Kinaxis Inc.

Thanks, operator. Good morning, and welcome to the Kinaxis earnings call.

Today, we will be discussing our first quarter results, which we issued after close of markets yesterday. With me on the call are Bob Courteau, Interim CEO and Chair; and Blaine Fitzgerald, our Chief Financial Officer.

Some of the information discussed on this call is based on information as of today, May 8, 2025, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements.

For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release as well as in our SEDAR+ filings. During this call, we will discuss IFRS results and non-IFRS financial measures, including adjusted EBITDA.

A reconciliation between adjusted EBITDA and the corresponding IFRS result is available in our earnings press release and MD&A, both of which can be found on the Investor Relations section of our website, kinaxis.com and on SEDAR+. The webcast is live and 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 may be rerecorded or otherwise reproduced or distributed without prior written permission from Kinaxis.

To begin our call, Bob will discuss the highlights of our quarter and recent business developments, followed by Blaine, who will review our financial results and outlook, and open the line for questions. We have a presentation to accompany today's call, which can be downloaded from the Investor Relations homepage of our website.

We will let you know when to change slides. Over to you, Bob.

Thanks, Rick. Good morning, and thanks for joining us today.

I'm pleased with the first quarter results, and I wanted to highlight three key items. First, was the solid quarter for new business, including record expansion business volume for our first quarter.

Our ARR grew 14%, as reported, and in constant currency. SaaS growth was 16%, or 17% in constant currency.

Second, we continue to make progress with profitability as adjusted EBITDA was up 46% and the margin hit 25%. Lastly, it was our third consecutive quarter delivering Rule of 40-plus performance.

We view this consistency as key to a valuation that better reflects our elite positioning in the vertical software universe. This performance allowed us to maintain all guidance elements for the year, including SaaS revenue growth, total revenue and adjusted EBITDA margin, and we are also on track towards our midterm goals.

As always, we added important new customers in the quarter and enterprise class companies continue to be the biggest cohort. We're so fortunate to be able to name a sample of our new customers today.

For example, we've helped orchestrate the supply chains for global leaders like Sun Pharma, which extends our success in Asia. Based in India, Sun Pharma is the world's leading specialty generics company with $5.8 billion in revenues and more than 40 manufacturing facilities.

Sun Pharma provides high-quality, affordable medicines to more than 100 companies around the globe. Workwear Outfitters, based in the U.S., is a leading manufacturer of innovative work apparel and footwear for workers.

With brands like Kodiak and as the exclusive licensee for Dickies Apparel in the B2B channel. Delta Faucet Company, also headquartered in the U.S.

and who we know through Delta and Peerless brands, among others, offer purposeful practical plumbing fixtures that solve our everyday needs. Demant A/S headquartered in Denmark with over 22,000 employees is a global leader in hearing health care and manufacturing of hearing aids dedicated to improve the lives of people with hearing loss.

Veolia, a U.S. subsidiary of a French-based company, which provides water treatment and sustainable solutions for industrial and municipal clients.

Finally, we signed one of the world's largest companies in the semiconductor ecosystem by both revenue and market cap. Our market share keeps growing from successes like this as we continue to win the most important and competitive opportunities across all markets and geographies.

Ongoing growth of the customer base, balance across geographic and vertical markets and revenue tiers remains a significant opportunity for Kinaxis. As we briefly mentioned on our last call, we struck a new partnership with Infor to help accelerate that growth, and I'm so pleased to be able to share more details today.

The new relationship with Infor is focused on mid-market discrete manufacturing companies in the high-tech, industrial, consumer durables, automotive and aerospace and defense verticals. Together, we are integrating Infor Cloud Suite for discrete manufacturing with Kinaxis Planning One, a Maestro solution package that offers core fundamentals like supply and demand planning and inventory management.

This partnership will create an entirely new channel by activating a mid-market team of sellers in North America and Europe within Infor. We're excited to see this initiative moving forward.

While winning new customers will be a major part of the Kinaxis story for many years, I'm very pleased that in Q1 and for the second consecutive quarter, over half of gross additions to ARR came from existing customers. Thanks to rapid expansion of the customer base in recent years, exciting new product launches and an increased focus under Mark Morgan, we continue to see more expansion business than ever in our pipeline.

