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spk11: Good morning, ladies and gentlemen. Welcome to the Canaxis Inc. Fiscal 2022 Second Quarter Results Conference Call. Currently, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for questions. I'd like to remind everyone that this call is being recorded today, Wednesday, August 10, 2022. I'll now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Canaxis Inc. Please go ahead, Mr. Wadsworth.
spk04: Thanks, operator. Good morning and welcome to the ConAXIS earnings call. Today, we will be discussing our second quarter results, which we issued after closing markets yesterday. With me on the call are John Sicard, our President and Chief Executive Officer, and Blaine Fitzgerald, our Chief Financial Officer. Before we get started, I want to emphasize that some of the information discussed in this call is based on information as of today, August 10, 2022, and contains four looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements. For discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release as well as in our CDAR filings. During this call, we will discuss IFRS results and non-IFRS financial measures, including adjusted EBITDA and constant currency results and metrics. A reconciliation between adjusted EBITDA and the corresponding IFRS result is available in our earnings press release and in our MDMA, both of which can be found on the investor relations section of our website, canaxis.com, and on CDAR. 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 website archive may be re-recorded or otherwise reproduced or distributed without prior written permission from Canaxis. To begin our call, John will discuss the highlights of our quarter, as well as recent business developments, followed by blame. We'll review our financial results and outlook. Finally, John will make some closing statements before opening the line for questions. We have a presentation to accompany today's call, which can be downloaded from the investor relations homepage of our website, tenaxis.com. We'll let you know when to change slides. I'll now turn the call over to John.
spk09: Thank you, Rick. Good morning, and thank you for joining us today. I'll be starting slide four. Our second quarter results demonstrate the momentum we continue to experience in our business. While foreign exchange fluctuations are a headwind to reported results for global SaaS companies right now, our constant currency results pierce through that to reflect the very strong underlying fundamentals in our market. For the second quarter, in constant currency, we saw SaaS revenue growth of 27%. total revenue growth of 42% and adjusted EBITDA margin of 15%. Our constant currency ARR grew by 25% in the quarter, a record level for this important indicator of growth in our subscription business. Blaine will provide all the specific details on reported and constant currency results momentarily. Turning to slide five. Our momentum winning new customers continued in the second quarter. We've seen well over 50% growth in new customer wins so far this year compared to the first half of 2021, which itself was a period that saw strong growth over 2020. Simply put, more companies than ever are replacing inflexible, legacy, cascaded planning techniques in favor of a more agile concurrent planning approach. As always, we're honored to be selected by a growing number of global companies that put their trust and confidence in Kinaxis and Rapid Response to bring about transformative improvement in supply chain planning performance. For example, in Q2, we won innovative pharmaceutical companies like EQRX International and Pharmathon, high-tech companies like test and measurement leader NI, formerly National Instruments, and control equipment manufacturer IDEC. Consumer products companies like Ectera, which makes many of the tea brands we drink every day, and Aura Farm Supply, who provide many over-the-counter health products. And in our industrial vertical, a specialty chemicals company, Infinium USA, who focuses on sustainability in their engine fuels and oil products. You'd have also seen our news release in the second quarter announcing that Castelline Eutectic, a welding, brazing, and coating leader, is also now a Connexus customer. For the first half of 2022, amongst our new customers, roughly 60% have been enterprise class and 40% from the mid-market or smaller. We're thrilled with our ability to serve such a broad universe of companies and verticals with a single SaaS offering and continue to appreciate the support and influence our partners have on the vast majority of our wins. I am happy to report that momentum in the business has not let up. Leading indicators of demand remained robust. Our June 30th fourth quarter rolling pipeline continued to grow nicely over the comparable period of 2021. And we saw another sharp increase in the number of unsolicited inbound leads after experiencing the same dynamic last quarter. Both these indicators are at an all-time high level. We view these trends as distinct signs of ongoing momentum in the business. Moving to slide six, Certainly part of the reason we generated a lot of interest in Q2 was the May release of the latest Gartner Magic Quadrant for supply chain planning solutions. For the eighth consecutive time, we were named a leader. Of the 22 vendors evaluated, Gartner position can access furthest on the completeness of vision access. In all, our financial results and the other metrics from the second quarter provided provide us with the confidence to increase our annual total revenue guidance, subscription term license revenue guidance, and introduce a 2022 SAS revenue growth outlook of 25 to 27% in constant currency. I'll now ask Blaine to discuss results for the second quarter and share more details about our guidance for 2022. Blaine.
