Kinaxis Inc.

John Sicard - Chief Executive Officer Richard Monkman - Chief Financial Officer

Thanos Moschopoulos - BMO Capital Markets Robert Young - Canaccord Genuity Richard Tse - National Bank Financial Paul Treiber - RBC Capital Markets Daniel Chan - TD Securities Gus Papageorgiou - Macquarie Amy Dyck - CIBC Kevin Krishnaratne - Paradigm Capital Eyal Ofir - Eight Capital Paul Steep - Scotia Capital Deepak Kaushal - GMP Securities Blair Abernethy - Industrial Alliance Securities

Good morning and thank you for joining us today. Yesterday afternoon we issued our first quarter results for fiscal year 2017, a copy of which is available on our website, kinaxis.com.

With me today is our CFO, Richard Monkman. Kinaxis delivered a strong first quarter with solid subscription revenue growth, up 29% over Q1 2016, as well as consistent strong adjusted EBITDA profit and record level cash performance.

We believe that consistently strong topline performance and consistently strong bottom line profit is what a software or service company is supposed to deliver, and our performance is setting us apart from others that sacrifice one for the other. Our growth in the first quarter was fuelled by both new named account subscriptions and expansions of our base customer accounts, which we describe as a land and expand business model.

Kinaxis has the proven ability to land significant new customer accounts and subsequently expand the scope of their solutions as they drive towards expanding the value we deliver. As we have discussed on past calls, we continue to invest in scaling our business to deliver on growth potential we believe is in front of us.

Most notably is our investment in readying our partners to sell and deploy rapid response. I’m excited to announce that our approach is continuing to yield success.

Deloitte, who signed on as a Kinaxis partner one year ago, nearly to the day, played a significant role in closing a new major account this past quarter. In fact, the majority of our new book subscription business this quarter were influenced by our partners.

I’m thrilled with the momentum this program is driving. I believe it is a sign of recognition that the legacy supply chain planning techniques and technologies are coming to an end.

Global manufacturers need a breakthrough approach. They need concurrent planning, adaptive collaboration, and powerful simulation capabilities.

And they are turning to Kinaxis and our global partners to help lead them. With that, I’ll turn it over to Richard for an overview of the financials.

Thank you, John and good morning. As a reminder, all figures reported on today's call are in US dollars under IFRS.

Q1 revenue increased 20% to $32.5 million over Q1 2016. Total revenue was driven by our expanding base of subscription revenue, which increased 29% in the first quarter to $223.9 million and was supported by the sustained strength of professional services revenue.

Professional services revenues remain an important component of our overall revenue mix. It is driven by new customers initially deploying rapid response, as well as by existing accounts expanding their applications.

As John noted, our partners are playing an increasingly important role in these deployments of RapidResponse. In the first quarter, professional services revenue increased $100,000 to $8.4 million which reflects the partner participation, as well as the timing of the staging of our other direct engagements.

Gross profit increased by 17% in the first quarter to $22.2 million. Gross margin was 68%, compared to 70% in the prior-year period.

The change was due to targeted investments in additional support headcount, the increased use of third party providers, and the global expansion of our data centre capability. We continue to make these types of key investments as we believe they enable our long-term ability to profitably maintain consistent and sustainable growth.

Adjusted EBITDA in Q1 remained strong at 26% of total revenue and increased to $8.5 million or $500,000 above Q1 2016. The increase in adjusted EBITDA was a result of Kinaxis scaling its revenue growth at a higher rate than its cost.

Net profit was $3.2 million or $0.13 per basic and $0.12 per diluted share. The 4% reductions compared to the prior year period was primarily due to the above noted targeted investments in professional services and global data centre capability.

Cash generated by operating activities was a strong $10.3 million in the first quarter. Given our strong growth prospects we expect to continue to invest in the business through 2017.

For the full-year, our expectations remain that sales and marketing expense will grow in line with the business in the range of 23% to 26% of revenue. We also expect net R&D expense in the range of 16% to 18%.

These investments are appropriate to position us for a long term growth. They directly impact our long-term growth initiatives specifically channel partners and knowledge services as we scale the business through customer success.

We believe that investors recognize the value of a predictable business model that delivers topline growth and consistent long-term profitable growth and positive cash flow. In light of our Q1 results and reflecting the forward visibility we have in our business, today as noted in our press release, we have revised our full-year 2017 guidance.

We have updated our revenue guidance to be in the range of $140 million to $144 million. Our annual subscription revenue growth remained strong with projected growth between 26% and 28%.

