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spk01: Good morning, ladies and gentlemen, and welcome to the Conexus Incorporated Fiscal 2022 Third 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 a question. I'd like to remind everyone that this call is being recorded today, Friday, November 4th, 2022. I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Connexus Incorporated. Please go ahead, Mr. Wadsworth.
spk13: Thanks, Operator. Good morning and welcome to the Connexus 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 4, 2022, and contains forward-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 certain constant currency results and metrics. A reconciliation between adjusted EBITDA and the corresponding IFRS result is available in our earnings press release and our MD&A, both of which can be found on the investor relations section of our website, connexus.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 webcast 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 Blaine, who will 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. 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 on this call today. I'll be starting on slide four. I'm pleased to report that the momentum in our business has continued as reflected in our exceptional third quarter performance, which included SAS revenue growth of 21%, or 28% in constant currency, total revenue growth of 39% or 49% in constant currency, and adjusted EBITDA margin of 17% or 19% in constant currency. Once again, our accelerating performance allows us to increase aspects of our guidance for the year, as Blaine will soon share with everyone. Turning to slide five, as I mentioned, our momentum in the business has remained consistent. Nowhere is that more evident than our new customer wins. Despite the summer months being historically slower for sales, we closed an all-time record number of customers for a third quarter and very nearly beat our all-time quarterly record for bookings in history. Year-to-date, We have over 40% more new customers than the same period last year. And I'll remind you that the comparative period in 2021 showed exceptionally strong growth over 2020. Quite simply, since the fourth quarter of 2020, and in each quarter since, we have been experiencing a continuous and accelerating momentum in demand for our unique concurrent supply chain planning technique. we are experiencing a significant inflection in the business. As always, we're humbled by the new global brands that put their trust and confidence in Kinaxis. A small sample of the customers we won in the quarter includes Confluent Medical Technologies, a global leader and contract manufacturer supporting the design and development and manufacturing of life-saving implants, delivery systems, and medical devices. Karcher, the world's leading supplier of cleaning equipment and services for transportation and buildings. The company employs 14,400 people, located in 78 countries, with over 50,000 service centers worldwide. Griffles, a leading global healthcare company that develops plasma-derived medicines and other innovative biopharmaceutical solutions. and JSR Micro, an innovator in semiconductor material solutions. There are so many other global and iconic brands we can't name today, but expect to be in a position to share them with you as we proceed through their deployments. Year-to-date, the split of new customers continues to be roughly 60-40 between enterprise accounts, and those from mid-market are smaller. We're thrilled with our ability to serve such a broad universe of companies and verticals with a single SaaS offering. I'm also pleased to report that we continue to accelerate growth in our annual recurring revenue. In the third quarter, ARR grew a record-breaking 25%, or just over 30% in constant currency terms. Reflecting this acceleration, our total backlog crossed a half billion dollars for the first time, growing to just under 550 million, another record level. All leading indicators of demand, including pipeline and unsolicited inbound leads, remain very robust. We are confident that momentum in the business and the accelerated growth that comes with it is set to continue ahead. We are very optimistic about our recent acquisition of MPO, which offers exciting cross-selling and greenfield opportunities. Adding supply chain execution capabilities to our traditional supply chain planning solution makes us the market's only true end-to-end concurrent supply chain management solution, a major differentiator in our market. Both MPO and Kinaxis were separately recognized in the leaders quadrant of the 2022 control tower value matrix by Nucleus Research. Rapid response was ranked highest of any vendor in the greater usability axis. As you would have also seen during Q3, Kinaxis was further named a leader in three IDC MarketScape supply chain planning reports. We're thrilled to be able to offer our solutions in more ways than ever, through our private data centers, as always, and via public cloud with Microsoft Azure, and now with Google Cloud Platform. Finally, I encourage you all to read our latest Global Impact Report, which we released in September. The success of our ESG initiatives is increasingly being recognized by all the related rating agencies. If you manage ESG-focused funds, please reach out to Rick to discuss our meaningful progress here. I'll now ask Blaine to discuss results for the third quarter and share more details about our updated outlook. Blaine?
