Kinaxis Inc

TSX:KXS

Earnings Call Transcript 2017-Q4

[Operator]

Good day. Good morning, ladies and gentlemen. Welcome to the Kinaxis, Inc. Fiscal 2017 Fourth Quarter Conference Call. [Operator Instructions]I'd like to remind everyone that this call is being recorded today, Thursday, March 1, 2018.I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis, Inc. Please go ahead, Mr. Wadsworth.

[Rick Wadsworth]

Thanks, operator. Good morning, and welcome to the Kinaxis earning call. Today we will be discussing results that we issued after the market closed last night.With me on the call are John Sicard, our President and Chief Executive Officer; and Richard Monkman, our Chief Financial Officer.Before we get started, I want to emphasize that some of the information discussed in this call is based on information as of today, March 1, 2018, and contains forward-looking statements that involve risks and uncertainty. 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 and non-IFRS financial measures. A reconciliation between the two is available in our earnings press release and in our MD&A, both of which can be found in the Investor Relations section of the Kinaxis 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 our Investor Relations 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 our 2017 highlights and recent developments, followed by Richard, who will review our financials. Then John will make some closing remarks before opening up the line for questions.I'll now turn the call over to John.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Good morning. And thank you for joining us today.2017 was a fantastic year on many fronts. We remained true to our business [ integrity ] of sustaining strong revenue growth and profitability. Subscription revenue grew 23%, and we achieved adjusted EBITDA of 30% with solid cash generation.We've added a number of great names to our customer base and continue to expand across many others. This year, we also strengthened our executive team while simultaneously building out our global operations in Europe and Asia. Our consistent business performance and growth is directly related to the potent benefits our products bring to the market.We are the only company in our industry uniquely capable of delivering the immense potential of concurrent planning. More than just unique technology, we are bringing forward a new and unique technique to planning. This vision and capability continues to attract the business of the world's largest companies looking to revolutionize their planning processes. New and existing customers that recognize the need for a change in how they plan on leveraging our expertise in concurrent supply chain planning to drive breakthrough business outcomes.While our single solution spans a number of industry verticals, I'm pleased to note we've enjoyed increasing success with automotive, consumer packaged goods and life science enterprises. In fact, we have just closed our fifth major automotive brand and continue to see additional interest from other major accounts.Last month, we announced that Toyota had selected RapidResponse to manage its automotive demand and supply chain processes. As one of the world's largest automotive manufacturers with a strong reputation for quality, Toyota will leverage the power of RapidResponse to optimize its inventory levels while providing improved production flexibility as customers demand changes. We are thrilled to have earned the trust and confidence of Toyota. I look forward to demonstrating the strong value of RapidResponse while growing our relationship with them over time.As further validation of our market leadership, Kinaxis has once again been recognized by an influential industry analyst group. Nucleus Research just identified Kinaxis as a leader in its recent Control Tower Value Matrix, which provides an in-depth review of the top 13 control tower vendors. Nucleus cited some of our unique concurrent planning capabilities as a key factor in its assessment.As I mentioned throughout 2017, the vast majority of our new customer activity was influenced by our global partners. With our growing partner ecosystem, we are accelerating our ability to engage prospective customers, and they are accelerating their ability to deploy our solutions.To further support our partners' capabilities, we recently launched the Partner Enablement Program. We specifically developed the new program in direct collaboration with our partners, with the sole intent of accelerating their skills and knowledge.As I've mentioned in the past, we are seeing an increase in partner-led deployment of our product, as we intended. We believe that the stronger our partners become, the greater our business potential will grow.Our partner program is just one of the key investments we will continue to make as we enter 2018. First, we are significantly expanding our sales and marketing capabilities. In particular, we are increasing the sales team, which comprises of account executives, business consultants and industry principles, by 40%. These additions will be made globally.However, to continue our significant momentum in Europe and Asia, we will apply a heavier weighting towards these regions. Our partners have been supporting us very well in Europe and Asia, and we are well positioned to take advantage of that success and a growing and robust pipeline of new opportunities.Secondly, we are increasing our investments in research and development as we continue to enhance the industry's only concurrent planning solution. We will be working on a number of initiatives. But in the short term, some areas of focus include enhancements to our analytics to support the growing opportunities in automotive and consumer packaged goods verticals, and productizing our initial machine learning capabilities as a step towards creating the self-healing supply chain. Third, we will be building our world-class datacenter capabilities in Japan later this year.These are just some of the key investments we are making to continue to scale our business through 2018 and beyond. I'm thrilled with the success our team has achieved in 2017. And my confidence in our future remains very high.With that, I'll turn it over to Richard for an overview of the financials.