And we now expect adjusted EBITDA to be in the range of 25% to 27% of total revenue. With that, I will turn it back over to John.

As you heard from Richard, we are off to a terrific start to 2017. We possessed a robust and diverse pipeline of prospects today that we’re working hard to bring on board.

Our investments in key initiatives, including a comprehensive knowledge service practice and continuing efforts in nurturing and expanding the partner channel ecosystem have begun to bear fruit and we are excited by the level of success we have achieved thus far. We have built our business around a single product capable of solving a multitude of sales and operations planning and supply chain planning problems.

We’re leveraging this one product across multiple market segments, including high-tech electronics, life sciences, automotive, industrial equipment, aerospace and defense, and most recently consumer packaged goods. We are selling this one product in multiple geographies, including North America, Europe, Japan, and South Korea, multiple verticals, multiple geographies, multiple areas of planning one product to rule them all.

That’s what the leverage looks like. At Kinaxis we are driven by two simple words, revolutionized planning.

Our endeavor, our purpose is to build the most innovative and important planning software in the world, and ultimately become the go to platform for partners to build upon. We are pleased to see Gartner's recognition of Kinaxis as a leader in their recently published sales and operations planning system of differentiation report.

And are looking forward to demonstrating our unique and differentiated value at the upcoming Gartner event where hundreds of manufacturers meet to learn about the art of the possible. With that, I’ll turn the line over to the operator for Q&A.

Or geography that was in and how that evolved, would the sales cycle look like relative to the deals?

Sorry Thanos we couldn't hear the first part of that.

Sorry, can you hear me now?

Yes, we can.

I was asking can you tell us a bit more about the Deloitte deal in terms of what, perhaps what vertical or geography that came from, how these sales cycle evolved with the characteristics for that deal?

Sure, here is what I can share at this time. The geography was Asia Pacific, it’s certainly - we are very excited by this particular deal.

As I mentioned on previous calls, our pipeline and I will say the enthusiasm towards concurrent planning and our unique approach in Asia Pacific has been warming - has been warming up. So we're quite excited about it.

Any color on the length of the sales cycle for that deal or vertical?

I can't comment at this time on the particular account or vertical by the sales cycle was as you know our typical sales cycle is 9 months to 18 months and Deloitte signed on a year ago yesterday in fact, so you can sort of assume the deal happened inside of that 12-month horizon.

Okay great. And can you provide us an update in terms of what you are seeing with the other partners as well and at this point is the focus on primarily the big partner relationships that you have, as well as the small existing ones or like we see some other very larger size commodity over the next 12 to 18 months?

As I noted in the text, the majority of our book-to-business, our book subscription business in Q1 were partner influenced, that’s new. We’re really thrilled about that.

That tells us that we are on the right track. I can also say that all of our published partners have been engaged in Q1 activity.

I’ve also noted that in the past that we do have some large partners that I call, they are in an incubation phase, if you will. And you might expect to see some additional partners going public with Kinaxis in 2017 as a result.

So, we are working with the primary ones that you know about, Deloitte and Accenture for sure. There are others that we’ve engaged with that are - we’re nurturing and maturing, and stay tuned, you may hear some new in the rest of the year.

That's great to hear. And then finally, I noticed your customer concentration crept up a little year-over-year, which is unusual for a fast growing company like yours, does that reflect the fact that some of the newer engagements are larger than typical or is that more reflective of deeper penetration with some of your existing customers?

Yes, so Thanos just to clarify it is 49%, so it has been in the high 40% range. But keep in mind that we have also considerably increased revenue.

So, how we look at it as, and by the way that’s total revenue. So, the knowledge of subscription ranges from customers, but where they are in the deployment cycle.

So, we actually viewed as a healthy and strong metrics that we are continuing to grow the business and the top 10 are in that range. So, I think this is sort of where we are going to be settling at around that 50% mark, it may go slightly higher, but it is probably going to be in that range.

And it is very much an indication of the larger deals that we are securing. And so we're very excited about that continued growth.

Great thanks guys. I’ll pass the line.

Good morning. The guidance implies that the professional services growth might be a little bit lower than expected at the beginning of the year.

So, can we take that to mean that there is accelerated shift towards the channel of that burden?

Yes Rob that is a very good observation. So, absolutely - as partners, when a partner influenced the deal occurs we have varying degrees and in some cases partners are taking virtually the whole deployment and will play a role in insurance, but through the certification program, through their years of experience and by the way we do have a number of partners.

They play that leadership role and as such we focus on the subscription revenue and they focus on the professional services. In other cases, we work in tandem.

