This conference call transcript was computer generated and almost certianly contains errors. This transcript is provided for information purposes only.EarningsCall, LLC makes no representation about the accuracy of the aforementioned transcript, and you are cautioned not to place undue reliance on the information provided by the transcript.
spk03: Good morning, ladies and gentlemen. Welcome to the Connexus Incorporated fiscal 2024 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, Thursday, August 1, 2024. I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Connexus Incorporated. Please go ahead, Mr. Wadsworth.
spk07: Thanks, operator. Good morning and welcome to the Connexus 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 Scard, our President and Chief Executive Officer, and Blaine Fitzgerald, our Chief Financial Officer. Pardon me. 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 1, 2024, 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 Connexus' CDAR filings. During this call, we will discuss IFRS results and non-IFRS financial measures, including adjusted EBITDA. The reconciliation between adjusted EBITDA and the corresponding IFRS result is available in our earnings press release and in our MD&A, both of which can be found on the investor relations section of our website 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 Connexus. To begin our call, John will discuss the highlights of the quarter as well as recent business developments, followed by Blaine, who will review our financial results and outlook. Finally, John will make some concluding statements before opening up the line for questions. We have a presentation on Companies Day's call, which can be downloaded from the IR homepage of our website, canaxis.com. We'll let you know when to change slides. Over to you, John.
spk08: Thank you, Rick. Good morning, everyone, and thank you for joining us today. Let's get started on slide four. We delivered solid results for our second quarter, including $75.4 million in SAS revenue, representing 18% growth. Total revenue grew 12% to $118.3 million, an outcome that reflects being in a lower part of the normal term license renewal cycle. We reported almost $22 million in adjusted EBITDA and a 19% margin, a strong result. I'm very pleased with the steps we've taken to enhance our profitability. We added approximately $12 million to our ARR balance despite foreign exchange headwinds and an ongoing choppy buying environment, particularly for large enterprise prospects. It is worthy of note that roughly 75% of our ARR growth this quarter came from new customers, which will provide exceptional fuel for future expansion opportunities. On to slide five. We won a record number of customers for our Q2 and the second highest number of any quarter in our history, a tangible reflection of the strength and persistence of demand for supply chain orchestration and of our superior position in the market. We continue to have strong win rates against all of our key competitors and continue to sustain an elite customer retention rate. Let me share a sample set of those new customers with you now. I'm absolutely thrilled to announce that we were selected to orchestrate the supply chain of Eli Lilly, a medicine company turning science into healing to make life better for people around the world. Our dominance among pharmaceutical companies continues. Today, fully half of the top 20 pharma companies by 2023 revenue are customers of Kinaxis, a truly impressive accomplishment. We recently announced a Q2 win at SenseQuo, an enterprise class specialty chemicals company that contributes to safer, cleaner, and more sustainable products, such as EV battery materials and sustainable technologies in agriculture. The Asia-Pacific team contributed an all-time record quarter for their region, including wins at Brother Industries. You may own one of their well-known printers or sewing machines or other electronics. Kioxia, a leading provider of flash memory products. And Daydome, an agricultural machinery manufacturer. We won Italian mid-market pharmaceutical company Zambon, which manages the production of drugs for Parkinson's, cystic fibrosis, and other challenging diseases. Kimray, a US-based manufacturer of valves and controllers for oil and gas companies, joined the customer base also. We added Arcor, an enterprise class maker of consumer food products, agro-industrial products, and packaging. All these successes and more have been earned in an environment where buying decisions, particularly for the largest enterprise opportunities, continue to be subject to elevated levels of scrutiny. I'm pleased to announce that we've started executing on the go-to-market reinvestment plans we talked about last quarter. For example, we just finalized a new strategic relationship with one of our largest and longest standing consultancy partners. Together, we will co-invest towards significantly expanding our joint go-to-market opportunities in key verticals and create new deployment capacity and expertise for delivering our solutions. Details will come soon. We see this strategic partnership and other similar relationships we're exploring as potential game changers for our market reach and sales capacity. Stay tuned as we expect to formalize and publicly promote these very, very soon. Moving to slide six, Gartner's Supply Chain Top 25 was released in May, and we are extremely proud that the top three have chosen Kinexus as their supply chain orchestration partner, as did half of the top 10. Gartner also reserves an even higher level category called Supply Chain Masters for companies that have maintained top five scores for at least seven of the preceding 10 years. It's an absolute honor that Kinexus serves two of those prestigious companies as well. In short, being the leader in ability to execute is leading us to becoming the trusted choice for supply chain leaders globally. Over the last three years, we've more than doubled the customer base, growing it as a fast-paced 