[Richard George Monkman]

Thank you, John, and good morning.As a reminder, all figures reported on today's call are in U.S. dollars under IFRS.Total revenue increased 14% and 15% in the fourth quarter and full year periods respectively to $34.4 million and $133.3 million. Our revenue is driven predominantly by our strong base of subscription revenue, which increased 19% and 23% in the fourth quarter and full year periods respectively to $27 million and $100.8 million.As we've discussed on previous calls, and as John has just noted, our partners continue to assume a greater role in new customer deployment activity in 2017. As a result, professional services revenue declined by 2% and 5% in the fourth and full year periods to $7.2 million and $31.5 million. Gross profit increased by 19% and 17% for the fourth quarter and full year periods respectively to $24.7 million and $93.5 million.As a percentage of revenue, gross profit was 72% in Q4 2017 and 70% in fiscal 2017, compared to 69% in the prior year period. The increase in gross profit in the respective periods was driven by the higher growth rate of our revenue compared to our costs, and also the subscription revenue to total revenue mix.Adjusted EBITDA as a percentage of revenue was 32% in Q4 2017 and 30% in fiscal 2017, compared to 25% and 21% in the respective prior year periods. This was an increase of 73% and 40% for the fourth quarter and full year periods to $11.2 million and $40.1 million. This strong performance was a gain, a result of the higher growth of total revenue compared to operating expenses excluding share-based compensation.In particular, for the fourth quarter and full year, selling and marketing expenses decreased compared to the prior year periods due to a decrease in the contract customer acquisition costs related to timing of securing new contracts. Our policy is to expense contract acquisition costs related to new and expanded customer arrangements upon commencement of the related revenue. Consequently, selling and marketing expenses for the fourth quarter of 2017 do not reflect customer acquisition costs for certain contracts secured with customers in the fourth quarter of 2017, for which revenue recognition commenced in fiscal 2018.Q4 2017 profit increased $3.8 million to $5.5 million or $0.22 per basic and $0.21 diluted share at full year 2017. And full year 2017 profit increased $9.6 million to $20.4 million or $0.81 per basic and $0.77 per diluted share. The increase of profit was primarily driven by the increase of subscription revenue, partially offset by our investments in professional service and datacenter capability, research and development and an increase in share-based payments.Demonstrating the ongoing robustness of our business model, cash generated by operating activities was $12.5 million for the fourth quarter and $33.6 million for the full year period. This strong performance represents 25% of 2017 revenue and 27% for 2016. The nature of our long-term contracts provides us with a high level of visibility into our forward 12 months of revenue.Our customer base is diversified across multiple vertical markets, and our pipeline in new opportunities remains strong. This supports our ability to provide full year guidance with confidence.Under IFRS standards as applicable at December 31, 2017, and based upon the existing contract backlog and the strength of our sales funnel, we expect total annual revenue for fiscal 2018 to be in the range of $158 million to $163 million. Subscription revenue will continue to be the growth driver. We expect subscription revenue growth to be between 23% and 26% over 2017.Reflecting the growth initiatives that John mentioned for 2018 and our expectations, the sales and marketing expense will grow from the range of 22% in 2017. We expect it to grow to a range now of 24% to 27% of revenue. Given product initiatives, we expect net research and development expense will remain in the range of 17% to 19%.This level of investment is critical in positioning us for long-term growth, and we expect to see this benefit our direct sales capabilities, our partner relationships and [indiscernible] services. We also believe this will provide us with greater scale through enhanced customer success.The visibility of our long-term revenue continues to provide us with support and confidence to invest in these future growth initiatives. Based on our investments and near-term customer opportunities, we expect annual adjusted EBITDA as a percentage of total revenue to be in the range of 23% to 26% for 2018. As noted in our MD&A and financial statements, beginning in 2018, Kinaxis will be adopting the new IFRS 15 and IFRS 16 provisions. We will report on the first quarter results in May. We will provide a reconciliation of the adjustments related to adopting these new standards. We will also provide guidance for the remainder of 2018 that reflects this adoption.To further assist readers, we will continue to provide results for 2018 based upon prior years' IFRS standards for ease of comparability. Through RapidResponse, we provide very large enterprises, the capabilities to solve the critical business challenges. We support them in driving savings while strengthening their relationship with their customers. While no sector or business is immune to economic cycles, the maturity of our model, the diversity of our revenue base and the strength of our innovative product provides us with sustained confidence.With that, I'll turn the call back over to John.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Thank you, Richard.As you've heard from Richard, we made great progress in 2017. We are in an enviable position to continue our growth through 2018 and beyond.The continued strength of our financial performance, the growing adoption of our breakthrough product, and the continued participation from our partners provides me with great confidence in our business model and business potential. With this confidence comes an acceleration of key investments needed to accelerate that growth.We will accelerate our investments in the global sales and marketing team, in particular throughout Europe and Asia, where we have seen great success. We will accelerate product innovation through incremental investments and research and development. And we will continue to expand our datacenter capabilities. These investments will better position Kinaxis to capture the strong demand that we are seeing from the world's largest companies.On behalf of Kinaxis, I'd like to thank you for your support and, as always, for taking the time to join us.With that, I'll turn the line over to the operator for Q&A.