spk12: Thank you, John, and good morning. As a reminder, unless noted otherwise, all figures reported on today's call are in U.S. dollars under IFRS. As I did last quarter, I'll also be sharing certain non-IFRS constant currency results and metrics which estimate how our business would have performed excluding the effect of foreign currency rate fluctuations. We discuss our methodology to the constant currency calculations in the news release. While they are only estimates, we believe they better demonstrate the trend of 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. Starting on slide six, before I discuss the numbers, I want to thank the entire Connexus team for allowing me to communicate these amazing results. As I read through our outstanding Q3 results, I get to do it with a huge smile on my face as our bets are paying off better than expected. With that, let's jump into it. Total revenue in the third quarter was up 39% to $89.5 million and up 49% on a constant currency basis to $95.9 million. SAS revenue grew 21% to $54 million, but was up 28% on a constant currency basis to $57.4 million. As you would expect, the acceleration in our AR growth, which you've been following for some time, is flowing through to higher SAS revenue growth on a constant currency basis. Subscription term license revenue was $5.8 million versus $2 million in Q3 of 2021. This largely follows the cadence of renewals for our small group of on-premise customers. or those that have the option to move their deployments on-premise, which included one new customer during the quarter. Our professional services activity was strong, resulting in $25.6 million in revenue, or 76% growth over the corresponding quarter of 2021. The ongoing rapid growth primarily 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 $4 million, up 28% from Q3 of 2021, and reflecting recent growth in the base of revenue from our small group of on-premise customers. We continue to be pleased with the diversity and strength of our total revenue base. For the quarter, our 10 largest customers accounted for 22% of total revenues, versus 26% in the comparable period, with no customer accounting for greater than 10% of total revenues. Third quarter gross profit increased by 29% to $55.1 million, largely as a result of strong total revenue growth. Gross margin in the quarter was 62%, compared to 66% in Q3 of 2021, largely reflecting a higher proportion of lower margin professional services revenue in the mixed. The impact of foreign exchange fluctuations on revenue and recent strategic investments in related teams. Adjusted EBITDA was up 17% to $14.8 million, with a margin of 17% compared to 19% in the third quarter last year. On a constant currency basis, our adjusted EBITDA was $17.9 million, or 19% of revenue. Our profit in the quarter was $1.6 million compared to a profit of $0.2 million in Q3 of 2021. Cash used by operating activities was $3.6 million, compared to $11.2 million in cash generated for the comparable period, largely reflecting normal fluctuations in balances of operating assets and liabilities. At September 30, 2022, cash, cash equivalents, and short-term investments totaled $233 million, roughly equal to the $233.4 million at the end of 2021, despite $33.8 million in cash being used to finance our recent acquisition of MPO. 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. BAS revenue has grown 21% or 27% on a constant currency basis. Total revenue has grown 47% or 54% in constant currency. And our adjusted EBITDA margin is 22% of revenue or 23% on a constant currency basis. Let's move to slide seven. Turning to some key metrics, our annual recurring revenue grew 25% to $259 million, including currency impacts. But currency movements masked even stronger underlying growth. In constant currency, our ARR grew 30% year-over-year to $269 million. Excluding amounts related to acquired MPO customers, constant currency growth would have been 28%. These record levels of growth reflect the unprecedented strength we have recently experienced winning new accounts. and a success-winning incremental business from our install base. I'll remind you that the growth rate for the SAS portion of AR is higher than for total AR. On slide 8, our remaining performance obligation hit a record level at $549 million, up 46% from September 30, 2021, and the first time we have crossed the half-billion-dollar threshold. Of that total, $489 million relates to SAS business, which is up 37% year over year. It is important to note that given the structure of MPO's contracts, only a negligible amount of the RPO increased related to acquired customers. $55.8 million of the SAS amount will be recognized as revenue in Q4 of 2022. Further details on our RPO can be found in the revenue note to our financials. Turning to slide nine, with respect to our outlook, we are pleased to be able to increase certain aspects of our guidance for fiscal 2022. We now expect total revenue for 2022 to be between $365 and $370 million, largely due to an improved view on professional services and subscription term license revenue. We continue to expect that fiscal year 2022 SAS revenue will grow between 21 and 23% over our 2021 level. On a constant currency basis, we estimate that growth will be between 25 and 27%. We now expect subscription term license revenue to be between $38 and $40 million, with the increase resulting from expansions from a number of customers. As you know, 2022 is the peak of our subscription