28% cumulative average rate. This simple fact positions us extremely well for the long term as we increase our emphasis on expansion sales to a rapidly expanding base. On to slide seven. Connections, our amazing annual community conference held this past June, is another excellent reflection of both our long-term opportunity and the strength of our current demand. Once again, we experienced record attendance with over 730 attendees, including a healthy number of prospective customers. They made their way to Miami for a jam-packed three days of thought-provoking leadership, networking, and some major announcements. This year, our big announcement at Connections was the introduction of Maestro, the evolution of our flagship product, Rapid Response. Maestro is our AI infused supply chain orchestration platform that provides full real-time transparency and agility across the entire supply chain, fusing together planning and execution and managing everything from multi-year planning horizons to down to the second factory execution and last mile delivery. Just as we broke down silos and supply chain planning functions with Maestro will break down silos across the full supply chain end-to-end. Maestro will be the conductor, taking in data from the full supply chain ecosystem, ultimately including functions like network design, procurement, production, planning, finance, risk management, sustainability, fulfillment, and other areas, and serving the full supply chain community concurrently throughout, as only Connexus can. so that manufacturers have one real-time view of their supply chain network at any moment in time. This is what it takes for a supply chain to be in tune, on time, and orchestrated in total harmony. Through fully integrated AI engine, we will automate the obvious actions, sense issues and opportunities as they arrive, proactively suggest optimum course corrections, and democratize access to the machine learning power behind Maestro to even the most high level of users. A recent IDC study sponsored by Kinexis revealed that 97% of global supply chain leaders agreed that better orchestration would have a positive impact on supply chain performance. So we're thrilled to be leading the industry towards that future. I'll now turn the call over to Blaine to review the financials for the quarter. and discuss our updated outlook in detail. I'll conclude with a few remarks after that. Blaine?
spk05: 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. Starting on slide eight, I'm pleased to report solid Q2 financial results, which included strong profitability and free cash flow. ARR growth was dominated by new customer wins, including some large enterprises, while we continue to see exceptionally strong growth in our RPO balance, all despite some foreign exchange headwinds, restructuring charters, and ongoing elevated scrutiny in the buying environment. Total revenue in the first quarter was up 12% to $118.3 million, reflecting a normal low in the subscription term license renewal cycle. Our SAS revenue grew 18% to $75.4 million and would have been a percent higher without the foreign exchange headwind in the quarter, particularly around Japanese yen. Our subscription term license revenue was $1.4 million, which is in line with the outlook we provided at the outset of the year. Subscription term licenses largely follow the normal cadence of renewals among our small group of on-premise customers. are those that have the option to move their deployments on premise. Professional services activity resulted in $36.5 million in revenue for 22% growth over Q2 2023, a reflection of strong customer additions and expansions in recent periods. Maintenance and support revenue for the quarter was up 9% to $5 million. First quarter gross profit increased 10% to $70.2 million and gross margin in the quarter was 59% down slightly from 60% in the comparative period. The lower gross margin is attributable to the decline in high margin subscription term license revenue in the period. And a lower software gross margin reflects our ongoing transition to a public cloud first hosting model. This is partially offset by a very strong 27% professional services gross margin. Adjusted EBITDA was $21.9 million, up 44% from $15.2 million, and representing a strong 19% margin compared to 14% in the second quarter last year. The higher margin reflects our heightened focus on profitability and relates to very successful initiatives aimed at gaining operating leverage as we scale. Our profit in the quarter was $3.4 million, or 12 cents per diluted share, compared to a loss of $2.5 million or $0.09 per share in Q2 last year. The profit this quarter includes $5.5 million related to the restructuring initiative we previously announced, so the improvement would otherwise have been much more significant. Cash flow from operating activities was $13.1 million compared to $13.9 million in Q2 2023. Cash, cash equivalents, and short-term investments were $282.3 million compared to $293 million at the end of 2023. Moving on to slide nine. Given the nature of our business, free cash flow margin tends to vary considerably period to period based on billing and collection cycles, capital investments and other factors. As a result, I focus on the trend of our last 12 months free cash flow compared to our last 12 months revenue rather than just current period results. As you can see, On this basis, our free cash flow margin is at 15.1% and has been improving nicely since 2022 and reflects our heightened focus on profitability. Our cash flow from operating activities and our cash balances would have been even stronger this period without the restructuring charges. And in the case of our cash balances, our very active share buyback program too. On slide 10, our annual recurring revenue, or ARR, grew to $330 million, an increase of 15% from Q2 2023. Thanks to winning a record number of new accounts for Q2, we observed that over 75% of the incremental ARR generated during the quarter came from new customers. I would