. Is that accurate? And what are you seeing in that regard?
Yes, absolutely. We continue to -- partners continue to be heavily involved in our sales cycle. And so obviously, they -- we're training them on the RapidStart methodology, and they continue to influence the majority of net new wins as they have in past quarters. But absolutely, they're -- the partner ecosystem, if you will, are wrapping their arms around this protocol.
And then finally, OpEx was a little later than I was expecting. Can you speak to the hiring environment? Is that proving to be an impediment to growth in any way? Or are you able to scale headcount as expected?
Well, there's a number of reasons why our OpEx was a little bit later than even we expected. One of those is probably not a big surprise to anyone. Travel is -- we expect it to open up, and it is opening up a little bit, but it's not opening up as fast as we expected. And so that's a big one. The Canadian dollar actually helped us say here the FX impact was a tailwind for us over the past quarter, which has helped us along the way. Now, competes for people and talent wars, it's real. It's out there. And people are seeing this in the newspapers. We're seeing that from the hiring, we're trying to get the people in the door as fast as possible right now because we see this big opportunity. And we're in a position where we're in a bigger fight than probably we've ever seen in our history, just trying to get as many people as we can to fill the seats that we need for our future.
The next question will come from Robert Young with Canaccord Genuity. Please go ahead.
On the sub term contract, you gave a little bit of color on that. I think a new customer that has a prem option. But was that something that might have been pulled forward from 2022? Should we still think of 2022 as being a strong quarter for perpetual renewals? And would this be a pull forward from that or have any impact on 2022?
Yes. So it was not a pull forward. This is one of those giving you the secrets. We have one new name account that we're able to talk about because it did impact our guidance to that degree. Going forward, and when we look into 2022, I think you should expect that, again, we'll see very strong SaaS adoption. But as things happen, I wouldn't be surprised if we have a subscription term license deal that comes in as well that could impact our numbers. So we didn't foresee this coming. The option came on the table at one point. And we thought it was going to be SaaS that would have been impacting our go-forward over the next number of years. But we're very pleased to have that new customer on board, and they will be a [indiscernible] term license coming in for Q4.
Okay. And then it seems from the guidance that Q4 is also going to have a larger contribution from sub term. And so is that a different client? Or is there another dynamic forcing that?
No. So the -- what we were trying to do and the whole reason, as you see our guidance go up for sub term. And you can see where our year-to-date is today, it's almost like telling you right away. We know what that amount is, and it has to do with that one customer that will take up that spot.
Okay. And so that one customer had an impact on perpetual in Q3 and Q4?
No. It will only be on Q4. So this -- it's a Q4 impact. It all comes in. And then the only piece that we'll have is the maintenance support piece that would obviously be ongoing for the length of that agreement.
Okay. I understand. Okay. So the Q3, the $2 million in Q3 wasn't a surprise to you. That was more along the lines of what you thought sub term would be.
Yes, that's exactly right.
Okay. And then maybe just an update on the pipeline. What end markets are strong. I think you said six of seven end markets had customers this quarter. Maybe just some color there and I'll pass the line.
Yes. Thanks, Rob. So it continues to be healthy in every region and every vertical market, including aerospace and defense, which in previous years where I'd say lighter, but we're seeing a good, broad, healthy distribution there. And again, I think the one thing with this global pandemic has put Supply Chain issues at the center of boardroom conversations. Every board is asking their CEOs, what are you going to do next time? And so that's what's driving, I'd say, the positive momentum in the market. And obviously, it continues to give us confidence in that mid-term target of 23% to 25% SaaS revenue growth, including for 2022. So I'd say that just in terms of color of the pipeline continues to be strong. I might add that it is gaining strength in the mid-market.
So you'd say the pipeline is larger relative to last quarter? I mean it's a summer quarter, so slower maybe, but I was curious if you'd see it up.
Yes, it certainly continues to grow. But more importantly, we have made a very specific decision to target mid-market on purpose. And the result of that effort, which we began earlier in the year, the result of that effort has more than doubled our TAM. We used to talk about our TAM as being roughly 3,000 and is more than double that now in terms of target accounts.
Doubled in terms of number of customers? Or would you say dollar value as well?