So it will be certain elements of the engagement we take and obviously that revenue and they take. So, yes very much so we are indicating that as we have communicated before, our goal is to increase the content of subscription in our revenue mix and as you can see from the performance and the guidance that we are providing that is the path we are on.

Okay great. And then just a follow-on to Thanos question, I mean given that you have got a larger percentage from the top 10, it sounds as though those deals are getting bigger and it would be weighted towards subscription, would that be a good way to think about it?

Yes, it is weighted to subscription because that is the base of our revenue growth and the base of forward visibility, but again it’s depending upon the stage of their deployments, so the deployments are very active. You may have sort of customer 11 or 12 on subscription move up into the top 10 of total revenue, and then once they are in full production you know move back down.

So, there is a little bit of mix back and forth in that group.

Okay, and one more question. Deloitte, you’ve highlighted in the past as very strong in the automotive segment, so could you give us maybe an update on that sector and maybe talk about the developments with Deloitte there in that sector and then I’ll pass the line.

Sure Rob, I’ll answer both questions separately. There is no question that we're seeing heightened interest and more activity in the pipeline as it relates to automotive.

It is impossible not to note that. And we are thrilled by it obviously.

We’ve done exceptionally well with some [indiscernible] accounts and that's starting to take hold with other large automotive companies. Deloitte, and you’re right has been an exceptionally strong in the areas of automotive and other segments.

They are strong in high-tech electronics as well. And we continue to develop the strong pipeline with them.

I would say that’s accelerated over the year, part of that is us maturing and working well with extremely large Global SI’s and part of that is their maturity in managing a pipeline. So we are pleased with both.

We are certainly pleased with how the pipeline is progressing in the automotive sector and we are pleased with Deloitte and their recent contribution in Q1.

Thank you.

Yes, thank you. John you touched a little bit on this, but I was just wondering if you maybe just give us a bit more color, if you sort of look at the pipeline going forward what verticals in the regions do you see the more strength in over the next 12 months to 18 months?

So it is a great question and as I mentioned, automotive for sure is warming up considerably. In the past, I’ve noted that Life Sciences was warm and continues to be warm as well.

There is quite a bit of activity on the Life Sciences side, and most recently consumer packaged goods. So, we are seeing an uptake in that area as well.

Now relative to other verticals, I wouldn't say it as prominent, but for us being the most nascent vertical that we are attacking, we are really pleased with how it’s coming along. The other thing I would say about the pipeline and again I think I have noted this at the last call was that it is also strong in Asia Pacific, you know we are seeing a really balanced pipeline where we might have been predominantly focused on North America.

We are seeing a lot more balance now between North America, Asia Pacific, and Europe.

And if I may just Richard as you may recall under IFRS the way we disclosed is really the part that executes the agreement. So generally our customers are global and it is not unusual for say a company in Europe to execute under US paper and we will note that as a North American deal, but these really are global deployments.

Okay. And then obviously you guys are getting a much bigger here dealing with a lot of different customers, as you grow from an operational perspective, have you kind of noticed any changes you need to make in the organization to make sure that you are well positioned to capture that growth often like some of these companies that grow.

It may overlook certain nuances of the business, if you kind of know the same thing and should be expect any sort of nuances to change over the next 12 months to 18 months?

Well that is a great note. I mean, one of the things, I mean John and I have been working together for 12 years and this is a company that’s exciting because we have 30-year people, we have 30-day people, and so we're continuing to assess what we need at a corporate level and building the team or drawing new members to that team.

So, yes you are going to see continual nuances, I guess continual changes. One of the strong things about subscription revenue is that forward visibility.

So, that is why for instance we can invest with confidence in new data centers we have indicated are growing our data centre capacity in Europe. We are extending the teams geographically, and as you have seen with additions to the management team we are drawing on industry leaders as well.

So, yes you going to see it, but I like your term nuance, you're going to see this gradual expansion and solidification of the business because we do think a lot about how we are able to execute and that’s reflected also in the partners. So John has talked about partners earlier.

You will see an expansion of partners, but those partners are investing in that business, as well and so it is not just simply a matter of racing to add logo, it is building a foundation of execution partners?

Okay. And just one last quick one from me, John you sort of started the comments initially with land-expand, I think we are all really familiar with that strategy, and you guys have done a great job, I'm not sure if this question has got asked before, can you give us some color as to how much your existing customers have been spending with you kind of on a year-over-year basis?