term license revenue cycle, simply due to the volume of renewals for on-premise customers scheduled for the period. Throughout 2022, we have had some very meaningful renewals, expansions, and even some new customers join this revenue pool, mostly because of options in their contracts to move their deployments on-premise should they choose. As a result, the total amount of revenue we earn from on-premise customers over the full cycle has increased, but the cadence between years for the related subscription term license revenue recognition has changed. Today, more contracts are longer than typical three-year term we've previously discussed. We'll give more specific guidance next quarter on what the updated cycle looks like, but given the new cadence, subscription term license revenue in 2023 will be closer to one-third the peak level we're experiencing in 2022. which will have margin impacts as well. We increased our adjusted EBITDA margin guidance for fiscal 2022 to 18% to 20%. We are pleased with the balanced approach to growth and profitability that we have adopted so far in 2022. We have driven accelerated growth in ARR and status revenue in constant currency while still deriving solid profitability metrics. I expect we will take a similarly balanced approach in 2023. though without the benefit of a peak in subscription term license revenue. Given the unprecedented market conditions in front of us, we have a great opportunity to reinvest our go-to market teams, so we will do that while also remaining responsible with adjusted EBITDA levels. We are in the middle of our 2023 investment planning process now and will give you specific guidance next quarter. With that, I will turn the call back to John.
spk09: Thank you, Blaine. We're often asked by investors whether the momentum we're experiencing in our business is a temporary phenomenon driven by all the disruption COVID created and is soon to settle down. In short, we firmly believe the answer is no. We've been experiencing a notable increase in demand for roughly two years now. And there are no signs of slowing down. No, this doesn't feel temporary one bit. Rather, momentum in our market seems to have more room to accelerate. Let me be clear. Replacing failing legacy supply chain management systems and methods has become a globally urgent imperative. Canaxis, and more specifically, our unique ability to deliver end-to-end concurrent supply chain management, is leading the way. COVID and related challenges like massive shifts in demand, component shortages, inflation, power uncertainty in various geographies, and a myriad of other disruptions have all served to test the resilience of our global supply chains. The siloed, Excel-dependent, cascaded batch processing approaches of the past breeds lethargy in responding to disruptions. COVID didn't create the problem. It just highlighted it at scale and to levels the organization that were previously unaware. Every board is asking every CEO, what will you do next time? Leaders in the market now view fully digitized concurrent supply chain management as a must-have standard solution. And we're increasingly seeing the benefits of that renaissance. As a result, and as Blaine alluded to, our focus remains on doing what's best for the long-term success of Kinaxis. We will continue to invest now to remain the leader in this tremendous opportunity that continues to unfold right in front of us. As always, thank you all for taking the time to join us on the call today. With that, I'll turn the line over to the operator for Q&A.
spk01: At this time, if you'd like to ask a question, simply press star then the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Our first question will come from the line of Richard Say with National Bank Financial. Please go ahead.
spk06: Yes, thank you. John, I just wanted to expand on your last comment about momentum. Could you maybe give us a take on how you sort of view
spk09: Momentum coming from the market versus you know can access specific and really trying to assess here You know the scale of your market share gains today Yeah, so there's a there's a few things Leading indicators that we watch for above and beyond just pipeline But unsolicited inbound leads has been up quarter over quarter every quarter for six quarters in a row And and so that you know, that is a critical element for us The other is the general interest we're seeing in mid-market. You know, we're thrilled to have uniquely a product that can satisfy the supply chain needs of companies that are 100 million in revenue and companies that are 100 billion in revenue and everybody in between. And so we're definitely seeing, you know, a consistent message from the market that this renaissance is absolutely real. It's not just the performance in the business. As I stated in the opening remarks, having 40% more customers today than we had this time last year, to me, this is just all proof and evidence of momentum in the business. You know, obviously, we just, you know, the other areas that I look at, we just held an event here at headquarters in Ottawa, which was simulcast all over the world called Big Ideas in Supply Chain. And we completely outpaced our expectations on the number of prospects that attended at that event. And again, the cross-section between Midmark and Enterprise that attended that section. So there is a lot of interest now in what I would call digitizing and modernizing supply chain methodologies for the next three decades.