[Operator]

[Operator Instructions] Your first question comes from Thanos Moschopoulos from BMO Capital Markets.

[Thanos Moschopoulos, VP & Analyst]

John, you mentioned your plans to increase the sales team by 40%. And you mentioned it's focused on geographic expansion, which makes sense. But my question is, why is the big step up happening now as opposed to, say, last year? Is that reflective of an acceleration in the growth in the pipeline? Might it be reflective of the increasing maturity in the partner channels and the increasing [ support they need ]? If you could clarify that?

[John Ernest Sicard, Chief Executive Officer, President and Director]

It's really all of the above. We've always been responsible operators. And part of being responsible is recognizing when you start to see that momentum grow is to get prepared. And we're definitely seeing strengthening activity in Asia. And just in 2017, you saw a release with Nissan, Toyota, Santen. Santen was our first life sciences customer in Japan. We opened up our datacenter recently in Europe, and we are seeing a strengthening pipeline there. And more importantly, we're seeing a lot of activity from our partners in those two regions. That's not to say that we're seeing any weakening in North America whatsoever; this is additive. We're seeing strengthening activity in those 2 regions. And as we've said in the past, while the vast majority -- as we saw in 2017, the vast majority of new-named accounts that we're winning are partner influenced. We have a sales team that comprises of account executives, industry principles and business consultants that work hand-in-glove, if you will, with the teams at those partners to win those deals. So that's where we are confident enough that now is the time to accelerate our investments in sales and marketing.

[Thanos Moschopoulos, VP & Analyst]

And aside for the geographic dynamic that you highlighted, have there been any other changes that you'd call out with respect to the composition of the pipeline that you're seeing?

[John Ernest Sicard, Chief Executive Officer, President and Director]

Absolutely, Thanos. It may've been the last earnings call, but definitely I've made this statement during earnings calls in the past, that life sciences has surpassed our previous vertical in terms of the highest component of our revenue. And as I just noted, we just closed our fifth large automotive company. And so both of those are yielding quite well for us. High-tech continues to be strong, consumer packaged goods continues to be strong. So again, those are the -- I'd say, if I were to apply some color, we're seeing some strength in those specific market verticals.

[Thanos Moschopoulos, VP & Analyst]

And then, one for Richard -- could you clarify the impact of U.S. tax reform on 2018?

[Richard George Monkman]

Sorry, you said the U.S. tax reform?

[Thanos Moschopoulos, VP & Analyst]

Yes, will that be changing your tax rate at all?

[Richard George Monkman]

We anticipate there'll be a modest adjustment. We are a Canadian parent company. We've had long-term transfer pricing models in effect. The Canadian tax rate continues to remain low. So there'll be some benefit, but it won't be material at this time.

[Operator]

Next question comes from Richard Tse from National Bank Financial.

[Richard Tse, Managing Director and Technology Analyst]

Those investments in the sales and marketing, and the momentum you're talking about -- is it reasonable to assume that the growth rates here, not necessarily for '18 but '19 going forward, could actually accelerate on a subscription basis?

