Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Kinaxis Inc (KXSCF, Financial) reported $75.4 million in SaaS revenue, representing an 18% growth.
- Total revenue grew 12% to $118.3 million, despite being in a lower part of the normal term license renewal cycle.
- The company added approximately $12 million to its ARR balance, with 75% of this growth coming from new customers.
- Kinaxis Inc (KXSCF) won a record number of customers for a Q2, including notable names like Eli Lilly and Syensqo.
- The company raised its 2024 adjusted EBITDA margin guidance for the second consecutive quarter to 19%-21%.
Negative Points
- The buying environment remains choppy, particularly for large enterprise prospects, leading to elongated sales cycles.
- Foreign exchange headwinds, particularly around the Japanese yen, negatively impacted SaaS revenue growth by 1%.
- Gross margin declined slightly from 60% to 59%, attributed to the transition to a public cloud-first hosting model.
- The company experienced restructuring charges of $5.5 million, impacting profitability.
- Kinaxis Inc (KXSCF) lowered its SaaS revenue growth guidance for the year to 15%-17% due to delays in large enterprise deals.
Q & A Highlights
Q: Could you elaborate further on the delayed large enterprise deals? Typically, how many do you see per quarter that are delayed or take longer than you expect? And then how long are the delays on average? And then have you seen any delays turn into deals just being lost and never materialize?
A: It's a great question, Paul. And first, we started seeing these, I'd say, in 2023, and they persisted in 2024. 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. We see sort of 2x delay in getting those deals signed. I wouldn't categorize it as losing opportunities as much as I would categorize it as scrutiny on the signing process, often requiring a 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 win for us. Very long, I'd say, longer-than-normal contractual terms and a pretty steep ramp. So we're pretty thrilled with that, going forward. There are multiple enterprise, large-enterprise opportunities ahead of us for the remainder of the year. And obviously, we're tracking those and the timing of those very, very closely.
Q: If these are delays in closing and also phase deals, it's a timing issue. So why wouldn't at a certain point the growth normalize, even if it just takes longer for the deals to close and to ramp?
A: 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 agent. 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 it's -- based on what we've built on [aero] right now, what we see is a slightly depressed 2025 unless there are some indicators that the Q4 numbers are much higher than we would have anticipated the beginning of the year.
Q: The RPO growth is obviously very strong up. 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?
A: It's a good question, Thanos. Obviously, renews 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 will become more related to the strong TCV growth or total contract value that we got from the new logos that we brought in the door.
Q: Can you speak to whether ARR is increasing just given the investments you've made in customer success and perhaps some of those year two ramps starting to kick in, are you seeing ARR pickup or not yet?
A: Yeah, right now, it's pretty consistent with what we've seen historically. I think that -- 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 as many new logos as possible and that expansion and upsell muscle is something that we are -- we currently continue to strengthen. And that strategic partnership that I mentioned, which I think is to be extremely important, has identified a number of opportunities on the upsell and cross-sell, obviously, that impacts our expansion needs ARR in the future. So we think that thesis is our back pocket trump card that we're getting ready to use.
Q: Just to be clear, you obviously had a bunch of mid-market wins. And so would you say that mid markets remain a lot more resilient relative to the macro condition or what's the macro dynamic in that segment?
A: Yes. It's a great question, I'd say. 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, 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 to apply a little bit of color on to Q2, slightly less contribution than we had had in the previous quarters from our [bar] initiative which is more of the S of the SMB. So it was primarily, I'd say, mid-market and enterprise.
Q: When you speak to 2025 potentially being also exhibiting some depressed trades due to lower -- slower large deal signings, I just wanted 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?
A: 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 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. I mean, in fact, I'll just go back to that new logo comment. The new logo TCV or ACV or ARR increment, 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 long term. And we have a good future in front of us.
Q: 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, I just wanted
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