Well, I mean our land and expand model as you know, we do have a one measure that we track, well there is a couple of measures, but as we noted recently, we’re starting to see more new named accounts as a percentage of subscription revenue versus the expansions, and that’s largely fuelled by new bookings essentially. So, we are setting today at roughly 65% of our subscription revenue, incremental subscription revenue from new named accounts and 35% from the expansion.

And we also track and we haven't really seen a change in this and then we look at the entire year cohort of our customers and we do measure sure the speed at which a customer will expand to a doubling of their initial subscription revenue number, our contribution and so that still tends to be in that three-year horizon. We haven't really seen a change in that.

That's great. Thank you.

Hi thanks very much and good morning. With the increasing mix of partner influenced deals, how do you see that impacting your sales and marketing spending, is there perhaps some leverage on that spend or does it, the nature of the spend shift from more of a direct sales focus to more marketing support?

Thank you, Paul. So from a partner perspective what we do is very different.

We are not aware of another vendor that can provide the concurrent planning capability. So, it is very different and so we are working very closely in the sales cycle with our partners and both teams are aligned so that there is an incentive to work together, I will just say that way.

And so there is absolute leverage, partners are playing a greater role, but some of their ability is to introduce us to new opportunities. They have the privilege of those relationships already and really it’s just an additional recognition of our unique capability.

So yes we will see leverage, but we're going to see leverage as part of the maturing of the organization and it’s, the model is set up so it is successful for both parties.

Okay, and then one more for Richard and then I am moving to John. On European revenue, I think you might have addressed this earlier, European revenue declined slightly at year-over-year and quarter-over-quarter is there anything that read into that or is it reflected because some of the European wins are coming under the US or Americas line?

It’s very much the latter. So, we are very excited about Europe.

Europe is growing and what it is, is that, if it is an entity as you noted, if it is signed by the - our European entity then we will note it there, but it is generally European called global, but running it through their US subsidiary.

Okay, makes sense. John in the fall you mentioned that there is more of a platform strategy that may be emerging with rapid response, are you seeing the interest from partners or the existing ones on new ones in terms of building analytics and algorithms on top of RapidResponse and when do you see some of those getting to the market.

So, the answer to that is without question. You know that, as I noted in the text, we have exactly one product that’s serving a multitude of verticals a multitude of solutions and a multitude of geographies and we have built rapid response to be what I call mass run-time configurable.

There’s just no custom code in the field, it’s completely run-time configurable. And we’ve built that from the ground up.

We knew in advance that no two supply chains were going to be alike, we are kind of like people. They are close, but they are not 100% alike.

So our decision around the design of RapidResponse was to have no custom code, mass run-time configurable, which by definition means you can configure brand-new value propositions if you will in the field and we have been pushing that envelope as part of our development philosophy if you will since day one. And a partners for sure, have expressed interest in building what they would describe as their own intellectual property on top of RapidResponse, whether it’s building an automotive framework and automotive package if you will on top of RapidResponse or brand-new solutions perhaps around an engineered order business and building best-in-class process and art effects such as dashboards and scorecards and task flows and the like.

So our partners are definitely interested in moving in that direction and we are also interested in engaging with them. I have said this in the past force.com for salesforce is just that, it is an opportunity for third parties to build direct value associated with salesforce.com.

I like in those two adjacencies, right. So rather than Kinaxis having to dream up, what adjacency should we go after, I would much rather have partners dream them up and build them.

And we will get huge economies of scale if you will, by doing it that way. So, we continue to invest in R&D, it’s one of our innovation strategies is to push rapid response as a platform.

Okay. Thank you.

I’ll pass the line.

Hi good morning guys.

Good morning.

You just released the Gartner Magic Quadrant study this morning, can you give us an update on the competitive landscape?

Yes, the Magic Quadrant that was released this morning is the system of differentiation, which focuses on sales and operations planning and we are obviously pleased with our moment there and our strength and one other things that makes Kinaxis distinct and unique is our ability to link at this particular Magic Quadrant what they call as sales and operations planning system of differentiation with the supply chain planning system of record. These are two distinctly different Magic Quadrant's, and one of the things that’s unique with the rapid response is it is the same product on both.

So we are bridging both of those solutions and both of those value propositions with this singular product. That to me is almost the definition of concurrency is that you can solve these two distinct problems with the singular platform and singular solution.

They are inextricably connected. So, I think the report itself, you can certainly read about competitive landscape, and how others are faring, as it relates to Kinaxis however we are certainly pleased with their recognition, most notably on the vision axis, and our moment in that direction.

We think it is directly related to our ability to bridge both the MQ’s.

Okay, great. Thank you.