In terms of customers and targets that we go after. Earlier, we had our big ideas, 2.0 event in place of connections. Connections will be next, early May. And we had, I want to say, approximately 2,000 people registered and a very large number of prospects and of that prospect list, a large portion of that was mid-market. So it's starting to fuel the pipeline, if you will. And so that, I'd say, is noteworthy when I look at the pipeline, the shape, size, health, it's very uniform in geographies. It's very uniform, I'd say, across all the verticals. And I'm pointing out aerospace and defense as I did in the last quarter. And again, more noteworthy is seeing some acceleration in the mid-market in terms of their interest in RapidResponse.The thing I would tell you is we are now -- we now have absolute proof points that RapidResponse and RapidStart is a completely viable solution for mid-market. And I'd say even the lower end of mid-market. It's -- obviously, the use cases are exceptionally common, whether you're sub $500 million in revenue or over $100 billion in revenue. So we're obviously pleased that with a singular product, we can satisfy the needs of so many different verticals. And now, proof points that it's not just for enterprise. This could be for the mid-market. And so I think we're going to continue to see a growth in the TAM as we roll this out.
The next question will come from Stephanie Price with CIBC. Please go ahead.
I just wanted to focus in on RPO. So by our calculation, the RPO or backlog coverage of the SaaS guidance is lower this quarter versus a year ago. Just curious if you could talk a bit about how you see that RPO coverage of the SaaS guidance and any puts and takes there in the quarter?
Yes. I mean, it's a good question. And there's a good reason why we started showing ARR because it shows a smoother trajectory of where our business is going. It gives a good opportunity to help people understand what the health of our business is today. RPO, although I believe it's important for the longer-term view of where we're going, there are some issues with -- for our business, that renewal cycles, as an example, could be higher or low in a particular quarter. We've just gone through two low quarters for renewal cycles, where there's no businesses that were up. They were in the middle of their current contract. And so there's no reason for a renewal to come up.And when we have those big increases like we did in Q3 of 2020, it's just as misleading as when we have a lower renewal cycle that we've just kind of gone through. So if you see a 45% increase in our backlog or if you see a 3% year-over-year increase. We know that that's wrong. I kind of look back at our RPO and I look at the last three years, we've got a CAGR around 24%. That's actually very, very close to what our ARR growth is at right now, that 23% number. So although RPO, I think, is a good long-term view of a company, the issues that we have is that if you have a low renewal cycle, it wouldn't really show in the year-over-year growth metrics.
Okay. That's helpful color. Thanks. And then in terms of the traditional enterprise sales cycle, just curious how supply constructions are impacting that? Whether clients are more forget in dealing with near-term disruptions and so they're focused on RapidStart? Or are you seeing clients that are willing to engage in kind of that traditional enterprise rollout?
Yes. It's a great question. And I spoke a little bit about this during the last earnings call where our thesis was dramatically reducing the overall risk and to some degree, cost of entry into a concurrent planning foundation. The RapidStart deployment live inside of a single quarter. We would at least the thesis was we would see some shrinking of the overall sales cycle. I can tell you that we are seeing that, particularly in the mid-market on the mid-market front. It's not uniform, I would say, in terms of it being systemic. We've had one net new account happen. It's -- well, I would measure it in weeks, not months. So in some cases, we've seen that acceleration.And even enterprise, I will tell you, even very large enterprise accounts have great interest in going live inside of 12 weeks. And so we've done RapidStarts. I think it's really important for everybody to hear that our RapidStart philosophy, our deployment methodology to get someone live inside of 12 weeks is not just a mid-market message. That narrative plays exceptionally well for large enterprises, knowing in advance that they will expand. They -- knowing in advance, the point of this exercise is get to a concurrent state as quickly as possible and expand from there.
The next question will come from Daniel Chan with TD Securities. Please go ahead.
I want to dig into the 23% to 25% SaaS growth target you have for next year in the midterm. So if we use that assumption that you got 80% visibility into next year's SaaS revenue, that implies your 2022 backlog needs to increase by at least $26 million by the end of this year. So I don't think you've added $26 million to next year's backlog over the last three years. So I'm just wondering what gives you the confidence that you'll be able to do it? Or has that 80% visibility guideline changed?