spk06: Thank you, John, and good morning. As a reminder, unless noted otherwise, all figures reported on today's call are in US dollars under IFRS. As has been widely reported, foreign exchange fluctuations in 2022 have been a universal headwind to the reported results of SaaS companies that report in US dollars and sell their products globally. While the majority of our revenue is denominated in US dollars, the portion that is contracted in Euro, Japanese Yen, and British Pound were dramatically impacted by the weakening of those currencies against the US dollar. As a result, for certain key metrics, I'll be sharing non-IFRS constant currency results, which eliminate the impact of such fluctuations and better demonstrate the ongoing underlying momentum in our business. We intend to share this information only as long as we deem it to be truly relevant to the interpretation of our results. Take a look at slide seven. Total revenue in the first quarter was up 35% to $80.8 million and up 42% on a constant currency basis to $85.3 million. SAS revenue grew 21% to $51.1 million. More significantly, it was up an impressive 27% on a constant currency basis to $53.5 million. The steadily increasing growth in our ARR metric is flowing through to SAS revenue growth. on a constant currency basis as you would expect. Subscription term license revenue was $0.4 million versus $0.6 million in Q2 2021. You'll recall that we expected roughly two-thirds of the annual amount for this revenue to be recognized in the first quarter, just less than one-quarter of the amount in Q3 and the remainder in Q4. The modest revenue in Q2 is consistent with that previous commentary. As always, fluctuations in this revenue item are largely tied to the normal renewal cycle of our customer-hosted software subscriptions and vary period to period as a result. Our professional services activity was strong again, resulting in $25.4 million in revenue, or 81% growth over the corresponding quarter of 2021. The rapid growth is consistent with and reflects our recent acceleration in new customer wins. Generally, this revenue item 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 $3.9 million, up 25% from Q2 2021, reflecting recent growth in the subscription business with a small group of customers who have chosen to deploy rapid response on-premise, or who maintain the option to do so. We continue to be pleased with the diversity and strength of our total revenue base. For the quarter, our 10 largest customers accounted for 23% of our total revenues versus 27% in the comparable period, with no customer accounting for greater than 10% of total revenues. Second quarter gross profit increased by 24% to $49.8 million. largely as a result of revenue growth. Gross margin in the quarter was 62% compared to 67% in Q2 2021, largely reflecting a higher proportion of lower margin professional services revenue in the mix, the impact of foreign exchange fluctuations on revenue, and recent strategic investments in related teams. Adjusted EBITDA was up 45% to $10.4 million for a margin of 13% compared to 12% in the second quarter last year. On a constant currency basis, our adjusted EBITDA was $13.1 million, or 15% of revenue. Our loss in the quarter was $2.6 million, compared to a profit of $3.1 million in Q2 2021, as a result of the focused investment to drive future SaaS growth even higher. We remain very excited about our market and how our planned investments will help us continue to take share. Q2 cash flow from operating activities was $8.4 million, down from $15 million in the comparable period, largely reflecting the lower profit resulting from our strategic investments. At June 30, 2022, cash, cash equivalents, and short-term investments totaled $258.1 million, compared to $233.4 million at the end of 2021. We remain pleased with our outstanding track record of cash generation. I'd like to highlight our year-to-date performance on some key items, all on a conspiracy basis. SAS revenue grew 26%. Total revenue grew 58%. And our adjusted EBITDA margin is at 26% of revenue. All of these results show us tracking very well against our plans for the year. Moving on to slide eight. Turning to some key metrics, our annual recurring revenue grew 21% to $241 million, including currency impacts. But currency movements masked even stronger underlying growth. In constant currency, our AR grew 25% year-over-year to $249 million. This record level of growth reflects the unprecedented strength we have recently experienced winning new accounts and a success winning incremental business from our installed base. I'll remind you that the growth rate for the SaaS portion of ARR is higher than for total ARR. On slide nine, Our remaining performance obligation continues to be strong at $494.8 million, up 30% from June 30, 2021. Of that total, $459.6 million relates to SAS business, which is up 28% year-over-year. $101.5 million of the SAS amount will be recognized as revenue within 2022. Given the impact of renewal cycles on RPO, we look at growth in the metric over longer periods. And we are pleased that our three-year CAGR for total RPO sits at 26%.