spk06: Okay. And sort of two quick related questions to that momentum. A few years back, you had this concerted effort to really elevate the brand from a marketing perspective. Where are you today in terms of where you want to be relative to those initial objectives?
spk09: Yeah, I'm never satisfied. But I will say, you know, we have been, well, we've been notified that we are now the number one inquiry, you know, for some of these major analyst firms out there that we have surpassed, you know, the previous number one inquiry in supply chain management, and we are now the number one inquiry. into these analyst firms and so that's great to me that is a statement that our message is resonating with with the market and again our message isn't we have the best technology in the world oh it's great technology don't get me wrong it's great we have the best technique in the world we have the best medicine for what ails supply chain today and uh and so you know we are um You know, as Blaine said, we're going to invest in the momentum that we see. We're in the middle of the planning cycle for 2023, and there's two areas of focus, especially for the front half of 2023, and one is sales and marketing, you know, expanding coverage there. And on the marketing side, it's getting very loud and amplifying, even more than we're amplifying our message, you know, to the market.
spk08: Okay. Thanks for that, John. Pass the line.
spk01: Our next question will come from the line of Thanos Miskopoulos with BMO Capital Markets. Please go ahead.
spk03: Hi. Good morning. John, I'll ask the macro question. I mean, clearly, at a high level, you're not seeing any kind of a slowdown, just the opposite, actually, from your comments. But just if we drill into maybe some of the individual verticals or pockets, is there anywhere where you've seen any kind of change in customer behavior from the macro? I mean, are large enterprises going through more decision cycles? Are they kind of altering their deployment plans? You know, anything in any of the specific verticals that you can comment on or just full steam ahead?
spk09: Yeah, I wouldn't say we're seeing anything specific on the macro level. We haven't seen any notable impact, well, beyond the foreign exchange fluctuations, obviously, which have been quite dramatic. especially the yen, the GBP, and the euro. But we haven't really seen anything other than that. We are seeing accelerating ARR, as we mentioned. The pipeline remains very strong and robust. We're seeing great traction with mid-market. So at a macro level, I would say nothing really notable. Maybe say one thing that I am tracking very carefully, and I did mention this in the last earnings call, that we are tracking overall cycle time to close. The one indicator I want to see is a shrinking, if you will, in the overall sales cycle time. For the longest time over all the cohort, it was roughly 18 months, and we still have some very large enterprises that take, in some cases, multiple years. In some cases, we've closed them this last quarter, and it was a multi-year, very iconic brand, but finally got them over the line. But we also closed a pretty iconic brand in five months. So I'm tracking this very carefully, and I think part of it is there is absolutely an urgency. As I said, this is becoming urgent. for many of these companies. And the directives are coming right from the board that resilience is critical. Establishing a resilient supply chain is a survival, a means to survival. Resilience isn't a competence, it's an outcome of one. And I would say that competence that brings about resilience is agility. And as you know, Canaxis is all about deriving hyper agility for supply chain. You know, that's one of the macro-level things on monitoring, Thanos, and I'd say it's a bit early to tell, although the trend would suggest we're getting, you know, closer to that 12- to 13-month range. We'll see if that sustains and hopefully shrinks to less than a year.
spk03: That's great to hear. And then just a question I wanted to ask was on public cloud deployment. I mean, you announced public cloud support earlier this year. Just curious as to how that's progressing. Obviously, that'll eventually have financial implications in terms of CapEx and margins, but kind of very early days on that front or anything to say in that regard?