Yes. So again, a good question, and it ties back to the RPO backlog question. So we're confident that we're going to be in that range. What you're getting to is the $26 million needs to be added to get to at least a 23% SaaS growth number. As I mentioned, renewal cycles are different every quarter. I would expect that Q4 is going to be a stronger renewal cycle than we've seen probably the last four quarters at least. So based on what we're seeing for our current pipeline and the incremental bookings that are going to be quite strong in Q4, as well as a stronger renewal cycle than we've seen over the past four quarters, we think we're in a good position to meet those requirements to get to the 23% to 25% range.
Okay. That's very helpful. And then I want to kind of dig into RapidStart a little bit. Are the -- I mean, is it safe to say that the average new customer engagement size is declining due to RapidStart? I'm just trying to reconcile the fact that you guys had a record number of new customer wins this quarter with the lower sequential ARR dollars added?
Yes. So we licensed RapidResponse, including for RapidStart customers based on number of users sites and applications, etc. I would say mid-market businesses are more likely to have fewer users and sites than enterprise. So it's common to see mid-market accounts with lower subscription amounts. I'll also say that in some cases, RapidStart is targeted at a specific region or a specific product family to get them live inside of a three-month period. And the point of RapidStart is to land and expand. And so the thesis here is you might start seeing in quarters looking forward, a more balanced percentage split between net new and expansion of the deals that we're closing right now.So that's the way I would describe it. In terms of the effects that RapidStart has on the initial bookings. And again, the point of this exercise is when we walk into accounts is not to boil the ocean. It's to get them live inside of a 12-week period. And so we monitor and manage the scope of that to ensure that we're successful.
That makes sense. Last one for me. Just wondering if the component or the Supply Chain shortages are having any impact on your ability to source servers? Or is there excess server capacity at the moment?
That has not been a constraint on our business.
The next question will come from Paul Treiber with RBC Capital Markets. Please go ahead.
Just wanted to ask about renewals versus new customer wins and new business. Generally, what's been the mix in terms of RPO between renewals, if you can give an average between renewals and new business? And just to clarify, this past quarter, did you mention that there was 0 renewals in RPO?
Good question, Paul. So I'll -- I guess I'll clarify the last part. No. So there's -- there were renewals. They aren't as large as some of the renewals that we've seen in over the past. But what we are seeing is we've had a fantastic year for incremental bookings. So new name accounts have been off the charts for us. That's why we keep on saying record, record, record over the last four quarters. What we have seen is probably the last four quarters are -- just hit a trough in our renewal cycle. And we had three of those four quarters were definitely some of our lowest renewal cycles that we expect in the near future and what we've seen historically.So we're coming out of the, I'd say, that trough, and we're going to start seeing the renewals coming a little bit more as those contracts become due. But we're pretty pleased. I think part of the reason why we've been able to stay at least stable with our backlog is primarily because we've had such strong incremental bookings, which we like, and I again, I'd point in the direction of ARR, the 23% year-over-year growth is because of those incremental bookings being so strong. But right now, the vast majority of what we've seen over the past four quarters, at least, has been incremental bookings growth to increase the RPO with smaller renewals because just the contracts aren't due yet.
And so another way to say it, if I can characterize it this way is that renewals for the last several quarters have been below the historical average, whereas new business has been above the historical average as a percent of RPO.
That's correct. Now that will change based on like when contracts become due. And I think over the next year, we're going to have a lot of contracts that are starting to come due that will start evening that out a little bit, but we're in a great position because we're focused on the incremental bookings. And if we look down the road in three or four or five years, they will now be the renewals that we expect. And as a SaaS company with a really sticky solution, we love the renewals. The renewals are something that are bread and butter for saying there's a very, very strong position that they're going to renew, and we'll bring that revenue and that RPO even higher than it is right now.
Switching gears to land and expand, what's been the typical rate of expansion for existing customers? And do you see the magnitude of potential expansion higher for RapidStart for the mid-market? Or maybe another way of asking it is, are the -- is the initial deal size for RapidStart and mid-market smaller than typical?