How is the European data centre going and is this something that’s a gating factor given the data solvency regulations in the regions, so that once you complete it, is that something that should open up the European market for you?

Thank you, Dan. So first off, the European market is absolutely open for us and we have been successful there and we are continuing to gain leverage there.

We do have a Canadian data centre so that is not a roadblock with regards to the serenity. We are on track to have that data centre operational later this year.

It is more of a statement of our long-term commitment to you and absolutely we're going to be supporting the European customers there, but in this day and age we can do so by Canada, but it’s really, we think it is the right thing to do long term for the business.

Okay, that’s great. And then just one final one for you Richard, any thoughts on capital deployment, obviously your cash flows are very strong, it more than covers your CapEx needs, so what are your thoughts on capital deployment as your cash is built up here?

They remain the same. So, yes absolutely this model generates significant free cash flow more than sufficient as you noted to support our leverage and investment in the business.

This is something that we as a company and a board do review, but this point-in-time the consensus from our key investors and the board is to build those reserves and to look opportunistically for new investment opportunities. We continue to keep an open mind with regards to potential acquisitions, but as we've noted before, they would be one to support or accelerate our organic growth, they are not going to be topline revenue purchases, and so therefore they have certain criteria and we have not found an investment that fully met those criteria.

So, at this juncture Dan it is going to continue to strengthen the balance sheet and to keep our opportunities open.

Great, thank you.

Thanks for taking my question. Two questions, first one for you Richard, and second one for you John.

If I look at the gross margins, there is two influences, your mix is improving some more subscription revenue, but your investments in data centers is, everything margin, so if I look at past this year, as you said you continued investment essentially for the remainder of the year? So if I look at pass this year, and if I look into next year and if you look at your mix where do you think your gross margins can go historically, the highest you have done is about 73%, quite forward [indiscernible] based on the mix, and John for you, can you give us any metrics on trials, so kind of number of trials, you having a feel for this year versus last year, and may be the mix of those trials have you skewed the new verticals you're looking at?

Sure Gus. So let me start and then John can comment on the proof of concepts in selling.

So while our focus is long term growth, what we disclose publicly is our one year guidance and so the guidance for the year is focused very much on 2017, you know that we may recall that we are very conserved in our accounting practices, so everything is taken as a period cost whether that is start-up of a data centre, whether it is a recruitment of new professional services or service ops folks and they training period. And so, yes you that is for the current compression if you will of gross profit, absolutely the increase component of subscription revenue is a positive factor.

The model has strong leverage. So, yes as those one-time costs are behind us and as we increase the subscription component level grows that will lead to gross profit expansion.

The reason we don't comment on specifics is again because investment nature if we have not hesitated in the past when we have seen some unique initiatives whether they are a partner or moving into say the automotive or consumer packaged goods, verticals to invest to secure that future wins, and so that’s why we don't comment, but I know a number of analysts do model that leverage into their models.

And Gus, thanks for your question. As it relates to proof-of-concepts, it’s, this is a key differentiator in our sales process they are very common for us.

In fact, most people when they hear of a breakthrough, something that sounds too good to be true, they need to experience it, they need to see it in order to believe it, and so during our sales cycle it is very common to hit that point that aha moment, where they say, oh my gosh. If this is true, this is going to be wildly valuable, you need to show this to me.

In fact, prove it with your data. So, at any one time, we have multiple proof-of-concepts going on, it’s something that we will come and quite frankly we believe the result of a proof-of-concept is a prospect that can't live without what they just experienced, and what they just witnessed.

And that is why we do them. As it relates to which articles we are working on this day without being specific, as I mentioned, we are seeing heightened activity in the automotive sector in the consumer packaged goods sector, we’ve always been strong in the high-tech electronics sector and life sciences continues to be very warm.

Those are the predominant sectors where we're seeing a lot of activity. I hope that answers your question.

Yes, thanks. Is there any way you can give me a rough win rate for your PLCs, like how didn’t convert to sale?

Remember the period of times are 9 months to 18 months, and in some Gus the PLC is quite light and that they were already confident from whether it’s Gartner or customer references, you know other sources of information, and other cases, the proof-of-concept can be a little more extensive, especially where they have experienced lack of success I’ll say with regards to another vendor. So, there is this time dimension, so it doesn't really relent itself to necessarily a straight win loss ratio.

Thanks for taking my questions.

Thanks Gus.

Hi, good morning, this is Amy Dyck in for Todd. Just one question for me, can you speak to why the current portion of deferred revenue was so strong in this quarter?

Thanks.

Sure, Amy. Thanks for the question.