spk09: Yeah, so we're, you know, this was one of those, I would say, existential risks to the business. You know, several years ago, we were thinking about scale. where in anticipation of this kind of momentum, we wanted to make sure that we were not going to be hindered, if you will, by the availability of hardware and data center capacity. And so we started that process and obviously have a great partnership with Microsoft Azure. We already have a customer live on that environment, continue to roll that out. And that gives us scale. Now, more recently, and again, it's part of our scale equation, our relationship with Google. And very shortly after that relationship was inked, we started our first deployment there too. And so, you know, for us, this is very critical to our scale equation and making sure that data center capacity is available. uh to serve our customers regardless of the acceleration we're experiencing they're in every geography that matters having um having you know two data public cloud providers is critical to our to our scale equation so we're we're thrilled with both of these relationships obviously um and and we'll be focused you know mostly in bringing net new accounts first and foremost um bringing them onto the public cloud environments first rather than transitioning existing accounts for obvious reasons. So we're pretty excited about the relationships forming there.
spk08: Great. Thanks, John. I'll pass the line.
spk01: Our next question will come from the line of Robert Young with Canaccord. Please go ahead.
spk04: Good morning. The sales efficiency has been improving over the last several quarters, but it went up materially this quarter. If you just look at the period costs and the incremental ARR, and so I'm curious about, you know, is this sustainable or is this a signal maybe that you need to expand the sales organization significantly or is it a rapid start? I'm just curious if you could talk about that, particularly considering John's comments around the shrinking cycle time to close. It seems as though the sales efficiency... sustainably better.
spk12: Yeah, I'll jump in there. I love that metric. Sales efficiency is something very important to us when we think about our planning about do we have the right sales force in place? Is it large enough? Is it too small? And you're absolutely right. It is getting to be extremely strong. We just got out of a quarter and I'm going to get myself in trouble at some point because I've been saying this almost every single quarter for the last, I think, four quarters now. Our pipeline is getting bigger, our conversion is getting better, and our win rate is getting better. Every quarter, we're getting the same results. And so we're in a position where our sales efficiency obviously is getting a lot stronger, and it's getting to the point where we just realize we need to keep on adding to that sales and marketing team because they are so strong and they're doing so well right now. Our AR additions, this is just one little extra metric I'm going to throw out there. Our AR additions that we had in Q3, and we compare that to the ARR additions that we had in Q3 of last year, it grew 168%. I'll say that again, 168%. It's an incredible number. Part of that came because of MPO, but we more than doubled without MPO. The team is on fire, and it's not just the sales team, it's the full organization that is really clicking right now. We're in a great position to keep that sales efficiency at a very, very high level. At the same time, we need to invest into it, and we need to make sure that we get to a sales efficiency that will be maintained over a long period and get the most out of the volumes that are available right now. We are doing our best to keep up with the demand, and we're just in a fortunate position to have a strong sales efficiency when we're seeing a demand that is at an all-time high.
spk04: Okay. That's great to hear. The new ads in the quarter, you've been highlighting significant new ads for a while now. Maybe if you talk about the cadence of the new ads in the quarter, you can highlight that's not normal for a summer quarter or maybe it's notable as a summer quarter. But as you're exiting the summer, as you're heading into Q4, is the cadence of that new win activity, is that sort of pushing towards the end of the quarter? Is it strengthening as you exit the quarter?
spk09: Yeah. You know, as I said in the opening remarks, I don't see a – I don't see a slowdown in momentum here based on current activities, based on the pipeline, based on market momentum, based on being the number one inquiry. Obviously, there's a lot of focus on supply chain excellence, and I think a lot of focus on you know, manufacturers rethinking their techniques and looking, you know, for a breakthrough. So I don't see a slowdown, Rob. I think that momentum is upon us. You know, I would declare, you know, perhaps very definitively, we are experiencing inflection. And so now it's a question of, you know, it's just a question of, you know, being ready to absorb the success.
spk04: Okay, and last question, a quick one. The net revenue retention is greater than 100%. I was curious, is there any change there for investors to think about, just given that the business seems to be shifting towards the new in orientation, given the workforce efficiency and whatnot? Maybe is there the need to give us a little more data on retention, just so we can ensure that expansion size is new inside, and then I'll pass it on.
spk08: Yeah, so... Net revenue retention continues to be over 100%.