[John Ernest Sicard, Chief Executive Officer, President and Director]

That's a great observation, Richard, and exactly what we're preparing for. Our sales cycles, even with the partner influence, while it can drive some momentum in the overall pipeline, we haven't necessarily seen an acceleration of deal closure. We're still, as you know, becoming part of business fabric for these large enterprises. And so as I've said previously, part of our job is to recognize when you start to see momentum and invest in advance of that to make sure that you can take advantage. And so the short answer to your question is yes. Now these investments we're making today are in direct preparation for acceleration that we can see through 2019 and beyond.

[Richard Tse, Managing Director and Technology Analyst]

Okay. And then, with respect to sales and marketing again, does that also have to do with Paul joining the company and sort of his evaluation and input in terms of what he's seen in the past, in terms of what you need to do from the scaling perspective?

[John Ernest Sicard, Chief Executive Officer, President and Director]

Yes. In fact, Richard, Paul has extensive, extensive experience working through Europe. And that has definitely proven to be helpful to Kinaxis in growing the partners in that region and building momentum. We brought Paul on for that purpose. He knows what $1 billion of revenue looks like. He's carried that for many, many, many years. So bringing him on and having him build the appropriate relationships with partners, and building the appropriate sales support team to seize the potential, is what you're seeing reflected in our forecasts.

[Richard Tse, Managing Director and Technology Analyst]

And a last one for me is, maybe you can give us an update on the competitive environment? Like some of the things that we've been hearing about is that you're clearly doing a lot of damage to some of your competitors. And so they're resorting to tactics like aggressive pricing here. So how has that sort of changed over the past while? And that's my last question.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Thanks, Richard. In fact, you're right that -- we call it poisoning the well. When a competitor knows they're losing, they try to fight based on price. We don't play that war. It is common, in fact, that we win our opportunities, and our price is higher than our competitors'. That's common. And in the end, our prospects, our customers, are looking for a cure, not a placebo. They're looking for a cure. And when we talk about the potency of concurrent planning, that's a cure. And we go through extensive proof of concepts with them. They've experienced the power that we're bringing them, and the business outcomes. And so the monetary aspects, if you will, play lesser of a role. Our prospects are looking for something that works. I have to say the most expensive decision, and the most expensive decision you can make, is to buy something that's free. And so essentially, this hasn't necessarily been a friction point for us.

[Operator]

Your next question comes from Paul Treiber from RBC Capital Markets.

[Paul Treiber, Associate]

Just [ wondering ] to the sales and marketing investments, just given the sales cycle, the typically long sales cycle that you have, how long do you anticipate to ramp up these programs? And how long do you think it would take for the new hires to begin driving revenue?

[John Ernest Sicard, Chief Executive Officer, President and Director]

Paul, as you know, a little over 2 years ago, we brought on Sarah Sedgman as our Chief Knowledge Officer. She's since taking on more responsibility, in fact, within the company. But part of her mandate was to build an education framework not only for partners -- I mean, the initial thrust was to prepare partners to learn to sell and deploy RapidResponse -- we're using and leveraging all of her work, her team's work, to accelerate learning of new hires. So while everyone is different, we anticipate certain individuals that we're hiring within sales will be ready to contribute within sort of that 6- to 8-month timeframe. Now that said, we're allocating pipeline as we hire these particular individuals and connecting them with associated partners. In Europe, for example, we announced last year a partnership with MSE. And they've been extremely active with us. And so we're making those associations and growing the team appropriately. The other thing I would say -- and this is, I think, also very important -- when we say we're accelerating our investments in sales and marketing, and particularly growing the sales team by 40%, it's frontend loaded. We are accelerating that, as we speak, very aggressively. And again, part of our thesis, if you will, is bring all of these people in immediately and train them simultaneously, as opposed to spreading it out. That's what we're doing.

[Paul Treiber, Associate]

And then, these new investments -- obviously, they're focused on scaling the company -- what do you see as the biggest risk as you scale the company up to the next level?