spk10: Now, further details on our RPO can be found in the revenue note to our financials. Go on to slide 10.
spk06: With respect to our outlook, we are pleased to be able to provide you with increased guidance for fiscal 2022. We now expect total revenue for 2022 to be between $355 and $365 million. largely due to an improved view on professional services and subscription term license revenue. Including the headwinds of foreign currency fluctuations, fiscal year 2022 SAS revenue is now expected to grow between 21 and 23% over our 2021 level. But significantly, though we see SAS revenue growing between 25 and 27% over the 2021 level on a constant currency basis. We now expect subscription term license revenue to be higher, between $34 and $36 million for the year. And our adjusted EBITDA margin guidance remains at 16% to 19%. While our higher revenue guidance does mean that a result at the upper end of the range is more achievable, I'll remind you that our priority remains on making strategic investments to position us for the growing opportunity ahead of us. Overall, while FX fluctuations have been a headwind to reported results, our constant currency results clearly demonstrate the ongoing, steady improvement in the demand environment in our business. We remain excited to be investing into this significant developing opportunity. With that, I'll turn the call back to John. Thank you, Blaine.
spk09: Along with a strong financial quarter, we also had some exciting developments on the product front. We introduced Planning.ai, which enhances rapid response by automatically detecting and fusing the best combinations of heuristics, optimization, and machine learning to provide highly accurate solutions to supply chain challenges and opportunities, both on the demand and supply side, in the fastest time possible. Companies no longer have to manage the tradeoffs between speed and accuracy and choosing between different planning algorithms. We are thrilled to have won the 2022 Digital Innovation Award for this new product presented by Ventana Research in the category of Operations and Supply Chain. We also continue to enhance the capabilities of our product through the addition of two more global extension partners, Wahoopa and Bloom Global. Wahoopa brings probabilistic multi-echelon inventory optimization, or MEIO, to rapid response, which helps calculate optimal inventory targets and safety stock settings so companies can reach their goals while removing waste. With Bloom Global, rapid response will be connected to their logistics visibility and transportation management system capabilities. The result will be better alignment between supply chain planning and execution, enabling companies to quickly remedy or even avoid freight transportation disruptions. The ability to connect our unique concurrent planning capabilities across more aspects of the supply chain remains a core focus for our development, partnerships, and acquisition strategies. Overall, we're very pleased with the financial results and the business developments in our second quarter. Despite a challenging economic backdrop, concurrent planning continues to gain momentum in its march towards becoming a critical capability for leading brands globally. We're looking forward to a very exciting back half of 2022. As always, thank you for taking the time to join us on this call. With that, I'll turn the line over to the operator for Q&A.
spk11: Thank you. If you'd like to ask a question, please press star then 1 on your telephone keypad. Our first question is from Richard Tsai with National Bank Financial. Your line is open.
spk07: Yes, thank you. John, we're hearing a lot of talk from our names about elongated sales cycles, elevated signing authorities. You're obviously very confident in the outlook. Are you hearing anything on that front, or is it something unique to Canaxis given the market that you play in?
spk09: You know, Richard, we're actually seeing the opposite effect. We've been tracking, I would say, our average cycle time increase as you've heard us say, has been closer to the 18-month mark. And I'd say we're closer to the 12 now than we are 18. And I think it's a sign and an acknowledgement that the pandemic was just the start of some pretty wild disruption. We're seeing more and more now people, our customers, asking us to run scenarios around inflation recovery. I mean, inflation is hitting different parts of the world at different rates and recovering at different rates. And obviously that has a pretty pronounced impact on profitability for a lot of companies and cash. And so I would say it's had a little bit of the opposite effect. And, you know, that is also manifested in the growing pipeline, which has basically not been at a higher point than it is at this stage. and a pretty remarkable increase in unsolicited inbound leads, which I attribute largely to the Gartner MQ. But more so, I think it's a recognition that supply chain isn't one of those nice-to-have applications. It's becoming a critical competence for survival. And I think I might have said this on previous calls, every board is asking every CEO, what are you going to do next time? And of course, the CEOs are turning their chairs and asking their chief supply chain officers, what are we going to do next time? Because clearly, the methods that govern supply chain in the past will not survive the future.