spk12: It's probably news that hopefully we'll continue to give forever, but it is getting stronger. We haven't given an exact number, potentially at some point in the future we might, but it is continuing to get stronger and stronger each quarter, so we're very happy with that. Most importantly, our gross retention, meaning the retention of our customers, before expansion is extremely high. We generally like to talk about, I think, enterprise customers or companies that focus on enterprise customers should be looking for a gross retention somewhere between 95% and 100%. We're in that range, and we're at the high end of that range, which is a testament to how important our solution is to the customers that we have right now. But to answer your question on expansion and install base, We had a good quarter this quarter in terms of about a 60-40 split in terms of where we had net new versus expansion. That's something that we are going to continue to grow. And now that we keep on growing at that base of customers, we expect that expansion and install base will be more important in the future.
spk08: Thanks for taking the questions. Congrats on the momentum. Thanks, Rob.
spk01: Your next question will come from the line of Paul Treber with RBC Capital Markets. Please go ahead.
spk10: Thanks very much.
spk01: Good morning.
spk10: Obviously, organic growth is very strong, but just wanted to hone in on MPO. How much did the company contribute to total revenue and EBITDA in the quarter? And then what magnitude or not did MPO contribute materially to ARR and RPO?
spk08: Sure.
spk12: Across the board question on MPO and their impact for us. As far as revenue or total revenue, we've already talked about the fact that they came to us with high single-digit annual revenue. You can almost figure out based on those numbers that it was, I would say, a fairly insignificant impact to our SAS revenue and total revenue. On adjusted EBITDA, I would say it's a positive impact, but not out of line with what our current margins are. ARR, as I mentioned, I said that we hit around 30% on a constant currency basis, but without NPO, we would have been around 28%. And then the last item you'd asked about was RPO. The way that we've developed our contracts are a little bit different than how MPO put together their contracts. And we have fairly strict methodology on what we consider to be RPO and what we don't consider to be RPO. So a much smaller amount of the MPO contracts we've included in RPO. So it's, I would say, very immaterial.
spk10: Okay, thanks for laying that out. I just wanted to go through it all and understand that. In terms of the business momentum, maybe it's overshadowed by the growth that you're seeing on the direct sales side. But in the call, in the prepared remarks, there wasn't so much a mention on partners and the contribution from partners. Now, how do we think about the momentum and the sort of the force multiplier that you're getting from partners here?
spk09: Yeah, so, you know, I would say, As it has been for multiple years, the vast majority of net new accounts are partner-influenced. I'd say the one thing I might call out that is perhaps different, let's just say, is our VAR program update, which we started earlier in the year. So we now have over 25 participants in that program. In fact, I think we might actually be closer to 30. And we've had several wins in that area, VAR related, and more targeted for this quarter. So that, you know, that is where we're anticipating some acceleration in the quarters to come. We're working very, very hard on, you know, focusing on training and enablement, building training programs and, you know, establishing internal systems to support them. You know, many of these VARs are in geographies where we don't have coverage right now, and so we're really pleased with the program thus far, and I think you'll see more news coming out in the quarters to come related to our VAR-inspired wins.
spk08: Okay, great. I'll pause the line.
spk01: Your next question will come from the line of Christian Schro with A Capital. Please go ahead.
spk11: Hi, good morning, and thanks for taking my questions. The first one I wanted to ask is related to the macro. There's some vertical, some geographies where we're starting to see supply chain constraints ease a little bit, at least from following on our peripheral, some of the transcripts of tech companies, at least. Just wondering, in your conversations with customers, are you seeing urgency change? Are you seeing some customers have maybe more bandwidth, flexibility to hash out exactly what product solution they need? I'm just wondering either way, whether you're seeing an acceleration or maybe more thoughtfulness from customers as the macro changes here and the supply chain scenario evolves out of COVID.
spk09: Yeah, I think, you know, there's no doubt that while, you know, in the throes of this pandemic, many manufacturers were struggling. You know, many, many, many of them were struggling mightily. And I would say that, you know, as we emerge from this pandemic, there are new threats. I've never had more conversations with CFOs about inflation risk, the speed at which inflation is occurring and recovering in different geographies and the impact that has on cash, the impact that has on profits. And so, you know, risk is omnipresent, although different than COVID. And so, you know, I would say the availability of supply might be easing. The availability of containers, you know, may be easing, although, you know, it's not back to its full state. But I'd say the velocity and ferocity of Disruption is not easing. It's just different. And, you know, there's a lot of pressure, obviously, with inflation. There's a lot of pressure on margin pressure. And so many of these organizations are being asked to do more with less. And that can only happen with a transformation in supply chain. You know, we have customers that have come to us and said, we expect to double the size of the business with half the people in supply chain. That's the kind of model description that we see in terms of what the future holds. And so I really don't see that letting up, frankly. I think that's going to continue to be the story for many, many, many, in fact, years to come.