[John Ernest Sicard, Chief Executive Officer, President and Director]

Well, certainly, when we look at the geographic expansion, and our ever-growing partner ecosystem, getting coverage, frankly, maintaining coverage for the number of partners that we have signed, is one of those things that keeps me up at night. We have signed more partners than we have announced. So there is a lot of activity going on right now with those partners. And so I'm working very closely with Paul on this particular topic -- and again, some of these partners are in Japan, some are in Europe. And making sure that we're getting adequate connection points with sales and marketing staff is one of those areas that I'm focused on.

[Operator]

Your next question comes from Paul Steep from Scotia Capital.

[Paul Steep, Analyst]

John, could you talk a little bit about any thoughts around realigning the professional services team that you and Paul have had, given that you've increasingly utilized that partner network over the last couple quarters. Any changes we should think about there?

[John Ernest Sicard, Chief Executive Officer, President and Director]

I think it's precisely what we have described. And it began last year. If you recall midyear, we recognized the speed at which our partners were adopting the deployment scale was faster, frankly, than we had anticipated. And we had planned this to happen. We've always thought great, successful SaaS companies look more like an 80% subscription/20% services support. And we're definitely seeing that trend continue. Obviously, we have an assurance program with our partners, so we are -- it's very common to have our professional services team working alongside our partners, where our partners are prime. But I wouldn't say there's any change in how we're working with our partners there. Again, we're definitely seeing partners pick up the prime position and Kinaxis picking up the supporting role. Doesn't mean no role, it means the supporting role of those deployments. And the forecast that you're seeing here, and what we're reflecting for 2018, frankly, it reflects that program continuing as we've designed it.

[Paul Steep, Analyst]

I guess the second one for me would be, Richard, how would we want to think about the datacenter build-outs and CapEx through '18 in terms of relative levels? '17 was a fairly heavy year. Is it sort of the same level into '18 again?

[Richard George Monkman]

Yes, Paul, we anticipate that is still going to be in that range. As you pointed out, in particular, as we've guided in Q4 with the launch of the datacenter in Europe, now with the expanded capabilities in Japan as well as, quite frankly, just to support the other growth in the business, other datacenter expansion, we anticipate CapEx will probably continue to be in the $11 million to $12 million range for 2018.

[Paul Steep, Analyst]

One quick last one for me, for either of you, I guess -- we've talked lots about Europe this morning on the call. How should we think about that in terms of the mix? As you sort of exit over the next couple of years, you'd said that obviously the U.S. or North America is not slowing, but there's a ramp. And we've seen that in the last couple quarters. Where do you think you want to see the European and Asian business, I guess, get to on a percentage basis, out a couple years?

[Richard George Monkman]

Yes. So we're very excited. I mean, we've had significant success. And as John noted, our expectations are that we'll continue in Europe. But as you know, Paul, we deal with global companies. And in many instance, while the focus has been with the European-based company, they have often signed that through their U.S. subsidiary. So we have this situation on an ongoing basis where our supplemental note disclosure really doesn't align with where our customers are based. But absolutely, growth in Asia, growth in Europe, growth in North America. But these are again global scale operations.

[Operator]

Your next question comes from Gus Papageorgiou from Macquarie.

[Gus Papageorgiou, Associate Director for Technology Research]

Just a clarification first. John, you said you want a [indiscernible] auto customer. So that's not Toyota, right, that's someone in addition?

[John Ernest Sicard, Chief Executive Officer, President and Director]

That's correct.

[Gus Papageorgiou, Associate Director for Technology Research]

And I guess my broader question is, you guys are unique as a SaaS company in that you're highly profitable. You're much more profitable than much larger SaaS companies. I'm just wondering, how do you balance this growth versus maintaining profitability? You seem to be accelerating spending here. Why is a 40% increase in the sales staff the right number? Like why isn't it 100%? I'm just kind of wondering, if you're looking forward, how do you balance how much you're investing versus how much you should grow? And is there a profitability level that you just don't want to break, that you don't want to reach regardless of how much growth you could achieve?