Yes. So any customer starting with RapidStart with the intent of expanding, we'll typically start at a lower than previous -- our previous offering, if you will, prior to RapidStart, they'll start at a lower point. And again, the point is to reduce the risk, get to go live inside of a three-month period and expand after that point. So I'd say the variance between starting point and ending point, while we don't forfeit total lifetime value of a customer is very important. The span between their starting point and their ending point, leveraging RapidStart might be wider. That would be a reasonable assumption to make as opposed to somebody who's starting without RapidStart going full enterprise at the start.And again, I think it's still relatively early days. We're wildly excited about this program because we're seeing it work based on the thesis we had for it. It's working. And it's just wonderful to see the adoption and the interest. As you would expect, when you tell a Chief Supply Chain Officer, shaking my hand, you'll be live inside of 12 weeks. That's pretty dramatic during a global pandemic. And so that's been -- it's been great to see that. And more importantly, it's been great to see the RapidStart early adopters that have already gone live have already expanded. We're seeing the expansion of that activity. So it's working exactly as planned.
And just one last one for me. You mentioned ESG in your prepared remarks. To what degree do you think ESG initiatives -- global ESG initiatives are driving demand for products like RapidResponse? And to what degree do you think RapidResponse from a planning perspective can help companies in their ESG, particularly on the environmental side, like with carbon. Can it help them better manage their footprint?
Oh, do I love this question. There is no question now. Well, there's a few things I will say. There's the recognition that there isn't another craft on the planet. There's not another discipline on this planet that has a more pronounced impact on the health of the world, the health of the environment. You can't run the supply chains without consuming the Earth's natural resources, full stop. And with boards now recognizing that the E in ESG can be dramatically improved, if you will. You can dramatically improve the state of the environment by becoming hyper agile in your supply chain. It's absolutely part of the narrative. It's certainly part of the narrative I have with every single conversation with a Chief Supply Chain Officer.There's absolutely a recognition that concurrency leads to agility. Agility leads to resilience. Resilience leads to efficiency and a lack of waste, right? Elimination of waste, that is absolutely the narrative so it is not just about business anymore. Supply Chains have often focused entirely on the financial measurement on time in full, inventory turns, forecast accuracy, period ending inventory. A lot of financial terms associated with Supply Chain. And now it's environmental footprint. I need to make sure that I run my Supply Chain in the most efficient manner possible, the smallest footprint possible. So I'd love the questions. Great.
The next question will come from Christian Sgro with Eight Capital.
It feels like each quarter partners influence more and more of the pipeline and the wins. I was just wondering if you had any commentary on some of the inbounds you're seeing, some of the traction quarter-to-date and efforts from the direct sales effort?
Well, it's -- it continues to -- to me, that's somewhat of a pipeline kind of a question, and our pipeline continues to be very strong. And couple that with what may become a trend in shrinking life cycle, total sales cycle has us obviously very excited. As it relates to our partners, some of you may have witnessed this on a recent Twitter feed. We've just surpassed 7,500 accreditations that have been distributed to outside parties, outside individuals for certifications. We continue to add significant number of partners. I didn't mention this actually, but it's worthwhile mentioning as it relates to our partners. I believe we're now north of 10 solution extension partners, which we're exceptionally excited about. This is solution extension partners, think of it as an extension of our own R&D factory, right? We're no longer the bottlenecks for innovation.Third parties can extend RapidResponse and add their own intellectual property, similar to what you might see with Force.com and the impacts that has on Salesforce. And so we announced, in fact, Levadata one of them this quarter, and there's others. We're hoping to be able to share with you in the coming weeks. But I'd say the partner influence continues to be a strategic part of our business. We recognize that we cannot sustain the level of growth continuing quarter-over-quarter without help of partners, right? They're in every geography that matters. It's harnessing an army basically. And so we're really thrilled with the progress we're making there.
That's great color. And thinking on the sales pipeline, when you comment on visibility into SaaS growth and expansion into 2022, when you talk about your pipeline? Do you think of your own go-to-market efforts? Or do you incorporate a lot of what your partners are saying into that commentary that your pipeline is as strong as ever?
Well, yes, the answer is both. Absolutely. We continue to have a very strong presence on the street just within Kinaxis. And certainly, our sales -- our field operations team, our sales team work hand in glove with our partners, particularly on the larger enterprise deals, where I'd say that the larger partners have trusted adviser relationships with many of those firms. So I don't have a specific percentage at the top of my head other than to say that it's quite rare. If ever, I hear of a deal that we're working on where a partner isn't directly engaged in influencing the activities.