I'm also very pleased with the meaningful improvements we've made to our go-to-market team and approach. While it started several years ago through geographic expansion, adding VARs and solution extension partners and moving to public cloud among other initiatives, we took another major step last year by adding Mark and key regional leaders who know how to operate at scale and who are sharply focused on progressing our best opportunities.

We're winning the market and together with the most referenceable customer base in the supply chain software industry, these improvements have seen us become best-in-class in how we approach the market and service our customers. As always, one critical reason we win remains our product leadership.

We are thrilled that Kinaxis was recognized as a leader in the 2025 Gartner Magic Quadrant for Supply Chain Planning Solutions for the 11th consecutive time. Based on analysis of both our completeness of vision and our ability to execute, we take pride in consistently strong positioning in this important report.

But there is no time or place where our product and go-to-market leadership shines more than at Connections, our flagship industry conference. This year, a record 1,000 attendees or almost 30% more than 2024 came to Austin to hear, see and interact with the latest in our market-leading innovations.

At Connections, we announced an important partnership with Databricks. Together, we will strengthen Maestro's data fabric to help customers quickly and easily unify their data, accelerate AI adoption and bring together information from core systems like inventory and procurement alongside external inputs such as weather patterns, market signals, all within one governed environment.

The result will be faster insights, greater execution agility and a more resilient innovation-ready supply chain. In Austin, customers and prospects were hands-on with our next phase of AI innovation, including out-of-the-box AI agents to monitor, predict and take action in real time for automation of key tasks like inventory management and disruption mitigation.

Attendees were even creating their own AI agents on Maestro, showing how AI-driven supply chain orchestration can be accessible to businesses at any stage of their AI maturity. Conference-goers also saw firsthand how our new generative AI functionality will make interacting with supply chain data even more intuitive.

In addition to creating customizable dashboards, C-suite users to technical experts will be able to query digital twins by asking questions in dozens of natural languages and receive instant insightful answers to complex questions. This allows interdisciplinary teams to analyze scenarios, assess risk and make informed decisions without requiring AI expertise.

But, naturally, at Connections, it was impossible to have conversations with supply chain leaders without discussing the global tariff issue. As longtime followers of the company, you understand that Maestro has been specifically built to handle disruptions of any kind and few have been more significant for our customers than the current tariff crisis.

Consequently, we recently launched Kinaxis Tariff Response, a professional services offering for prospects that allows them, under a limited time engagement, to provide Kinaxis experts with key supply chain data so we can show how Maestro can simulate tariff exposure, run strategic scenarios and make data-informed decisions quickly. The service can be live in as few as 21 days, giving planners access to tariff modeling without the cost or complexity of building it internally.

Interest in this campaign from prospective customers has been encouraging. Tariff response provides a meaningful preview into the power of Maestro, so we expect some engagements from this program to convert to new subscription business in the coming months.

Overall, I'm very pleased with the progress in the first quarter and for the remainder of the year. We aim to deliver on a few key items: ongoing delivery of quarters that support our full year 2025 outlook and midterm ambitions.

More new market-leading customers, coupled with a more balanced contribution to quarterly ARR growth from expansion business and many new name accounts. We are setting up initial customers for our exciting new generative AI and Agentic AI products and initiating a new pricing framework to better reflect and take advantage of the more universal integration of AI through Maestro and the higher value it brings.

And lastly, a new full-time CEO. We're seeing -- we're adding exceptional talent to our company now.

We're working well as an experienced collaborative senior team and delivering Rule of 40 quarters, all of which gives us the privilege of being patient and finding the absolute best person for the role. As with any global software company, we do remain mindful of the significant challenges our customers face in the new era of global trade.

But we are confident in our elevated go-to-market team and approach, our product leadership and the breadth of growth opportunities in front of us. Kinaxis today is better organized than ever to take full advantage of the incredibly dynamic supply chain orchestration opportunity that lies ahead.

And with that said, I'm going to turn over the call to Blaine.

Thank you, Bob, and good morning. As a reminder, unless noted otherwise, all figures reported on today's call are in U.S.

dollars under IFRS. If you move to Slide 9 in our investor presentation for Q1, I'm very pleased to report solid Q1 results that set us on a good path to achieve our fiscal 2025 goals, both on an as-reported and constant currency basis.