also like to note that the ARR balance was impacted by just under 1% by foreign exchange fluctuations. We are delighted to have secured some large enterprise customers this quarter. With these accounts, we continue to observe phased deals, which start with a smaller initial subscription amount and include increases in both value and project scoped in later years of the contract term. As a result, the incremental average annual contract value, or ACV, of all deals we won in the first half of 2024 outpaced the incremental ARR that we recognize by a factor of 1.18. the highest we have seen yet. To illustrate, if a three-year phase contract starts with $1 million subscription in year one and increase to $2 million and then $3 million in years two and three, the ACV is $2 million, but we would pick up only $1 million in ARR. We look forward to adding the free ARR related to these phase deals in future periods. Jumping to slide 11, at quarter end, Our total RPO and SAS RPO remained extremely healthy at $748 million and $705 million and grew 28% and 30% respectively year over year. One reason that RPO is growing faster than ARR is the phase deal phenomenon I just mentioned, as RPO includes the fully ramped contract values. The three-year CAGR for both our total RPO and our SAS RPO is 25%. I encourage you to focus on these excellent longer-term results as quarterly RPO can fluctuate significantly with normal customer renewal cycles. Further details on our RPO can be found in the revenue note to our financials. On slide 12, while Q2 new customer wins were robust and RPO growth remained strong, we needed more large enterprise deals at higher average amounts to preserve SAS guidance for the year. Canaxis and many of our peers have recently talked about longer sales cycles and smaller initial deal sizes with large enterprise prospects in several recent periods, and we haven't seen the environment change yet. As a result, we now expect SAS revenue growth of 15% to 17%. We are maintaining our total revenue guidance. So fully expect the result to be at the lower end of the range. Subscription term license guidance is unchanged and we still expect to recognize roughly 15% of the full year amount in Q3 and a similar amount in Q4. For status growth to accelerate meaningfully in 2025, the large enterprise buying environment needs to return to normal conditions by the end of this year and persist. A steadier foreign exchange environment would also be beneficial. We fully expect the reinvestments we're making in go-to-market including the recently signed strategic partnership with one of our major solution integration partners to have a positive impact, but more substantially in 2026 and beyond. I'm very pleased to raise our 2024 adjusted EBITDA margin guidance for the second consecutive quarter. We now expect to achieve a margin of 19 to 21% for the year. It is gratifying to see our heightened focus on profitability translate to results. I remain confident in our goal of consistently delivering 25% adjusted EBITDA margin in the midterm, normalized only for expected subscription term license variability, and expect to take another step towards that next year too. Finally, on slide 13, we have continued to be very active on our normal course issuer bid, which allows us to purchase up to 5% of our stock, or approximately 1.4 million shares, by November 5th of this year. We've repurchased over 529,000 shares in the first half of 2024, representing an investment of $57.4 million. Since inception, we have repurchased approximately 858,000 and have roughly 567,000 shares still available for purchase under the program. We're very happy with our investments. Overall, I am very pleased with our longer-term trajectory. We've made many important strategic changes in recent periods that will have a positive impact on results ahead. We look forward to a more typical buying environment that will allow the full potential of our new strategies to be realized. I'll now turn the call back to John. Thank you, Blaine.
spk08: Hopefully you all saw our recent announcement in June that Jose Alberto Duerte has joined the Canaxis board. Jose lives in Portugal. He has worked in France, the Netherlands, and the U.S., and comes to us with over 30 years of senior leadership experience, including as CEO for three separate companies. He's held multiple leadership roles at SAP, including president of EMEA in India and president of Latin America. Among his board positions, Jose currently serves as chair at ProAlpha. Canaxis is a global company, and I look forward to seeing Jose bring his unique global experience and perspectives to bear in his new role as director. Despite the large enterprise deal delays that we're experiencing alongside many SaaS peers, we remain focused on our excellent long-term opportunities and are making important progress. We're winning customers at a record pace, including marquee names like Eli Lilly, And when we win a customer, we keep them for a very long time. This success is reflected in a committed backlog of business that has grown at a 25% three-year CAGR. We've started to reinvest in targeted go-to-market initiatives, including the first of multiple major new partnerships with global SI partners that we anticipate will greatly expand our joint opportunities and significantly expand our selling capacity. Our heightened focus on profitability has translated to steadily improving free cash flow and a second raise in our annual adjusted EBITDA guidance. We've launched a groundbreaking AI-infused platform that is leading the market towards a much-needed end-to-end orchestration of their supply chains. And we're still only in the early days of the digital transformation of supply chains. In short, we remain very excited about the excellent growth opportunities ahead and seeing our strategies come to full fruition. As always, thank you for your ongoing interest and support in the company. I welcome your questions and will turn the line over to the operator to start the Q&A session.