So differed revenue is as you may know, it is simply the billings that we have made and revenue that we haven't taken. So, when our contracts generally are annual pre-paid and so it is really a function of the level of activity for new customers, as well as renewals and the timing of the billing.

So, both the current and the long-term portion growth is related to the two business growth and the timing of those billings.

Okay. That's it from me.

Thanks.

Hi good morning. I was wondering if you can talk about the progress being made on the training of consultants that your partners - and thinking any metrics you could share on RapidResponse certifications, how large the teams are between the three different partners and just how to think about the growth of the number of people that are involved with rapid response evolving through 2017 at your partners?

Sure. We continue to see a lot of traction on certifications from every partner, not just the published ones that you would be aware of.

And certainly the ones that we have in the incubation phase as they look to join deployments. In terms of the total number, we don't necessarily publish that.

I will say that each and every month we are seeing an increase. We're definitely seeing an increase of third-party certifications.

We're working hard to broaden the certification. The level II and level III consider that sort of level III as the mastery phase and we will be rolling that out through the year and expect to see a continued adoption on that front.

I mean the other thing that I would note as Richard as stated, we are seeing an uptick in their direct involvement in professional services and deployments and that’s the direct result of them increasing their certifications, and quite frankly being ready to deploy for their customers.

Got it. Thanks for that.

I guess on a related note, any commentary on knowledge services benefits besides the intangibles, I think in the past you have talked about potential of generating subscription revenue, any thoughts on that? Is that a possibility for 2017 or how big could that subscription revenue related to learning and training get to?

It is a reality. Kevin.

I mean this one is so exciting. So this program has introduced, with Sarah joining Kinaxis in mid-2015, the digital content has exploded, not only the certifications, that is a separate program.

And we have a number of customers now with varying level of subscriptions and what’s very exciting is, as customers understand the value right from the initiation of the subscription, they are also adding in those services subscription. We're not providing guidance at this point in time, but we do see it is growing rapidly, we see it becoming a meaningful parts of our business, so what we are seeing is actually a transition from their traditional model coming on site to really leveraging the subscription because it is also about continuous learning, so it is not just simply the initiation of using RapidResponses, it is how you continue to drive value, how you can continue to develop your own and in some cases customers are certifying developing their own carrier.

Thanks. That's great to hear.

Thank you for that. And yes just of final one switching gears from me, you have a comment, any difference in the type of the number of modules that adds back these big client wins that the partners are bringing on and beyond that if you could share kind of the number of apps or the type of apps that in Q1 and delayed win, any additional color you can provide will be appreciated?

Sure. Our approach to growing functionality expands to vectors, really most of them be consider them horizontal and vertical, how deep do you go and how broad do you go.

And then we look at those as it relates to verticals as well. So, as mentioned in the last quarter, consumer packaged goods is a new vertical for us.

When that happens, we start our - I will call it our verticalization of that particular segment. So, it’s broadening the value propositions and applications spaces to fit that particular vertical and we are continuing to invest in analytics and solutions to meet their particular needs.

As it relates to partners, we had a question earlier about the interest partners have in building unique value propositions on top of RapidResponse and we do have very significant interest. They definitely have their eye on building their own unique value propositions using RapidResponse and ultimately I do have a belief that while we are in six market segments today, I get this question from time-to-time, why are you not in oil and gas?

Why are you not in content sold? Why are you not and retail?

How about fashion? Food and beverage?

You can go on and on and on, on all of the types of verticals that are potentially a fit for us, and if we attempted to do that organically while it would be time horizon for us to observe all of that. If we engage partners to help us get into those verticals, we should see acceleration.

So that’s the model that we're working to in terms of how we would leverage partners and how we can expand into new market verticals using that approach.

Great. Thanks very much for all of that.

I’ll pass the line.

Thanks for taking my question. John just a quick question for you on, you are talking about the incubation period with potentially new partners and new training process, but shall we assume that when you actually announce the next partner, they are already going to be all fully trained brilliant to go and potentially even though already involved in the pipeline?

I think it’s a bit of a mix, but usually yes, we wait to see, I think I have said this before, we have more people ringing our door bell than we let into the house. And it is a lot of interest everybody is saying, hey please can you put our logo on your website, we have an account, et cetera, et cetera, but we are extremely cautious about bifurcating our energy and working with only those partners that are really serious about building a practice.

Those partners that are serious about building a practice, understand what it takes to invest full in training. It is not just about a press release and a logo.

And we’ve learned that. We've learned that with our existing partners.