[Richard George Monkman]

Yes. Gus, as you've -- thank you for noting that we are very unique, in that it is a growth company as well as a very strong bottom line. And I think you'll probably note the very strong cash generation. But we are, first and foremost, a growth company. And so all our efforts are based off on that. We've said all along that we are not shy to apply the rigor that John discussed. And as example, here is the significant increase in sales and marketing from that 22%, 23% range; we're guiding that 24% to 27%. Because we believe now that we're taking advantage of those additional opportunities. But just the subscription nature of the business -- a gain in the area of 80% of our subscription lock and backlog won't provide the annual guidance. We can do that with confidence. But our goal is to accelerate to the growth rate. And as indicated by our initial guidance, the subscription revenue growth rate is higher for 2018 than it was for '17. So this is very much a growth focus and could sustain the investment. And it is a longer-term view. I think as you know, this is not a quarter-by-quarter. So that business model is going to continue.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Yes. Gus, let me just add to Richard's comments. We don't throttle the business. It's not a question of us throttling to maintain some profitability. We do believe that responsible SaaS companies should be very predictable in both growth and profit. And so that's always been our pedigree. And so we are now -- as I said, we're monitoring what I'll call momentum indicators. For example, we monitor unsolicited inbound leads. That's a key for me. We're not harvesting out of a marketing program. No, someone's ringing our doorbell and coming to us. And we monitor that very closely as a momentum indicator. Obviously, our growing partner ecosystem and having their relationships and their privilege grow the pipeline. We monitor that. And so our plan for this fiscal year and what we've presented represents, I'd say, with great precision what we believe is the appropriate investment to continue along our pedigree.

[Gus Papageorgiou, Associate Director for Technology Research]

Just wondering if there's any way you can give me a sense of that index of the unsolicited inbound leads, how much that has increased, if that's possible.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Again, that's something that we have presented in the past. As indicator, I can tell you that it has been increasing steadily for at least the last 5 quarters or so. And again, that isn't the only indicator, it's one, when combined with the other elements that we monitor. And the success that we're seeing, separately in Europe and Asia -- that is where the management team has made a determination that we're starting to see -- we have to prepare ourselves for that momentum.

[Richard George Monkman]

And Gus, what is exciting is we've always felt that we are going to continue to increase our awareness. Being a public company has helped that, certainly, being continually recognized in leadership quadrants and other market notes. But what we're seeing through the partners as well is now recognition of the value of current planning. And so it's a number of awareness themes. And one of the investments is, it is sales and marketing, so we will be continuing to work to enhance that profile and our visibility.

[Operator]

Your next question comes from Kevin Krishnaratne from Paradigm Capital.

[Kevin Krishnaratne, Analyst of Technology]

First, just a quick one from me on the expense side of things -- how do we think about your expectations on gross margin in 2018 and perhaps beyond, especially if partners are taking bigger-ticket client wins? I'm just wondering how margins will evolve versus the kind of 70% range we saw in '17.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Great question, Kevin. Sort of mathematically, the subscription revenue is at a higher margin, I think, clearly, in professional services. And you already saw some gross profit expansion. We are continuing, obviously, to invest in not only professional services but in the datacenter. That's a COGS cost. So I think longer term, you'll see that expansion trend continue. But given this investment theme, I think that 70% range, plus or minus, is the appropriate range for the near term.

[Kevin Krishnaratne, Analyst of Technology]

And then, the next question from me again, just to pull back on the sales increase there, I'm just wondering if you can talk about -- you mentioned that you're trying to accommodate the growing partner roster. Is that to mean that it's to actually support partners that you have right now? Or are you trying to get in front of potential partner wins? And also, some of that increase, is that because your existing partners are just seeing an increase in their client conversations; they've come back to you saying, look, we need some more support?

[Richard George Monkman]

It's really both. We've shared that we now have over a dozen partners, we're going to continue to build the partners. I think you are familiar that, in our case, this is not simply a local acquisition. These are individuals that are investing in training, as John noted, with the knowledge services, and expanding. We're very pleased to see -- while we're not in a position to disclose specific numbers of trained practitioners in our communities, in the order of 2x range over the last year. So we are going to continue to see they are investing, we're investing with them. And so absolutely, we're going to be putting additional resources for them, additional personnel. Because that's where we see the long-term win rate, and that's where we see not only a capability to accelerate our growth rate but also to assure quality execution of those wins.

[Kevin Krishnaratne, Analyst of Technology]

And then, I guess the final one for me, just to speak on the R&D investment -- you did call out some bills related to auto and perhaps to any other verticals there. I'm just wondering your thoughts on building versus buy, given your cash balance.