spk03: At this time, I would like to remind everyone in order to ask a question, press start and the number one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster. Your first question comes from the line of Paul Travers from RBC Capital Markets.
spk08: Thanks very much and good morning.
spk11: I was just hoping, could you elaborate further on the delayed large enterprise deals? You know, typically, how many do you see per quarter that are that are delayed or take longer than you expect? And then how long are the delays on average? And then have you seen any of the delays turn into deals just being being lost and that never materialized?
spk08: That's a great question, Paul. And, you know, first we started seeing these, I'd say, in 2023 and they persisted in 2024. You know, I You know, I would say that the timing between being sort of vendor of choice and getting ink dry on paper, I'd say has elongated by roughly twice. You know, we see sort of a 2X delay in getting those deals signed. I wouldn't categorize it as, you know, losing opportunities as much as I would categorize it as scrutiny on the signing process, often requiring board-level approval for things that, quite frankly, we didn't see in 2022 or prior to 2022. We're thrilled, obviously, with Eli Lilly and the magnitude of that opportunity. That's a classic representation of an extremely large enterprise deal. phenomenal uh phenomenal win for us very you know very long i'd say longer than normal uh contractual terms uh and a and a pretty steep ramp um so so we're pretty thrilled with that uh going forward there are multiple uh enterprise large enterprise opportunities ahead of us uh for the remainder of the year and uh and obviously we're tracking those and the timing of those very very closely
spk11: And I think that the change in 24 SAS revenue guidance is obvious in light of those delays. But, Blaine, you mentioned 25. There could also be some impact. The question really is, if these are delays in closing and also phased deals, it's a timing issue. So why wouldn't At a certain point, the growth normalized, even if it just takes longer for the deals to close into rent.
spk05: Yeah, what we're seeing is we're looking for a stabilization of that sales cycle at this stage and indicators that things will go back to normal from what we've seen before. We haven't seen those indicators as of this stage, and so we're continuing on the path based on our best assumptions. And obviously what we're building in 2024 will have the biggest impact on what we do in 2025. And so regardless if 2025 picks up, which we do have some belief that that will happen based on a lot of early discussions and also the maestro discussions that we've been able to communicate to our prospect base. We do think that it's based on what we've built on ARR right now, What we see is a slightly depressed 2025, unless there's some indicators that, you know, the Q4 numbers are much higher than we would have anticipated at the beginning of the year.
spk11: And just a quick follow-up to this. Slightly depressed relative to your longer-term outlook that you previously gave for SAS Girls?
spk05: Well, so we don't have a longer-term outlook right now. We obviously continue to look at our next 12 months, and 2024 is the guidance we provided. We do think that there is an opportunity to grow from where we're at right now, and I think that's something that we're continuing to look at in terms of our prospect discussions that we're having. However, there is, I think 2025 is going to be contingent upon how ARR does this year. And right now, from what we see on ARR, we want to make sure that we're not getting too far in front of our skis. We do see that there is a good opportunity, but want to make sure that we use the metrics and the data in front of us right now.
spk08: Let me just add to that. We've been extremely pleased with the win rates that we're experiencing and the customer ads. We had multiple large enterprise deals closed in the first half of this year. The other thing that we're seeing alongside scrutiny for signing authorities and things of that nature, just like Eli Lilly, they started much smaller than perhaps we would have seen them start two or three years ago. And so the ramps tend to be a little steeper. So there's two sides to this large enterprise phenomenon. One is the elongation of signing contracts. And two, starting with smaller footprints and ramping steeper, you know, along the way, which is why we've been, you know, focusing also on RPO growth, because the RPO number has the full amount in it.
spk11: Thanks. That's a good call.
spk03: Thank you. And your next question comes from the line of Thanos Miskopoulos from BMO Capital Markets. Please go ahead.
spk00: Hi, good morning. The RPO growth is obviously very strong. Just wondering, was there a renewal tailwind for the quarter that was more pronounced than perhaps we saw in the March quarter, or was that not the case?
spk05: That's a good question, Stannis. Obviously, renewals would help an RPO quarter, a strong quarter. We didn't have a strong or a big renewals quarter in Q2. It was one of our lower renewal quarters in the last year. So this was more related to the strong TCV growth or total contract value that we got from the new logos that we brought in the door.