So, by the time a press release is announced we have convinced ourselves and they have convinced themselves that this is a serious endeavor. This is about building a practice and they are aware of the investments required to keep the practice alive and prosperous.

So that is how, I would describe the incubation period if you will. It is almost like we are running our own proof-of-concept with a particular partner, and it usually involves a particular prospect, you know somebody says I want to be a partner and they don't have anybody to work with, typically we are not engaging with them at this time.

Okay. And then just another follow-up, not sure if this was talked about in the call, I got cut off halfway, but with your pipeline and you said that obviously the contracts that were booked in the quarter were primarily driven by the partner channel, on average are they similar size larger, slightly smaller than historic direct-to-market contract opportunity and how would you say the response has been also via the current client base, so they are saying because you have more capability via the partner channel, can they expand you faster within their own organization?

Absolutely the goal is to expand faster, increase our growth rate to get broader penetration to leverage the privileged and the relationships of the partners, but what is interesting is we do - often and the focus is on the strategic partners, so like a Deloitte or Accenture, and yes those deals sizes are generally larger because they are just dealing with very, very large enterprises, but we also have execution partners, and they are very, very active and they can be in different size of deals. So, it still remains that we could sign a 4 million or 5 million year subscription arrangement.

We could sign a 400,000 of 500,000 subscription arrangement and so the partners are playing across that spectrum and that’s again a positive focus for us.

Okay and then just a final question before I pass the line, are they having any specific success within the application deployments or is it pretty much across the board? In terms of what they are pitching and what they are seeing a conversion on?

So we are still seeing a typical entry point being sales and operations planning as it relates to connecting it with the system of record, if you will. This notion of being able to do long-range planning and instantaneously seeing the short-term implications have changed inside of that planning horizon.

And so that remains true. I would also suggest though that that’s not necessarily uniform for every market vertical.

So, certain market verticals might focus more on supply-side optimization making sure that the right inventory, lowering inventory, while simultaneously maintaining or improving fuel rates, or what they often describe as On Time In Full, you know OTIF is a common term right. On Time In Full I want to deliver orders On Time In Full with less inventory.

So it’s really dependent on the market vertical, but I would say in general we are seeing the typical entry point being a sales and operations planning. I might suggest maybe it’s just my belief but the most expensive mistakes indeed happened during the sales and operations planning cycle.

Okay. Thank you, appreciate the feedback.

Great. John could you talk a little bit about your plans to expand the total addressable market for your solutions and how you're thinking about those markets, if I talked a little bit today but it is on our markets, auto and CPG, how do you think about the overall opportunity size today?

So, it is a great question. Thank you for that Paul.

When we think about the total available market, especially as we add consumer packaged goods, we are seeing that roughly 2000 named opportunities in the geographies that we currently serve. So we're hyper-focused.

This is what I believe is a part of our secret if you will the success is hyper-focused, you know making sure we're not diluting our energy and maximizing on everything we attack. And so today, as you know we have roughly 100 customers, so I still feel like we are, the term I often use is chapter 1, book 1, we're just getting started.

Growing that, and again as I mentioned in the text, we are succeeding in all of these market verticals. With exactly one cloud-based.

You know, every single, whether it is at aerospace and defense, drug manufacturing, high-tech electronics making cars, aircrafts, they are leveraging exactly the same object code, which is very unique. These supply chains are so distinct.

They are so unique and different. And so it’s, we consider the competitive advantage that we are able to do it with mass runtime configurability.

So growing our TAM, growing our total available market in new oil and gas and forestry and fashion and retail, that’s all in the future for us. I have a complete confidence that we will be in a position of growing our single product to cover those additional markets, especially as we leverage our partner ecosystem to help us accelerate it.

Great, thank you. And then just you started to touch a little bit in terms of your key R&D initiatives, but how should we think about your movement into what I would term at least flow manufacturing industries, energy, areas like that, that you traditionally haven't touched, is that a five-year-out timeframe is that sort of closer and that we should think about moves down that path?

We are still - Paul we are still focused more on what I described as discrete manufacturing’s as opposed to flow. Although we have won some business in that kind of related area and again it’s a Testament to the flexibility of the product.

We do have customers outside the six verticals that we talk about. It just means what we're seeing is, those aren’t necessarily focused direct sales and marketing campaigns that we are running.

So, I would say in the near term, we are going to continue to focus on what I describe as discrete manufacturing. And in terms of innovation and driving out new capabilities of RapidResponse, we - I might have mentioned this and I know I did during the last call investing our R&D efforts in the areas of machine learning and IOT, in fact we have a functioning in production solution where RapidResponse is reading directly sensors if you will from and IOT sensor, and measuring a consumption of inventory and real time.