spk11: That's helpful and consistent on all the commentary earlier on the momentum. The second question I'll ask here, is more on the modeling side. I think we've moved away from giving pointed CapEx guidance, and I'm not necessarily requesting that, but as we shift toward partners like Google and Microsoft with the public cloud approach, is it safe to think that Kinaxis' CapEx requirements could decrease over the coming, if not quarters, years? Could it become a much capital expenditure lighter company with this strategy?
spk12: Yeah, good question. Absolutely. We're actually already seeing that in the current year in terms of that transition to a little bit more of a public cloud or a hybrid environment. But you should expect that going forward, our CapEx will be lighter than what you've probably seen in previous years.
spk08: That's helpful. Thanks for taking my questions this morning.
spk01: Your next question will come from the line of Subban Sukumar with Staple. Please go ahead.
spk08: Good morning, gents, and congrats on another strong quarter.
spk02: Wanted to ask a question specifically around the cloud strategy here. Aside from the scale optionality that cloud brings, are there any incremental customer partner categories or even use cases that a cloud-first offering could unlock for Kinexus?
spk09: I think that's a wonderful question. In fact, I think the one area that could have some significant impact on us through the relationships both with Microsoft and Google is how that might influence access to their own customers. that are already leveraging their platforms. It's early days in that, I'd say, related discussion. But that could be an area of great interest, and it could be an accelerant for us, frankly. I don't see whatsoever that it brings about some some new use case that wasn't available to us without it. It really is a scale multiplier for us. First and foremost, we've been what I would say a cloud SaaS company since 2005. And so we've been delivering our software that way for quite some time. This just gives us a force multiplier. having Microsoft and Google. So again, I'd say really it's the relationships may unlock. I'd say, you know, access, trusted relationships with customers that are already on their respective platforms.
spk08: Great, thank you.
spk02: I want to touch on the NPO acquisition next. Could you speak a little bit about the opportunity that you see from a cross-sell perspective with their acquired base? And how do you see MPO in terms of the influence on expanding your pipeline ahead, giving the market opportunity?
spk09: You know, that's another great question. And I'm really, really excited about this acquisition and the locking of arms with MPO. You know, we have long been focused on supply chain planning, as you know, and we recognize that the notion of concurrency and linking everything and everyone in the planning world is exceptionally potent and unique. And with the acquisition of MPO, that brings us into end-to-end concurrent supply chain management. It is the blurring of the lines. between planning and execution. Think about the potency of having concurrency between material in motion and promises made to customers, and revenue at risk, and everything else in between fully connected. And so again, our very early days, this is a very recent acquisition for us, but the thesis behind this was really You know, elevating can access from being a supply, a concurrent supply chain planning provider to an end to end concurrent supply chain management provider, blurring the lines between planning and execution. And I truly believe this is this is yet another revolutionary step and very unique for the market. We're getting great feedback from our customers already.
spk08: when they recognize what this will unlock for them. Okay, great. Thank you for taking my questions. I'll pass the line, guys.
spk01: Our next question will come from the line of Nick Agostino with Laurentian. Please go ahead.
spk05: Yes, good morning. I guess first question, recently you guys put out some really positive encouraging news with regards to Asia. Obviously, adding lots of partners in that region and opening up an office there. And I'm just wondering, what can you just provide as far as the timing? Like, why now? What are you guys seeing in that part of the world that suggests that now is the right time to put this full-on investment?