spk00: Okay. And you don't disclose an RR, but qualitatively, can you speak to whether that's increasing just given the investments you've made in customer success and perhaps with some of those year two ramps starting to kick in? Are you starting to see an ARR pickup or not yet?
spk05: Yeah, right now it's pretty consistent with what we've seen historically. I think that, you know, I mentioned in the script or in the discussion that 75% of our ARR came from new logos. We are continuing to hit the gas on bringing in as many new logos as possible. And that expansion and upsell muscle is something that we are continuing to strengthen. And that strategic partnership that I mentioned, which I think is going to be extremely important, has identified a number of opportunities on the upsell and cross-sell. Obviously, that impacts our expansion ARR in the future. So we think that piece is kind of our back pocket trump card that we're getting ready to use.
spk00: Great. Finally, John, just to be clear, you obviously had a bunch of mid-market wins, and so would you say that mid-market remains a lot more resilient relative to the macro condition, or what's the macro dynamic in that segment?
spk08: Yeah, it's a great question. I'd say, you know, first we categorize mid-market separate from what we would categorize enterprise separate from what we would categorize large enterprise. And I'd say roughly 50% of the quarter came from enterprise and 50% came from mid-market or the SMB kind of space. And so more importantly, and obviously some of the wins came from large enterprise as well, as we just announced, Eli Lilly and there were others. In any case, it's the win rates that we continue to focus our attention on. as Blaine said, and fueling future expansion opportunities. That's really the primary focus. I'd say that, you know, to apply a little bit of color onto Q2, you know, slightly less contribution than we had had in the previous quarters from our VAR initiative, which is more of the S of the SMB. So it was primarily, I'd say, mid-market, and enterprise.
spk00: Great. I'll pass the line. Thanks, John.
spk03: And your next question comes from the line of Doug Taylor from Canaccord GenV. Please go ahead.
spk10: Yeah. Thank you. Good morning. Blaine, I'll ask perhaps you to clarify on an earlier line of questioning. I think it was Paul's. When you speak to 2025 potentially being also exhibiting some depressed traits due to slower large deal signings. I just want to be crystal clear. You're referring to growth below maybe your longer term growth aspirations and not necessarily lower relative to the performance we're expecting here in 2024?
spk05: Yeah, no, I think that's absolutely right. We're looking at large enterprise. The particular impact that we have for 2025 happens on how we grow ARR in 2024. And as of right now, we're seeing large enterprise coming in on a longer sales cycle. We do expect to benefit from the go to market reinvestment that we've just been going through. That's a big contributor to where we think ARR can reaccelerate in 2025. But I want to make sure that everyone understands that there is a strong correlation to our short term based on the ARR that happens in a particular period. The long-term RPO that we have, it obviously points to a direction that we do expect to have a lot of committed opportunity that's in front of us because that's growing absolutely quite quickly right now. In fact, I'll just go back to that new logo comment. The new logo TCV or ACV or ARR, incremental ARR, whatever you want to use, is one of the highest we've ever seen. In fact, I think it's in the top two of what we've ever seen in the particular quarter. So we're building that group to be able to grow in the future. That committed backlog is in our forecast right now. But we still want to make sure that everyone understands that ARR drives the short term, RPO drives the long term, and we have a good future in front of us.
spk10: And so just as we step back and look at that phenomenon you mentioned with the staged deployments we've seen over the last couple of quarters or a year, you know, I just want to again ask maybe a different way about the question of when we should expect, you know, that to normalize. I mean, if you're talking about, you know, three to five year contracts, I mean, would it take through, you know, a total of three years for that to, completely wash its way through the model and you're picking up as much revenue from previously signed contracts as you might be having held back from new contracts is that a fair way to think about that in the 26 27 we should be you know this should have completely washed its way through the model or could it happen sooner uh i think
spk05: 26, 27 is a fair assumption of when the majority will wash its way through. But as we keep adding, obviously that extends over time. I think obviously we don't try and ramp our deals at the very, very end of the contract. We want to make sure that our users are able to get the benefits of using additional modules or having more users and have that before they come up for renewal. So, yeah, I think it's a good assumption that the ramp impact will happen generally in the first half of a contract.
spk10: That's helpful. Thank you. Last question for me. I just wanted to clarify. I mean, EBITDA guidance once again raised. I just wanted to ask, I mean, is that to any degree a positive benefit on the bottom line from currency? Is that a factor at all? Or, you know, maybe you can expand on where you're finding savings if that's not the case.