spk07: Okay, that's great. And in regards to professional services, it's obviously been a very robust part of the results here. How do you balance what you take on versus your partners? Because obviously your partner network has expanded considerably as well over the past few years.
spk09: And we continue to have a partner-first approach for professional services. And frankly, we talk about this a lot. Obviously, professional service is coming in very strong. It is absolutely the side effect of a compounding success. Every quarter, we're seeing a pretty dramatic increase in net new accounts. And as you know, professional services is a transient kind of a revenue stream. You know, you sign a three-year commitment, subscription agreement, and professional services are getting the projects underway. It could take anywhere from three to nine months. And so that revenue ends up being transient. Well, we're seeing the compounding effects of record net new customer wins. And that's what's driving professional services revenues, not only for us, but for our partners. It is extremely hot, I would say, right now, the whole project space. And as you would expect, in the current conditions, manufacturers aren't looking for perfection. They're looking for speed. They're looking for an inoculation to the pain they're in. And so project timelines are extremely aggressive, and that is what we're seeing in the field. But I will tell you, The vast majority of net new accounts are partner-influenced. We still have a partner-first approach. We continue to sign new partners and new bars every single quarter.
spk10: That's great. Thank you.
spk11: The next question is from Daniel Chan with TD Securities. Your line is open.
spk03: Hi. Good morning. Congrats on the strong results. With the uncertainty in the macro backdrop potentially having a higher impact on SMBs and large enterprises, are you planning to continue your SMB strategy or do you take the foot off the pedal there a bit? I'm just wondering if you're seeing any change in your pipeline, Nick, just given the macro backdrop.
spk09: Actually, I think we're seeing an increase in the pipeline as a result of the macroeconomic conditions. and inflation, supply disruption, the war, transportation lane challenges, the lack of cargo containers. I can go on and on about the disruptions. It used to be all about the pandemic, and now it is an absolutely multidimensional problem. And so we're thrilled, in fact, with our broader approach because we think that the supply chain pain is not just one for enterprise-class customers. This is a challenge being felt across any size company and all the verticals. And so our TAM, in fact, has gone – you might have recalled us talking about our TAM being in the sort of 3,000 or so. It's closer to 20. when we added the SMB market. So we're going to continue along both. We've proven that the technology fits. We've proven that the economics work for both parties. And so I think it's an absolute win-win-win.
spk03: Great. Thanks, John. And maybe one for Blaine. Just on the margin guidance, it's unchanged despite the higher term licenses mix. Is that just from the higher mix of ProServe or is there something else in there? And How do we think about how the FX impact EBITDA margin? Thank you.
spk06: Yeah, good questions. I can say that if we had provided an outlook on constant currency for just EBITDA, that number would be higher. And we are having a little bit of headwind on FX on the bottom line. But we are really proud to be able to keep our profitability range in the same ballpark as what we've shown in the past. As we look at the mix, pro service could be a big part of why we're growing so fast on the revenue side, which obviously brings along a lower margin alongside it. We're also showing a little bit of increase on the subscription term license revenues. As all of you know, that's 100% margins that we get to have from that. But more importantly, we are very direct in what I've been saying for the last little while. we see a huge opportunity right now. We've seen our TAM grow quite a bit over the last couple of years. We are seeing our pipeline grow extremely fast. And so we don't want to take our foot off the pedal. And at this stage, one of the things everyone is seeing right now are all these tech layoffs that are happening around Canada and the U.S. And it's unfortunate for all those companies that are going through this. The exact opposite is happening. I'm looking forward to when the media starts talking about the success stories that are out there despite some of the headwinds that other companies are seeing and some of the macroeconomic factors that are impacting other companies. We're one of the success stories, and because of that opportunity that we see, we have to keep investing and keep that pedal down and accelerating into what we see as a huge opportunity in front of us.