[John Ernest Sicard, Chief Executive Officer, President and Director]

It's a great question. And our strategy around the buy side of things is to look for things that might be technically accretive. So there's a very gates, obviously, that would have to get passed. [ One ] technically accretive, so bring us into a market vertical that we're not in, or provide some technical capability or strength, where we have some weakness. And again, it has to be SaaS-ifiable, what I call SaaS-ified. And there's a lot of technologies out there that were built on an on-premise kind of perpetual type of model, which could quite frankly poison our own technology. So we're very careful about that. Third, scale. A lot of great technologies out there that just weren't built to support the type of scale that you might encounter at a Toyota, for example. And so in some cases, we have to turn to our own R&D expertise to maintain the type of speed, scale and supportability of RapidResponse. Now I will say it's not a question of that door being closed. We have looked at some things in the past, they just don't necessarily pass those specific gates. And so we don't look at that as slowing us down, it just means we continue our investments in prioritizing in the verticals that we see as having some momentum.

[Richard George Monkman]

And we will continue to evaluate opportunities.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Yes.

[Operator]

Your next question comes from Nick Agostino from Laurentian Bank Securities. Your line is open.

[Nick Agostino]

I guess, just a quick question with regards to a comment you guys made earlier. You'd indicated that you've got more SI partners and/or just partners in general than you have disclosed to investors right now. And then, we also know that it typically takes about 12 to 18 months for your SI partners to reach a certain level of maturity so that they can go out and be more effective. Can you maybe just give us a sense of, just given the size of your partner relationships, how many of them have reached that maturity level versus being more in the incubator stage? And specifically, I'm just thinking about Bain Capital. We haven't heard much about them, just wondering if they have -- whereabouts are they in that whole cycle? Are they reaching a point where you anticipate they'll start to deliver some contracts for you, if they haven't already? That's it.

[John Ernest Sicard, Chief Executive Officer, President and Director]

Good question. So first, as I mentioned, the vast majority of the new-name wins for 2017 were partner influenced. Not every partner participated. But I can tell you that in 2017 we saw the most broad participation in the history of the partner initiative. So we had many partners directly involved in influencing deals. Related to Bain, again, we would say this about any of our partners -- we don't necessarily make specific comments about any one partner. We continue to work with them and educate their teams, and get them certified, as we are the rest of the partner ecosystem. And to your question on us having more partners than we have announced, I've always talked about having partners in the incubation phase, what I call the incubation phase. So there has not necessarily been a formal contract signed, if you will, like we have with Accenture, Deloitte and MSC and others. But we are in direct participation in working with them on deals. And this is typical, where that's how it starts. And then we start that relationship with a win, which then leads to a more formal arrangement. The other thing I will tell you is that we have signed arrangements where the partner doesn't wish to make it public, for their own reasons. And so that is a situation that we also have, where we're actively engaged. Lots of activity and pipeline development with a partner that we have signed and formal agreement with, that we simply will not make public because of a restriction on their side. So that sort of gives you some color as to what the partner portfolio looks like.

[Operator]

Your next question comes from Suthan Sukumar from Eight Capital.

[Suthan Sukumar, Research Analyst]

The first question for me is, just kind of given this continued strong traction you're seeing in core markets, but with the growing pipeline, can you speak to some of the progress you're making in new verticals, especially some of the nonmanufacturing opportunities that you've touched on in the past?

[John Ernest Sicard, Chief Executive Officer, President and Director]

Well, the primary I see -- I would say the primary acceleration, if I was to pick one vertical where we're seeing acceleration -- not necessarily the same volumes as we've discussed around life sciences, which continues to be very warm for us -- but the primary acceleration right now is in the automotive industry. And we've mentioned Toyota, we've announced Nissan in the past, there are others. I've just mentioned there's a fifth, which we have not announced. That's an area for us of great interest. It's a vertical right now undergoing tremendous transformation as it relates to supply chain. And so it's ripe. So that's also one of those verticals, similar to life sciences, where you can gain trust by association. The fact that you have learned the supply chain space within some of the largest companies in automotive -- let's just say it attracts, it's a bit of a magnet. It creates a little bit of traction for those that we're targeting and pursuing.

[Suthan Sukumar, Research Analyst]

And could you provide a sense of your customer tally today compared to last year? Any change in the size of your prospective customer base? And any observations on kind of the changing nature from the customers that you're seeing?