New business remains strong, sustaining the upward trend in our ARR growth. Our profitability in Q1 was strong again, as was our trailing 12-month free cash flow margin, particularly if you adjust for the impact of onetime outlays related to our tax restructuring and litigation settlement, both of which we discussed on our last call.

Our midterm profitability goal of consistent full year normalized 25% adjusted EBITDA margin, and consistent annual Rule of 40 performance aspirations, are both clearly in view. Now let me walk you through our Q1 2025 results compared to the same period last year.

Total revenue was $132.8 million, up 11%. SaaS revenue was $84.9 million, up 16%.

Our subscription term license revenue was $9 million, in line with our expectations given renewal cycles and up 34%. Professional services revenue was $33.3 million, down 3%.

We see this largely as a reflection of ongoing success in our long-term strategy to move an increased share of professional services work to our partner network. Maintenance and support revenue was $5.5 million, up 15%.

Our gross profit was strong, up 19% to $86.5 million or a 65% gross margin compared to 61% in the same quarter last year. The software margin was 80%, up from 76%, due in part to higher subscription term license revenue and lower amortization, thanks to an intangible asset we retired last quarter.

Professional services gross margin was down to 21% from 24%, consistent with partners taking on more of the services work. Adjusted EBITDA was extremely strong, up 46% to $33.1 million, or a 25% margin versus 19% in the comparable quarter.

This reflects numerous factors, including our revenue growth, higher gross margin and lower operating expenses as a percentage of revenue as we continue to focus on profitability and gain further operating leverage as we scale. Our growth and profitability performance resulted in Rule of 40 performance for the third consecutive quarter, calculated by adding SaaS revenue growth and adjusted EBITDA margin, our usual approach.

Our profit in the quarter was up 157% to $15.9 million or $0.55 per diluted share, versus a profit of $6.2 million or $0.21 per diluted share a year ago. We are proud of this significant improvement.

Profit benefited largely from the same factors that supported our strong adjusted EBITDA performance. Cash flow from operating activities, $31.6 million.

That compares to $32 million in Q1 2024. Cash, cash equivalents and short-term investments were $314.6 million, up from $298.5 million at the end of 2024, despite the onetime payment made in Q1 relating to tax planning and the litigation settlement.

If you move to Slide 10, our trailing 12-month free cash flow margin remained strong at 18.7%. Absent the tax planning and settlement amounts, trailing 12-month cash flow margin would have been 24.4%, a great reflection of our increased focus on profitability.

On to Slide 11. Our ARR, or annual recurring revenue, grew to $372 million, representing 14% growth, both as reported and in constant currency.

The split of gross additions to ARR between new name accounts and expansion business was 47% to 53% in Q1. This is the second consecutive quarter where expansion business was the bigger contributor.

Our pipeline for 2025 remains more tilted towards expansion opportunities than in prior years, which we believe is a reflection of recent growth in our customer base, more product to sell and our heightened focus on this important sales motion. Moving to Slide 12.

Our SaaS and total RPO balances remain very strong, growing to $767 million and $812 million, respectively, with 3-year CAGRs of 20% and 19%. This metric continues to highlight growth in our subscription business and our elite gross customer retention.

More details on our RPO can be found in the revenue note to our financials. Looking at Slide 13.

While mindful of the impacts to our markets of the volatile macro environment, I'm pleased to reiterate our 2025 guidance. Total revenue of $535 million to $550 million, or $545 million to $560 million in constant currency.

SaaS growth of 11% to 13%, or 12% to 14% in constant currency. We continue to anticipate seasonal trends to apply with Q4 historically being our strongest bookings quarter.

Subscription term license revenue of $16 million to $18 million. Approximately 1/4 of the total amount will be recognized in the second quarter and the remainder split over the back half of the year, with Q3 being somewhat higher than Q4.

We continue to expect adjusted EBITDA margin to be between 23% to 25%. Finally, on Slide 14, we have continued to be active on our normal course issuer bid.

For the quarter, we purchased 157,428 shares and at an average U.S. dollar price of $110.49 or an investment of roughly $17.4 million.

Our NCIB goes through November 5, 2025. Overall, I'm pleased with how the business is executing.