spk10: Thank you. The next question is from Stephanie Price with CIBC.
spk11: Your line is open.
spk01: Thanks. Good morning. Just following up on that comment, wondering if you can give a bit of an update on talent attraction and attrition here, and just wondering if it's improved a bit just given the macro environment and the tech labs we're seeing at other companies.
spk09: Thank you for that question. There's never a day we're not hiring, I will tell you that. You know, we are seeing pretty strong retention in our business. I think a lot of that has to do with the culture, the mission that we are on. You know, I've always said supply chain is about saving humanity while doing the least amount of harm to the planet, and obviously a lot of people resonate with that mission. You know, at the same time, you know, to meet the demands, we are perpetually hiring. You know, we're roughly around that 1,400 or so mark today, but I will tell you we're under our targets. So we're very aggressively looking to increase staff to meet the demand. So hopefully that answers your question, Stephanie.
spk01: It does, thanks. And then on the 2022 guidance, the revenue guide was increased overall, which is great to see, but the SAS growth expectations were down slightly in real dollars. Just curious if there's a geographic mix difference between SAS and the rest of the revenue lines here.
spk06: Yeah. I'll start off by saying we're not disclosing the exact percentages that we have, but definitely the Japanese yen and Euro, the two biggest additional currencies that we have where we have billing and in those currencies. GBP is a third, and then we obviously have a couple of other smaller currencies. But the majority is U.S. dollars. We are seeing the effects that a lot of other companies are seeing. I mean, I was looking at the numbers over the last couple of days, and right now the Japanese yen has dropped 15% since year end. Euro has dropped 10%, and GBP has dropped 11%. So we are doing the best we can with those headwinds. But more importantly for us is that we believe that the FX will come back and eventually even itself out. And because we have these long-term contracts, we're going to be in a great position to see that grow quite hopefully rapidly in the future, which is a good sign for us. But at this stage, I would say the majority of our contracts are in U.S. dollars. But there's a healthy amount that comes from Japanese yen, euro, and I guess the third one is GBP.
spk01: Okay, thank you.
spk11: The next question is from Thanos Mishopolis with BMO Capital Markets. Your line is open.
spk12: Hi, good morning. John, just going back to the strong professional services growth and the ongoing extension to the partner ecosystem. Have you been able to scale it up to meet demand sufficiently? Like at this point, are there any constraints to SaaS growth with respect to implementation capacity, or have you been able to scale it as needed?
spk09: We've been able to scale it as needed. We work very, very closely. Conrad Mandela, who runs our global alliance team, is in lockstep with our partners. And obviously, we have quite a lot of, I'd say, foresight in what is coming in. And so it's not like deals are manifesting and closing inside of a few days. That's not the case. We have a very, very robust point of view on the current state and the current stages of every deal. So there's a lot of planning that goes into it. And as you heard prior, one of the, what I might have called existential threats to scale was data center capacity, and we've signed an agreement with Microsoft to provide us with that public cloud offering. So we're not going to be subject, let's just say, to any capacity constraints as it relates to data center hardware and such. So far, Thanos, we've been able to absorb the rate of success, I will say. And again, a lot of that is great planning, lots of visibility in what's to come. It's giving us tremendous amount of confidence in what we're guiding, obviously, because of that visibility, and the strong partners that we've signed already and working very, very closely with them.
spk12: Great. And then as far as RapidStart, does the ratio of RapidStart deals continue to increase? And now that you've been selling it for a while, If we look at kind of the initial cohorts of Rapid Start customers, are those expansions kind of proceeding as you would have expected or any surprises there?
spk09: Yeah, Rapid Start has become, you know, I would say one of our leading differentiators and many of the prospects we speak to, you know, their first intuition is how can you go live in just 12 weeks? I'd say two-thirds, two-thirds of our accounts will start at some point with Rapid Start, even though they have expansion opportunities. And so it is progressing exactly as we have anticipated it to. And again, it gives us a tremendous competitive advantage in the sales cycle. I will tell you that uniformly, it's not where people stop. Think of it as... It's the initial inoculation, and it brings the fever down, as I like to say, for many of these manufacturers, and it makes them healthy enough to take on subsequent phases of the project. So we're seeing great adoption.