[Richard George Monkman]

Yes, the customer base absolutely continues to grow. We don't disclose the exact number of customers. Because we can have an arrangement with a customer that's in the order of $5 million or more per year. And we can have an arrangement that's in the $500,000. Our focus is really securing -- it's a land-expand model -- securing that initial relationship with the customer, showing the value, and then providing them strong ROI, so then we'll continue to grow. And so we're at the juncture whereby I will tell you it's growing. And as you can see, it's growing also in the top line. But we're not actually providing the specific customer count.

[Operator]

Next question comes from Rob Young from Canaccord.

[Robert Young, Director]

First question I might ask is about the 2 large auto OEMs just recently you've added. It seems as though the sale cycle on those was accelerated, was faster. And I think you said earlier in the call that you hadn't really seen a change in the duration of the overall sales cycle. I was wondering if you can talk about that, if I'm right there, and what might've driven it.

[John Ernest Sicard, Chief Executive Officer, President and Director]

So both of those accounts were in play for some time. They happened to close one following the other, in relative close proximity. But I wouldn't necessarily suggest that the overall sales cycle was reduced for one or the other. I think what I can say as it relates to the automotive space is, as we gain momentum with some massive name brands -- and obviously, we're thrilled when you can earn the trust and confidence from one of the world's largest companies, let alone largest automotive company. It generally will create interest from many others. And so that's where we see again -- as I've mentioned, if I was to pick one that was accelerating, a vertical that's accelerating, it would be that vertical ahead of others. So to answer your question, Rob, I'd say there isn't necessarily anything you can learn from overall sales cycle length. We still, even for these, many of them very conservative, they know they're making a decision on supply chain transformation, we become part of their business fabric. And so they take that very seriously and put us through our paces.

[Robert Young, Director]

Second question for me is around the partner-led deployment, you said earlier in the call. Are these partners, are they trying to take the lead on the lead generation, and like talking to their customers and telling them that Kinaxis is the best solution? Or are they waiting for the customers to make that decision themselves and helping them through the deployment? Is anything changing there in the way that they're engaging?

[John Ernest Sicard, Chief Executive Officer, President and Director]

Yes, I think as we mentioned, this technique -- and I really am quite passionate about it, obviously -- I think more than just this unique technology that we've invented is that we've invented a new technique, in how to plan a supply chain, is what the message -- I'll call it the lead message that our partners are working with. And yes, in many cases, they're bring us prospects because of conversations that they're having with their customers about concurrent planning. And if one of these manufacturers makes that decision, that concurrent planning is the future, is the breakthrough they're looking for, well, there's really only one place to buy it. And that's where that relationship gets merged with us.

[Robert Young, Director]

And last question for me is just around the subscription revenue growth guidance. If I look back to Q4 last year, the guidance that gave is a little bit higher than it is now. And it sounds as though you're very bullish about particularly 2019, but it also sounds that the outlook is very strong. And so I'm curious, are there one-time items in there, or starting to think about why the subscription revenue growth would be lower at this time than it was when you gave it last year, and then in the past [ month ].

[John Ernest Sicard, Chief Executive Officer, President and Director]

Well, the beauty of subscription revenue, and also given our stickiness, is that we view that very much as a stair function that continues to grow. We are guiding above the performance level in '17. And as our practice, Rob, we'll monitor that and provide guidance as we move through the year. As I noted briefly earlier on the call, one of our key metrics is looking at sort of our 80% rule as to what's actually locked and loaded. One of the things also that we're sensitive to is that we are interested in the long-term relationship with the customer. And we're not going to focus on a quarter-over-quarter view. And so therefore, our ability to close a customer starting, say, July 1, obviously drives more revenue than if that customer were to start September 1st. But if it makes sense for the customer to feel comfortable and for us to make sure that the relative value are aligned, that it's deferred, then we're going to -- that might take a little bit longer to close. So it really is focused on the long-term cumulative subscription revenue growth. And we'll revisit this guidance as appropriate at our May call.

[Operator]

At this time, I will turn the call over to Mr. Wadsworth for closing remarks.

[Rick Wadsworth]

Thanks, operator.Thanks, everyone, for participating on today's call. We appreciate your questions and your ongoing interest in support of Kinaxis. We look forward to speaking with you again in May, when we report our Q1 2018 results. Goodbye.

[Operator]

This concludes today's conference call. You may now disconnect.