Okay. That's very helpful. And one more question from my end, the RapidStart versus RapidResponse area we've been digging into on the call. It sounds like customers will join enterprise customers on the RapidStart program with the plan -- communicated plan to expand to RapidResponse over time. Now, it might be early to comment, but I guess it's something that's not put in print, but near formalized? And is that a 12-month timeline that you would expect or more for them to expand? Like how do they approach that conversation and the plans to get to the full router response solution?
So first, I want to just clarify that RapidStart is a deployment methodology, not a product. The RapidStart is a 12-week deployment methodology of RapidResponse. It is absolutely the same software being deployed using, I'd say, industry best practices. And so that's very important to articulate. RapidStart is an implementation methodology to get RapidResponse, the product to go live inside of a three-month horizon. And as I said, in some cases, significantly less than that. In terms of the speed at which we see an acceleration or an expansion opportunity. As I said, I'm thrilled to see that the early adopters that within that cohort, we have seen expansion already. I think it will depend based on each one of these accounts. I don't believe there are, I'd say, statistically enough cases here for me to make a prediction, although I will say the thesis is holding.The point of RapidStart is to get someone live inside of a 12-week window and expand their maturity from there. Whether they expand a quarter later, two quarters later, three quarters later, there's a lot of dependencies there based on individual customers and also geographies and verticals. We're tracking that, but it's too early to suggest an understanding of that ratio.
That's great, John. Thanks for clarifying and thanks for taking my questions.
The next question will come from Nick Agostino with Laurentian Bank Securities. Please go ahead.
I guess, just to revisit a couple of topics from the past. Maybe, John, can you talk about Rubikloud, where you are today as far as integration into the whole RapidResponse? And if you've had any cross-sell successes over the last couple of quarters?
We are in absolute full swing here. As I mentioned in the last quarter, integrating in the elements, the technologies of Rubikloud and fully adopting them within the RapidResponse environment. So that is an absolute full swing. We're working this year in preparation of launching proper, if you will, the retail use cases next year. Have we had successes already? Absolutely. We have retail customers. Now, we've had successes in retail recently. And so it continues -- the thesis behind that acquisition continues to hold. And we're certainly thrilled with the talent, Kerry Lu, who is their CEO, continues to work on the management team. He's an absolutely exceptionally gifted contributor. I will say that.
And if I could just -- on top of that response, I appreciate. How much is -- when you look at the SaaS growth guidance for next year and beyond, are you guys incorporating some of the successes, when you say the retail use case is for next year? Or any success you get on that retail use case, is that going to be just gravy on top of what you guys are seeing so far for 2022?
Well, I would say it's part and parcel of our go-to-market strategy. Our intention is obviously to have a viable, defensible solution for that market. We have proof points already. We've won business already, and we're working to expand those use cases. So it's part and parcel of our go-to-market strategy for 2022 and beyond. Obviously, I will say, and I didn't mention this earlier, so I should mention it now. We continue to see probably the warmest verticals are still life sciences. No surprise, actually during the pandemic that you might see that. Life sciences and consumer packaged goods, which, again, we're seeing a lot of different buying patterns in that particular space. And so those tend to be the warmest. Again, notwithstanding my earlier comments that we're seeing a very well uniformed pipeline. I think I said that last quarter that the pipeline looked quite uniform across geographies and across market verticals.Last quarter, I wasn't able to say six of the seven verticals saw some success in a quarter. And so it's manifesting as the pipeline would suggest. And hopefully, that answers your question.
Yes. I appreciate that. And just one more for me. I know in the past, and I want to say it was about two years ago when you launched the initiative, the idea of the Self-Healing attributes that you're going to incorporate within RapidResponse. Can you maybe just talk about, I guess, what's been the adoption of those Self-Healing attributes over the course of the last couple of years, what penetration you've seen amongst your existing customer base? And I'll leave it there.
Yes, we've absolutely had success leveraging that technology as part of the machine learning team as the [ SKU ] coming out of the machine learning team. And there's certainly a continuation in the product life cycle for that specific capability. That team is also involved in merging, if you will, the technologies of RubiKloud and the technologies of Self-Healing and demand sensing and areas of that nature. So we're pleased with the progress that we're having with the overall machine learning strategy that we launched a couple of years ago. And frankly, I think over the next couple of years, we're going to start to see as an emerging use case, and we're seeing evidence of this emerging use case, where organizations want to automate the obvious. They want to take 80% of the transactions that are required to run a Supply Chain and automate them safely. And so we're looking very hard at that capability at the moment.