spk10: Great. Thanks, Jonathan.
spk11: The next question is from Paul Treiber with RBC Capital Markets. Your line is open.
spk13: Thanks very much and good morning. I just wanted to ask about the growth in mid-market. You mentioned that 40% of new customers are mid-market. How should we think about the contribution to either SaaS revenue or ARR from mid-market or at least the growth there? Or maybe another way to look at it is how do we think about the average deal size in mid-market as opposed to enterprise?
spk09: Yeah, so we license rapid response through a number of users and sites, obviously. And so mid-market companies are likely to have fewer users and fewer sites. So right now we're seeing mid-market deals. They'll often start at roughly half of that of an enterprise account just because of size and the overall capacity. But it's still early days. In many cases, And, you know, in many ways, as I said, they suffer exactly the same challenges as the enterprise customers. But the value to Kinexus is less the starting point and more that it adds 17,000 accounts to go after. And so, you know, that's where, you know, we're extremely excited to be able to offer rapid response in its current state where the technology fits small to medium-sized businesses And the economics work for both parties. This is not some lost leader in any way, shape, or form. These are still very, very profitable accounts for us. And so that's where our strategy, I think, for the long term is really going to pay off as we get to our aspirational goals of a significantly accelerated business.
spk13: Thanks, that's helpful. Just in regards to public cloud, I imagine it's probably too early to be coming up in bookings for Q2. But can you just speak to the interest that you've seen from customers in considering public cloud as a deployment strategy? And when do you think you'd start seeing that show up in bookings and in customer deployments?
spk09: Yeah, that's a great question. So we're proceeding as planned as it relates to public cloud and our Microsoft Azure partnership. We're still on track to be able to host new customers on that platform in the third quarter. That's the target. And things are on track for that. I think it's best for Kinexus and our customers to be able to host from anywhere. whether it's our own environments or public cloud, regardless of where you are geographically. So we're well on our way to achieve that. Stay tuned. This next quarter is where we anticipate seeing the first customer set up in that environment.
spk11: Okay, great. I'll pass the line. The next question is from Christian Skrill with 8 Capital. Your line is open.
spk05: Hi, good morning, and thanks for taking my questions. The first one I'll ask is on the guidance. Now, when we think about being motivated to raise the guidance two quarters in a row here, I'm wondering, from your view, how you would split that between conversations with new customers year to date, or maybe it's more related to sales cycles that have moved quicker than expected. Are those the two main factors? Is there a split, or is there anything else that has increased your confidence through the year? Sure.
spk06: Well, I'll start on subscription term license revenue because that one's an easy one. As you're aware, the majority of our new customers come on and they have on-demand hosting of rapid response, and so they end up on the SaaS line. Every once in a while, we have an anomaly that occurs. In this case, we will have an anomaly happening in Q3 where we have a new customer, which we'll be hopefully very excited to be able to say the name at some point. and they have chosen to do, or take the option at least, to have on-premise. And so as a result, that was an easy reason why we've increased that guidance. On total revenue, yeah, I mean, we had a discussion the other day. We were in an executive meeting, and we started realizing we're going to have to start talking about records every single quarter. And we have been talking about records every single quarter for the last, I think we're back to six or seven quarters in a row now. And that increase in new name account is really driving the front of the spear for professional services, which as you can imagine, they need to come in and be able to deploy our rapid response solution to these new customers, to a vast majority of them, and share that with the partners that we have on board. So every quarter it seems like we are getting these records which are pushing us above the forecasting that we expected. The SAS revenue is doing, I think, quite well considering the FX headwinds. And so we're maintaining a fairly healthy, I guess, revenue number on the SAS revenue side to support threshold services as well as subscription term license revenue, which are doing phenomenally well right now. And, you know, I hope I continue to keep doing these raises every single quarter. I like the surprise that we're getting from the business that we're continuing to to outperform.