spk09: Yeah, well, first, it's a great central location for support. you know, uh, across all hours, right. It's, you know, giving us that 24 hour coverage. Um, you know, I'd say, you know, the other, uh, you know, key element for us is talent. Uh, it's a great, great source of supply chain talent. And, uh, and obviously, you know, we've been talking about talent wars. I'd say there's somewhat subsiding a little bit, but they're still omnipresent. And, uh, And so this is giving us an opportunity to extend our talent pool. And again, another area for us to make sure that we're growing the team at a rate commensurate with the acceleration in the momentum of the business. That's really the driving force behind our investments there.
spk05: Okay. And then just switching gears a I know you've talked on this call about good, solid momentum, and it doesn't sound like there's anything right now that you're seeing that's going to slow that down. And I'm just wondering, with a lot of talk for 2023 of a potential recession, just trying to understand the downside risk, can you just share your thoughts, maybe what clients are saying, thinking, and just your own past experience given the recession back in 2018? What sort of impact, when you look at your business, what sort of impact should we be thinking about from a downside perspective when it comes to the recession or a potential recession?
spk09: You know, I see no negative impact. I only see a positive one. I think supply chain excellence is recession-proof, really. When you think about what businesses are forced to absorb in times like this it's uh they have to become hyper efficient hyper agile in times of recession and and as i said in many cases they look to automate uh many of their supply chain functions so that they can continue to operate um you know with potentially less investment and so this is what you know, this is what technological advancement brings about. As I said earlier, can I double the size of the company with half the people? Can I run my supply chain with half the people? You know, so honestly, I only see upside, you know, to the implications, you know, of challenges in the market here. And look, You know, I would say the opposite. Sorry, I would say the same thing in times of plenty because we do have customers right now that can't manufacture enough. They basically have told us we're going to sell 100% of the goods that we can make. And so in their case, you know, the economy is causing a giant increase in demand. And again, in that case, they need hyper agility, which really I truly think that I don't think about it in terms of the economic macro events of the world is driving the need for supply chain excellence. I really just think about it in terms of disruption. You know, do you have volatile supply and or demand for things that are constrained? If that's the world you live in, you need to become hyper agile. If you're not agile, you will not have a resilient supply chain. And so resilience is really what boards are asking their CEOs about right now. In fact, the narrative sounds very much like this. Your supply chain needs to be more resilient and, oh, by the way, do less harm to the planet. That's the most common narrative I hear. Your supply chain needs to be more resilient and, oh, by the way, do less harm to the planet. And so that is an omnipresent narrative. and urgent, I would say, need, regardless of the economic conditions of the world right now.
spk08: Okay. I appreciate that, Conor. Excellent. Thank you. Thank you.
spk01: Our next question will come from the line of Martin Toner with ATB Capital Markets. Please go ahead.
spk07: Thanks very much, everyone. Most of my questions have been answered. Quick one on the scale multiplier of GCP. Does that mean that you can grow faster with the same amount of professional services capacity, both internal and external?
spk09: I wouldn't classify it that way. Really, the speed at which we grow quarter over quarter, and the speed at which we gain net new customers. Every time you win a customer, you need data center capacity. And no secret, you know, in terms of the world shortage in chip manufacturing and silicon, you know, part of our scale strategy is to make sure we never run out of data center capacity. And so that is important. solely the i would say the the motivation for us to form strong bonds and relationships with microsoft azure and most recently a very strategic relationship with uh with google um and so that's i that's how i would classify it it's nothing more complex than that um you know this gives us between the two It eliminates what I would call an existential threat that we win customers and we don't have hardware to put them on. So this is just eliminating that threat as we continue to scale.
spk07: Awesome. Thanks, John. Based on your comments about growing the sales force, it doesn't seem like the growth in sales and marketing expense is likely to grow less next fiscal on an absolute dollar basis. Is that right?
spk12: That's a good assumption for sales and marketing, yeah. That's as brief an answer as I can give you, but I think it's a good assumption.
spk08: Brief is good. Great quarter, guys. Congrats for the question. Thank you.
spk01: I will now turn the conference back over to management for any closing remarks.
spk13: Great. Thank you, Operator. And thank you, everyone, for participating on today's call. We appreciate your questions and your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we report our fourth quarter results. Bye for now.
spk01: This will conclude today's call. We thank you all for joining. You may now disconnect.
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