spk05: Yeah, currency is, you know, we have one of those weird phenomenons that the top line is getting depressed because of the weakness against USD. So Japanese yen and euro are the two culprits on that side. Canadian dollars is benefiting, but right now what we're seeing is a complete offset because of the revenue side. What we're actually seeing is a lot of efficiencies as a result of the restructuring that we've just gone through, we think that we've found some areas that we're able to manage the costs a little bit better based on like changes in where our workforce will be dispersed throughout the geography, as well as the fact that we've had some inefficiencies that we've rectified as a result of the restructuring.
spk10: Thanks for clarifying. I'll pass the line.
spk03: Your next question comes from the line of Lachlan Brown from Redburn Atlantic. Please go ahead.
spk01: Hi, John. Thanks for the question. I was just wondering, just in terms of bookings, it seems like it was quite a healthy quarter with several large new customer wins. But obviously, it's called out a soft buying environment going forward. What in particular has changed from what seems to be a good buying environment this quarter to expectations they'll be soft in the second half?
spk08: Yeah, the biggest thing to point to here is large enterprise. And obviously, when we look at the results and record number of logos for a Q2 in the history of our company, second largest in the history of our company across any quarter, to me, I see that as a healthy sign of the market. There are certainly a lot of companies out there that are recognizing the need to transform. And people have asked me this before, what's the likelihood that people are going to move away from this cascaded waterfall, lethargic kind of a model towards one that is fully concurrent and fully connected? I answer the same way every time. There's a 100% chance that people are going to move there. The question is timing. It's kind of like when the internet was born and people could send emails, there were still some people licking stamps, but eventually people realized that maybe email is a better way to go. And so we feel the same way about supply chain. So to your question, I'd say it's still a very healthy buying environment. We have some wonderful logos in the pipeline right now in the large enterprise space that we're working on. And the enterprise and mid-market and SMB space aren't necessarily suffering, I'd say, the same level of scrutiny that we're seeing in the extra large deals that we have on the table. So that's how I would color the circumstance that we're in. And as Blaine said, We're constantly monitoring this to see a more normalized approach into the future. We do think that this may persist through the remainder of this calendar year at least, but we'll monitor things as we go. It's not affecting our win rates. Our win rates are north of 60% across all our cohort, say, competitors. All of that is very, very healthy. So, really, it's large enterprise where we're seeing this particular phenomenon.
spk01: That's very clear. Do you feel like the uncertainty around the U.S. presidential election is having an impact on the timing of these large deals?
spk08: Yeah, I'm not sure whether it's having an impact on the scrutiny of spend. It may. I feel somewhat... unqualified to link the two, quite frankly, but it very well may in the U.S. as, you know, monetary policy and fiscal policy are being, you know, sort of evaluated depending on who is in power. You know, quite frankly, I've not, say, specifically experienced that as the underlying phenomenon.
spk01: Yeah. Thanks for that. And last question. Leander yesterday made a comment in its release that customer investments in response to COVID-19 supply chain disruptions are showing signs of leveling off. I'm just curious in your view, are you seeing this in the market or it's just the soft buying environment purely attributed to the macro delayed signing?
spk08: It's the latter for us. Like I said, we have a healthy pipeline. We have healthy prospects across the spectrum in multiple geographies. We're thrilled with the Asia-Pacific contribution, an all-time record from that region with some phenomenal names. Some we're allowed, obviously, to mention, others not. So we're thrilled with the activity there. And, again, we keep looking at this saying, well, you know, we're gaining market share. There's a healthy market and healthy demand there. And so if we scrutinize where the challenges are, they tend to be in that large enterprise area. And again, we continue to be very successful in large enterprise. You know, we had obviously more than Eli Lilly in the quarter, but this one we're thrilled to be able to announce. And we have others in the second half that we're working on and look really, really good for us. In the quarter, it's always, you know, I'd say, I'll give you this. It's sometimes a surprise to the executives that we're working with that the grants of authority have changed magically during the process. And we find out very late in the stages of signing a contract that it has to go to the board. So that's how I would describe or answer your question.
spk01: That's all right. Thanks for your time, John.
spk08: Thank you.
spk03: Your next question comes from the line of Richard Chipp from National Bank Financial Markets. Please go ahead.
spk09: Yes, thank you. So I'm going to sort of continue on the large enterprise side. If we just step back a bit and you sort of look at the growth in the large enterprise pipeline, what does that look like today versus what it's been in the past?
spk08: You know, I'd say it hasn't really changed all that much, notwithstanding the sales cycle. You know, the sales cycle, and even in the sales cycle, within the sales cycle, the distance between vendor of choice, VOC, what we call VOC, and negotiations begin and having signed contracts is roughly 2X, and in some cases longer than 2X. is really what we're seeing. I don't see, I'd say, a difference where large enterprises is no longer interested in transforming their supply chain. That is not the case whatsoever.