spk05: That's a helpful comment. And for my second question here, I'll poke into the subscription term license line. It's a little bit mechanical, but maybe two questions. So first, you mentioned it's a new customer coming on board Q3. My first question is, you know, what motivates someone to stay on-prem? Is it a public sector customer, for example? You know, what the motivation would be? And then my follow-on there is, you know, worth understanding, just if there's any economic a big economic difference to Kinoxis when it's on-prem or SaaS? I understand it trickles through accounting quite differently, but the way you guys see it as a customer win just broadly.
spk06: Sure. So I guess the customers that are sitting right now in subscription term license or have chosen on-prem hosting are – The biggest category is aerospace and defense. I will say that this customer is not falling under that category. Everyone wants to know why. We had this last year in, I believe it was Q3, maybe Q4 last year as well. We do get these surprises where a customer comes in and says, hey, we want you to do the hosting, but we want the option to be able to do this on-premise at some point in the future if we need to. And this particular customer is falling more under that category. So it's a situation where we have to give the option sometimes to a customer if that's what they need to get over the line and to be comfortable with our agreement. And it's as simple as that. Now as far as the economics, the on-prem deals that come on that are pure on-prem, it's 100% margin for us. So those are great. Great agreement that we can provide our solution at the same pricing that we would for on-demand and very little cost that hits us. We do have some support costs that will come in, but very little cost compared to an on-demand.
spk10: That's all. Thanks for taking my questions.
spk11: The next question is from Suthan Sukumar with Stifel. Your line is open.
spk14: Good morning, guys, and congrats on the quarter. The first question I had was just wondering if you guys could actually share some color on your go-to-market strategy in the mid-market and how it differs from the enterprise and really what are the key drivers of your pipeline there in the mid-market?
spk09: Yeah, it's a great question, and the thing that I've I've come to appreciate and realize, as I said, the challenges being felt by the largest companies in the world are equally being felt by the smallest. In some cases, the smaller you are, the more acute the challenges they face because they don't have a lot of buffer, if you will, for the smaller companies. In the end, I would say that the The thing that unites all manufacturers right now is this belief that the methods they use to govern supply chain over the last 30 years won't survive the next three. They realize that there's a new competence required in order to survive all of this turmoil in the world. And you're certainly not going to harness all of this chaos. And so we're using precisely the same pitch. This isn't about technology, it's about technique. The flawed techniques of the last 30 years will not survive the next three, and there's an appreciation for that. The competence that the small to medium-sized companies are looking for is hyper-agility, just like the large enterprises are looking for. So again, we're just absolutely thrilled to be able to run a sales process with the same messaging with the exact same product. I would say the economic model for us and them continue to fit the business. This is what's given us so much. We're just so excited for, quite frankly, the next five years. I think we're living through a renaissance. And so, you know, this is not an enterprise class customer problem only. This is a global supply chain challenge. And that's why I believe we're going to be living through this renaissance for many years to come.
spk10: Got you. Thank you.
spk14: And my second question. How should we think about your investment priorities for the remainder of the year? And on the hiring front, where's the catch-up most needed? Is it on the post-services side or on the go-to-market side or R&D?
spk09: Yeah, we continue to, as I said earlier, there's never a day that we're not hiring. There's never a day we are not hiring. And obviously, professional services, Experience is the first wave. As sales brings in success, they're the first to experience the wave. And so of course, we're working with our partners and filling in gaps ourselves where our partners run out of capacity. Obviously, they're hiring as quickly as they can as well. We continue to hire in sales. You know, again, as you heard from Blaine, the prognosis here out many years to come, we see a tremendous opportunity. The pipeline continues to maintain its robustness and grow quarter after quarter. Unsolicited inbound leads continues to grow quarter after quarter. We had another record this last quarter. And so we're not letting up on the sales engine either. Now, at the same time, you know, When I think about the sales engine, it's not just feet on the street. We're investing heavily in our partner alliance group and our support of VARs, value-added resellers, and in onboarding VARs and preparing them for success. So we're investing heavily in what I would call the partner enablement program here because we recognize that in order for us to absorb the success we believe is in front of us, we can't do it alone. We have to do it with partner support, an army of people outside of Canaxis. So we're investing heavily on that side as well.
spk10: Okay, great. Thank you for taking that question. I'll pass it on.
spk11: The next question is from Nick Agostino with Laurentian Bank Securities. Your line is open.