So we are heavily interested in that particular area and around machine learning there is a lot of academic articles to read. As I described there is a lot of academically interesting articles.

We're hyper-focused on practical use of machine learning and working directly with customers to establish value propositions that are meaningful in earth time. This is looking for areas of leverage where machine learning can automate decisions at a pace and a rate and an accuracy that can't be matched by humans and that’s where we are investing.

Great.

Thanks Paul.

Thanks.

Hi good morning. I know we are getting long to the hour here, but thank you for taking my questions.

I will try to be brief. John and Richard you talked a lot about the land and expand model, you have a good loyal customer base, what can you say are some of the speed limits to expanding within the existing customers, both self-imposed and customer imposed?

I really wouldn't say they are speed limits keeping in mind that we continue to expand the base of revenue from existing customers and as John noted earlier in the call, you know that has just with the growth of new name acquisitions has changed from last year sort of 60:40 to 65:35 on a sort of more recent basis. So, you are going to see continual uptick there.

I think from a speed perspective, it is really the speed of new customer growth and new customer acquisition that’s exciting and coming back to John's chapter 1, book 1, with about 100 customers today and 2000 identified prospects, while we are going to continue to work with and serve and grow with our existing customers there is very significant opportunity out there for that speed and acceleration with new customers.

Yes, I might add just the flip side to that point is, when you talk about is, you rail us to our growth and one of the things we do care about is diluting our energy and we feel like that often happens to hike fast growing companies where they dilute their energy, they try to do too much, go after too many verticals and they fail at all of them. That’s just not who we are, we're hyper-razor focused on leverage and that comes back to having a singular product to serve them all.

When we tackle a new vertical, we tackle it full on. We don't dilute our energy by taking too much because we need to succeed in everything that we do.

So, as Richard said, I’d add-on, but we feel like we are still getting started.

Great, thanks. And just a follow-up, you mentioned briefly there, talking with IOT and real time inventory sensing, when you look at your most mature customers, have you seen some of them shift from problem-solving mode to innovation mode and developing deeper competitive advantage mode by using your software?

I would say we are providing a breakthrough. There is no question.

I mean, I do believe that what we are providing then is a giant leap forward. It is providing them with a capability that is simply impossible with current legacy technologies and techniques.

And I think as I said, I often use this analogy, it is like flight, if you went back far enough and told somebody that they could fly, but airplanes hadn't been invented before, they didn’t know what flight was, they would see birds fly every day. They just don't know how they could fly, but make no mistake they'd know what kind of breakthrough that would be if they could.

So, we are providing very much the same mechanism for them, and the business results that they see as a result of taking on those techniques are absolutely revolutionary, they are breakthrough.

Good. Thanks Deepak.

Thank you, guys.

Thanks guys. Thanks for taking my call.

Just Richard on the Deloitte wind, was that additive to your Q1 gross billings?

We don't talk about specific accounts. Again the timing of what you see in deferred revenue is a little different from the booking.

So sometimes what will happen is we will close a deal later in the quarter, but as the entity, while they've signed a deal has an issue, the POD that we have an actual invoice, so there may be sometimes a difference with the deferred revenue. I think Blair, the main thing is to really take rather than worry about some of the timing of those elements is to sort of focus on the guidance that we’re providing and so what we have indicated is that uptick and subscription revenue growth for the current year and we are extremely comfortable with that given this visibility that we have and the book that we have closed.

Okay great thank you. And what about any color at all on renewals, obviously January, Q1 is a big renewal period for you?

Well actually renewals are staged throughout the year. So this is not sort of the perpetual type of company where you have that cliff coming up in your fourth quarter or Q1, our arrangements are multi-year and we're very happy with regards to our renewal.

I mean we continue to have very, very strong retention with the customers. So any of that renewal track record is also reflected in that growth in our guidance subscription revenue.

Okay, great thank you. And just one last quick one for John, on the partner side of things, are the partners running proof-of-concepts on their own now or with you guys or are they still kind of coming up the curve to be able to do that?

We are working in lockstep with our partners. These are very, very large engagements, large campaigns, large corporations, and the ultimate solution is still hosted by rapid response.

These are proof-of-concepts with customer data, they are hosted in our data center. So this is not something that our partners are going to run autonomously.

Great. Well, thanks Blair.

Thank you.

Thank you for participating on today's call. We appreciate your questions, as well as your ongoing interest and support of Kinaxis.

We look forward to speaking to you all again in August when we report our Q2 2017 results. Bye.