spk09: Okay. And then I appreciate you being really upfront about the mechanics of how ARR scales, but You've got all these sort of initiatives here. You're investing in the growth go-to-market. You've got the strategic partnership. You've got these sort of delays right now. Deals are starting out smaller. Is it fair to say that when that market normalizes here, that your SaaS growth rate is going to be potentially even north of the former peak?
spk05: I will say that we... We do have models in that direction. I think what we talked about earlier on is we do think that there is an inflection point with ARR and we see that coming in in 2025 where that momentum starts to push. And when that momentum changes, we will see the the follow on effect, which comes from comes into sales revenue. So everything we've been talking about in terms of the normalized conditions and the large enterprises, that sales cycle is starting to temper down a little bit, we think it's going to start pushing us in the right direction for, again, increased momentum. We're obviously seeing a little momentum right now, but I want to see even more momentum on the AR front. And right now, based on the pipeline and the opportunities we see in our pipeline and the reinvestment we're making, we think that 2025 and then 2026, when you get into the strategic partnership that we have and it's a three-year deal that ramps over time where we have targets that we've allocated to both our side and our strategic partner, we see some very big opportunities that will help with the acceleration on the growth right now. And this partner that we've dealt with, they've been around the block enough times and they're big enough that we have a lot of confidence that they can help us get to that next level. And we're very actually honored that they've chosen us as the right partner for supply chain orchestration.
spk08: Yeah, we're one of literally less than a handful. And so we're thrilled with that announcement. Hopefully the tone of the earlier commentary and the primary focus of this strategic relationship is to augment our selling engine quite significantly is really the motive behind it. Early days, and we will be announcing in very short order at least this one and perhaps another.
spk09: Okay, just one last quick one for me. You're obviously incredibly successful in the pharma market. In the case of Eli Lilly and perhaps the other wins that you've had, What's really the main thing that you're offering in this market that the incumbents are not able to do?
spk08: Well, there's a few things that matter in that space that are unique to pharma industry. Notwithstanding, I'd say it starts at its foundation with the belief that end-to-end orchestration is the way of the future, right? This cascaded, lethargic, functional way of doing supply chain of the past isn't going to survive what's required in the future. So it starts with our foundational belief that concurrency, end-to-end orchestration is the way of the future. Beyond that, there are specific areas like jurisdictional control, for example, where the same product being manufactured in two identical factories in the world, those two products can't necessarily be sold exactly to the same country, right? So there's areas like that. There's expiry-type, I'd say, analytics associated with that space that is very unique. Stop-sell dates, very unique to that industry. that you end up leveraging when you sell to a life science customer. Now, above and beyond that, we speak their language. With the success that we've had in life science, when we walk through the door, what we're offering, because we, unlike many of our competitors who do a lot of custom code, we leverage the combined intellect of all others in one connected platform. And so when we walk into an Eli Lilly, they know that is the sum of the collective intellect of all of their peers that has been infused in our platform. And they get to leverage that. It's not like you walk in and say, what would you like me to code for you? Like so many other competitors do. I think that's really, really the anchor as to why we've been successful. Okay, great. Thank you.
spk03: And your next question comes from the line of Stephanie Price from CIBC. Please go ahead.
spk02: Good morning. We've been hearing from some other software peers that they're experiencing some implementation delays or longer implementation cycles as customers undergo large strategic projects, such as migrating ERP systems or preparing for AI investments. Is that something that you've been seeing in the context of implementation cycles around rapid response?
spk08: We haven't seen that necessarily, no. I'd say once we win a customer, it's quite the opposite. They're exceptionally eager to get us live, to get them live. And we've been leveraging, obviously, our partner ecosystem to support that. In general, we are seeing customers start with a smaller footprint. Partially, you know, and again, partially it is to get live faster, right? Rather than attempting to boil the ocean and, you know, do too much inside of the first year, they focus on what's urgent to them and focus on getting live as quickly as possible. So we haven't seen that friction, frankly. We just haven't seen it.
spk05: I'll just add in, Seth, that what John said is actually very accurate in terms of, like, The implementation of our software, once we get going, is hopping at record levels. And we're extremely happy with the fact that we invested in Rapid Start a number of years ago and are able to almost templatize our way into deploying our product at a much more efficient manner than most of our competitors. I think what you might be referring to, though, is another element of the longer sales cycles we are seeing, in particular around SAP's S4 HANA migration. What we're seeing is that because those transformations are so big, obviously you need to have a certain amount of resources to be able to deploy your products and to balance the migration of their ERP system as well as implementing a supply chain planning solution or orchestration solution. And so that is part of the reason why we're seeing the elongated sales cycle. But once we get in the door, generally the first thing they say is, can this be done tomorrow? And we're very lucky to have a very rapid deployment that we're able to leverage off of.