spk02: Yes, good morning, everybody. John, just a quick question for you. Thinking about verticals in general, you mentioned earlier, obviously, the macro environment, the challenges that businesses are seeing, the conditions. And then, obviously, there's just an acceleration of disruptions in the overall marketplace, something that I don't think we've seen in a very, very long time. Just given that whole environment, given the fact that you guys are introducing the public cloud now in Q3, you're seeing tightening sales cycle. And I guess my question is at the end of the day, are you seeing any dormant verticals where maybe guys that were a little bit less active in the past, are you seeing them waking up to the environment just even over the last six months? And the fact that you guys are introducing planning AI and the public cloud, are you seeing any verticals that are waking up to that? Are you seeing any verticals that maybe were scratching the surface and aren't really part of your six or seven verticals that you're focusing on today? But just because of what's happening, you're seeing more and more conversation that's really starting to wake people up as a result.
spk09: Oh, Nick, thank you for that question. Yes, and I think you've probably heard me say while we target people the traditional seven verticals that we talk about. But I've always said we're in more verticals than that and it's more exploratory for us until we're confident that we can serve that particular market. I will tell you, maybe even just this earnings call where we mentioned specialty chemical, that's not the first one. The oil and gas sector might be one that I might highlight. as exceptionally interesting for us. I won't necessarily call them dormant, but as it relates to supply chain and the energy sector, that one might be gaining some momentum, I'll just say. We'll share more as things progress here. But that would be one that we might see. The other, I'll tell you, has more to do with the geographies that we're tackling. And we've traditionally been sort of North America, Asia, largely Japan, and Europe focused. But through the VARS, it's getting us in every geography that we're not in, quite frankly. And that's been very exciting. I don't think that... The VAR contribution and tackling the markets that they have some, I'd say, access to that we don't. I don't think we'll see a major contribution in 2022, but 23 and 24, we will. I really do think we're going to start to see some significant contributions from our VAR program. But back to your question, which I love, the only one I might point to as being really interesting and perhaps warming up is the energy sort of oil and gas sector.
spk11: Okay, thank you for that. The next question is from Martin Toner with ATB Capital Markets. Your line is open.
spk08: Hey, everyone. Thanks so much for taking my question. Congrats on some great numbers. My question is around planning AI. How is that being received? To what extent is it contributing to winning customers, growing existing customers? And maybe can we begin with the acquisition of Rubicloud last year? It's been a year or so. Actually, maybe a little more. evaluation of the success of that deal.
spk09: Yeah, absolutely. So Planning AI, obviously we're thrilled to have won that award even though it was released very recently. And it was released while we were piloting Planning AI with existing customers. So it wasn't just a release with a hope that this would fit some use cases. We worked very closely with a few of our customers And so, you know, we're in that process right now of deploying Planning AI with a subset of our customers. And so stay tuned. Obviously, we're pretty excited. This is extremely innovative. You know, the fusing together of heuristics, optimization, and machine learning within an existing, you know, one holistic brain, if you will, is quite unique. If you recall, one of the thesis around GroupCloud was increasing our bench strength around machine learning. And so that's definitely played a role in our acceleration on that particular front. And obviously with planning AI, there's a sizable machine learning component to it.
spk10: Okay, super.
spk08: Can you comment on your strength in the retail, Ferguson?
spk09: Yes, so we continue to maintain the relationships in retail that were adopted. And we've won some additional accounts in retail. And obviously, some we're very much looking forward to announcing soon. We're working on one particular one at the moment and hopefully in the next short while we'll be able to announce. So we continue to see some progress there and obviously leveraging our investments in demand sensing for the retail market as well as moving into replenishment. And so this is going to be a thesis that will yield another very strong vertical for us.
spk10: Fantastic. I think all the color appreciated and all my other questions have been answered. Thank you.
spk11: We have no further questions at this time. We'll turn it over to Mr. Wadsworth for any closing comments. Great.
spk04: Thanks, operator. Thanks, everyone, for participating on today's call. We appreciate your questions, as always, and your ongoing interest in support of Canaxis. We look forward to speaking with you again when we report our third quarter results. Thanks very much. Bye-bye.
spk11: Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.
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