This is our third consecutive Rule of 40 quarter. Despite the challenges to customers of a constantly changing tariff environment, new business in the quarter was solid and kept our ARR growth rate on a good trajectory.

Adjusted EBITDA margin and free cash flow has continued to move in the right direction, reflecting dramatically improved profitability and our midterm financial aspirations are all intact. I'm excited for the coming AI transition and what it will mean for our differentiation and growth ahead.

As always, thank you for your ongoing interest in Kinaxis' and support to date. I will now turn the line over to the operator to start the Q&A session.

This is Sagar on for Thanos. My first question is regarding your software margin.

So the margin was the highest in several quarters. So how should we think about that trajectory as we continue -- as you continue your migration to public cloud?

And just talk about -- we've always had a discussion saying our software margins should be over 80%. And obviously, the migration to public cloud in the early days put us a little bit south of that.

We're really happy with where it's going. Obviously, it's still early days.

I think the subscription term license revenue has helped us out a little bit in this quarter. So we need to make sure that we take that into consideration as we move forward.

But we are consistently focused on trying to move that at a consistent rate above 80% as we move forward. The public cloud migration is going very well.

We're seeing some economies of scale as we continue to move that forward with our APAC team already moved over. And Europe is next in line where we're well on our way to migrating that customer base.

And just another question. I know you're hedged from an FX perspective.

So given the appreciation of the Canadian dollar, how do we think about the potential impact on OpEx and margins as those hedges start to roll over?

Great question. Over the next 6 months, I feel pretty good.

We've been -- what we do is we hedged about 6 months in advance. So as you're well aware, the Canadian dollar was in that $0.68 to $0.69 place that helps us out quite a bit on the bottom line.

And we do have a substantial amount of expenses that go through our P&L that come from Canadian dollars. So we're going to benefit from that advantage over the next 6 months.

Obviously, we're sitting closer to $0.72 right now. And so in the back half of the year, we'll continue to monitor that.

But I think we're in a great spot. Obviously, with everything going on in the macroeconomic environment, we're not exactly on terra firma.

So I think we have to recognize that there could be, still, some volatility in exchange rates, but I think we're in a great spot with the Canadian dollar and our hedging program is doing exactly what we hoped it would at this stage.

Strong delivery of bookings in what is usually a seasonally low quarter. Could you just talk to the success behind this?

And did the trade uncertainty bring a pull forward of demand? Or were a lot of these bookings well into the pipeline at the end of 2024?

Maybe I'll go first, Rick, and then you can jump in. Look, we had an unbelievable Connections.

You already saw the level of increased interest with the number of people that attended the event. We just finished the Gartner Group conference this week.

The level of enthusiasm as measured by the attendance at our part of the events, just the sheer quantity of people in our booth on a relative basis was terrific. We've won some of the most important customers in each of the industries we're serving over the last 4 or 5 quarters that create an incredible reference base.

And our go-to-market execution is obviously in a really good place. And then the last part of it is we've got some really great products that we've already released in 2024 that are starting to pick up and AI gives us another bookings capacity.

So like, look, I feel like demand is good. Our competitive win rate is strong.

Our references are the best. So we gave -- we believe that our guidance is in good place.

And the wildcard is the economy and how that plays out. But generally, I would say that the company is in a really, really good period right now.

Maybe I'll add some extra color on that, if that's all right. When we got through Q4 -- we had a great run obviously in Q4, and we emptied the cupboards at that stage in terms of there was very few push deals that moved into Q1.

So the fact that they had an amazing Q1, our highest incremental ARR for Q1 that we've ever seen is a testament that the team is executing at a different level than we've ever seen before. I think one of the big things that I've noticed over the last couple of quarters is some of our metrics are starting to change.

The conversion rates that we're seeing, especially in Q4 and Q1 are much higher than we've ever seen before. The pipeline is healthy.

I'm pretty excited about some of the names I see in the Q2 pipeline and that large enterprise cohort that we always seek to win, we're seeing a lot more of that in our pipeline, which is great. And you know what, we're winning the best deals that are out there right now.

I think our Q1 deal that we didn't name the name of the company, but that was the deal that everyone wanted to win, and we're very proud that it came to us. So things are rolling right now.