spk02: That makes sense. Great. Thank you. And then, Glenn, just one for you as well, maybe on capital allocation. It looks like share buybacks, you're pretty active in the quarter. Just curious, how are you thinking about capital allocation here?
spk05: We're really happy with our usage of capital on the buyback, we're going to continue that exercise. I did mention it's November 5th is when the end of that period comes up, and I don't mind saying that we'll probably renew for something in the future. We think it's good governance to continue to do this. And otherwise, I mean, we obviously keep our eyes open for M&A opportunities. As of this stage, we haven't seen anything that makes any sense for our current midterm projections. But we do keep our eyes open, and we're active in that market.
spk03: Thank you. Your next question comes from a line of Christian Skrill from Eat Capital. Please go ahead.
spk06: Hi, good morning. Blaine, thanks for all the color around the phase deals and the mechanics and how they work through the model. And my question on that would be, is there a way you could maybe quantify or frame what the average increase year to year would be for these deals that are becoming more common?
spk05: I won't get into the specifics of the numbers. I always like giving examples of deals. I think I talked about last quarter, the largest deal that we had was they were growing two times in size. And so the ARR that we had was going to grow to be at least two times in average And then you can obviously imagine that over that time, there's an extra element of there's going to be a peak amount. And as I said earlier on in the call, that's generally going to happen in the first half of these contracts. Now, for this current quarter and the first half of the year, we're sitting at a 1.18 times multiple for that ACV over the ARR. And so I think the biggest thing to kind of highlight is that's been a big trend. We've gone from 1.04 a number of years ago up to 1.18. We are seeing a lot more phased deals, but to answer directly to your question, we don't talk about exactly when those deals will play out over time. Right, and that's all helpful, Colin, and thank you.
spk06: From a follow-on here, maybe I just ask about the duration. of new contracts signed, are you seeing, are there any shorter or longer than a historical trend for Canassus?
spk05: I think it's tipping up a little bit. We do have some long deals that have already been signed this year. Obviously, very happy with our reputation and the loyalty of our customers have shown its way through this by committing to long-term deals. And that is part of the reason why our RPO is You know, for SAS year-over-year growth of 30%, that CAGR at 25% in total RPO. A lot of that has to do with the fact that we have very committed and loyal customers that want to stay with us for the long term. Now, I will say that we don't include all of our contractual value in RPO because we don't include uh customers that come in with a um an option to terminate early um and so if they decide to do that we won't include that in rpo and so we do have some of that um that that is coming due which will help us with our rpo even more so um as of right now we are continuing to focus on that long-term projection um rpo is is a is a very big impact from phase deals longer deals and really strong renewals, which we have that gross retention of what we always talk about, 95% to 100%, which is, I think, one of the phenomenons that we have. Great.
spk06: Thanks very much for taking my questions.
spk03: And your final question comes from the line of Marc Chapeau from Loop Capital Markets. Please go ahead.
spk04: Hi. Thank you for taking my question. John, the sales team has a lot on its plate right now, given the recent talent rebalancing and the new head of sales that was announced last quarter. I was wondering if you just provide some additional details around some of the go-to-market changes that are being implemented at the company to drive the execution.
spk08: Yeah, the most significant is this major partnership as part of our reinvestment strategy. And as I commented, it's primarily and I might say dramatically increasing our sales engine capacity through that relationship. We were honored to be included in that. And so we're full steam ahead on those reinvestment plans. And obviously that includes internal sales as well. So we're not putting the foot off the gas. And again, coming off of a record Q2 new name logo Second largest in our history. There's a lot going on and you add to that this strategic partnership which will announce shortly and the motivations behind that strategic partner. This is not like a marketing kind of an agreement and so you know there's already a very tight collaboration and an expansion I'd say in the overall you know, the overall opportunity that we're going after together. And so that's the largest, I'd say, most exciting for Kinaxis, you know, opportunity ahead.
spk04: Thank you.
spk03: Thank you. I will now turn to call back over to Rick Wadsworth for close remarks.
spk07: Thanks, operator. And thank you, everyone, for participating on today's call. We appreciate your questions and your ongoing interest in support of Kinexus. We look forward to speaking with you again when we report our third quarter results. Thanks very much. Bye for now.
spk03: Ladies and gentlemen, that concludes today's call. Thank you for joining. You may now disconnect.
Disclaimer