The next question will come from Martin Toner with ATB Capital Markets. Please go ahead.
Can you share a few anecdotes about early progress on upselling RapidStart deployment into the full version?
Okay. So again, yes. I will say RapidStart is the deployment methodology of the full version of RapidResponse. So don't -- I wouldn't want there to be a thought that RapidStart is somehow a subset of the total capabilities of RapidResponse. In fact, the point of RapidStart is to apply industry best practices of a fully concurrent environment. That's the way to think of it. Now, the expansion opportunity often occurs when someone will say, I want the full sort of concurrent environment, let's focus on North America only. We'll expand into Europe, Asia and other parts of the world subsequent to our initial go live. And so they'll subscribe to exactly how many sites, users, etc, that are required to get to that point. So think of it that way.The most common leverage, if you will, at RapidStart is focus on a specific area. Sometimes, it's a focus on sales and operations planning as it links to master scheduling, but we'll do inventory later, right? So let's get a full concurrent system across these two functions, and we'll expand to other functions later. But it's not a different piece of software. It's exactly the same piece of software. So often, as part of a sales cycle, we work to establish what will that journey look like. It's a journey to digital transformation. It's not a boil the ocean. It's a journey following agile methodologies, where you iterate and you progress over a period of time to ultimately have full concurrency across the entire enterprise.But again, RapidStart is a methodology designed to get concurrency as a foundation, embedded in an organization within a 12-week period, it is often a specific region, first, with the intent to expand beyond that region later. Sometimes it's all regions, but a subset of product families. And sometimes it's a two or three specific areas of the Supply Chain with the intent to expand across all areas later. So it's very flexible that way. But again, the point is to focus on the areas of Supply Chain that are experiencing urgent pain. There's important pain and there's urgent pain. So we work with the prospects to ensure that we're attacking the urgent pains first and expanding from that point forward. Hopefully, that gives you some good context to your question.
Yes, that was great. And I apologize for the awkward wording of the question.
Great. You had it right.
Next question is -- and this is -- maybe this is a stupid question, but let me ask it anyway. You can't turn around without seeing Supply Chain disruption in the media. Can you see the impact of that on your pipeline?
Well, yes, I think we're seeing the general interest. Absolutely. There's -- and that was manifested in our big ideas event. We track inbound leads and such. And so absolutely, I think we're seeing the impact of this. People are realizing that the old methodologies to govern Supply Chains. The way Supply Chains were wired in the past, which were optimized every chain link one at a time with the assumption that you optimize the chain. That has absolutely been proven to be flawed.And so now, people are coming to us in search of a new and improved technique. There's a recognition that we cannot be agile, leveraging legacy approaches to Supply Chain. And so I do think the global pandemic is highlighting that. There's a recognition that you can't trust all the assumptive parameters that drive all of these optimization technologies can't be trusted. And so many of the old techniques have fallen down. They've just absolutely crumbled and failed. And so yes, I think that this -- the condition that the entire planet is in is driving what I call a renaissance. I really do believe we are experiencing a renaissance in supply chain planning as we speak.
That's great. Thanks so much for that, John. The R&D line, it kind of ticked up this quarter. Is that -- is there anything unusual in there? Or should we just grow in estimates, should we sort of think of that number just continuing to grow from here?
Well, again, it's -- it depends how we think we'll grow. We will continue to hire for our R&D team. Obviously, there's a big opportunity that we see, especially with John mentioned with the Supply Chain renaissance that we're going through. We need to make sure that we're prepared to meet all the needs and all the demand that we're getting from these prospective customers along the way. But as a percentage, and I would -- again, I would think about not as a percentage of revenue because we have the subscription term license in there. I would think of it as percentative ARR. And so think about that as being a stable percentage going forward rather than looking at total revenue at any point in time just because of the volatility that you'll see there.
This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Rick Wadsworth for any closing remarks. Please go ahead.
Thank you, everyone, for participating on today's call. We appreciate your questions and your ongoing interest in and support of Kinaxis. We look forward to speaking with you again when we report our Q4 2021 results. Thanks, and goodbye.
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.