That's very clear. It's a strong outcome.

And maybe on the guidance, there was good delivery on the SaaS constant currency in 1Q of 17% year-on-year. You've maintained the '25 guidance of 12% to 14%.

I understand perhaps taking a cautious view on the total revenue given it incorporates the discretionary professional services. But given SaaS revenue is recurring and more visible, just any commentary on the reiteration of the guidance would be helpful.

I mean I can give you my view on that. We didn't really -- Blaine and I didn't talk about it before the call, but -- in a ton of detail.

But given the economic backdrop that we're seeing, we put in, what I would call, a responsible view of 2025. And if we were going to revisit it, it'd be better to do that in -- coming out of the second quarter.

That will really give us a good opportunity to understand what the macro effect is going to be. But against the backdrop that I just described, we're feeling very good about our guidance.

This is Richard in for Kevin today. So my first question, can you talk about the drivers of your expansion momentum and how it compares to previous quarters?

I'm just wondering how much of the expansion is coming from an uptick in customers running scenarios versus, say, adding new modules, the expansion or adding new geographies?

Sure.

I think it's coming from a balanced, well-organized, highly performing software company. We basically are focused on making customer -- getting to the outcome that customers are looking for.

We're continuing to drive the highest level of reference with our customers. Our product and engineering team is delivering on new innovation at a higher speed than our competitors.

We have a core capability with Maestro that is solving the problems of today. And we put a go-to-market discipline in that is about really making sure that we're creating attention for our company through marketing, working on the pipeline in a way that we're doing what I call company-to-company execution.

We're meeting CEOs, we're meeting the CFOs, and we're supporting the Chief Supply Chain Officer. We've extended our pipeline through partners.

That's something we've been working on for years, and we're starting to see the payback on that. And the most striking thing about Connections was how many world-class customers that were on stage describing the value and impact of our solutions on their business.

And all of that comes together in a way that we can continue to really take this company forward. Blaine, would you add to that?

No, that's exactly it. We -- I sometimes put it in order, and I'll give you a little more clarity on some of the drivers like new Maestro environments as customers expand with us is -- was the biggest contributor to some of that expansion.

But what I'm really happy about is the new applications. And we got to see that firsthand.

That was kind of number 2. Scenarios is number 3, but the new applications we saw firsthand at Connections where -- I'll give you an example, Enterprise Scheduling, there was a number of deals that signed while we're at -- just before we got into the Connections, which helped out.

Supply.ai, one of our newer modules. So we probably renamed at some point to Supply Optimization.

But that new module is on fire right now in terms of how it's being brought on by customers. So environment, applications and scenarios was the main drivers, but we're really happy that obviously, the new applications are -- especially that Enterprise Scheduling and Supply Optimization are doing extremely well at this stage.

Just one thing on the volume of scenarios that are being run due to tariffs is directly related to the value our clients are getting from our solutions. So yes, it brings in some revenue, but it reinforces what we heard consistently from our customers is that they're so happy that they have Kinaxis in these times.

And that leads to an even greater referenceability of our customer base.

Right. That's helpful.

And can you also provide some commentary on net retention? I know you disclosed that it's higher than 100%, but how far -- like how it's been trending so far in 2025?

Can you talk a bit about any relative differences between retention for your largest clients versus more the mid-market?

There's obviously two components to that. Our gross retention -- we think we have best-in-class.

It's between 95% and 100%. We're extremely proud of that.

And it's a reflection of why we are in the position we are with the Gartner. But then when you go to NRR, we've only disclosed we're over 100%.

It's moving in the right direction, getting better and better. Obviously, that happens when you have 2 quarters in a row where the expansion part of the business is contributing more to ARR than the new logos.

So we're starting to see a little bit of a flywheel starting and seeing some improvement on that NRR. But at this stage, we're still sticking to our disclosure, which is it's consistently over 100%, and we have a nice healthy margin right now.

It's Mike Stevens on for Rich here. Congrats on the quarter, very strong.

I just wanted to dig into -- you mentioned the revenue tier opportunity. And I don't know if you could provide some color on kind of how much of your customer base now is on revenue tiers or volume-based pricing and where you see that going with some of the AI products upcoming?

And then as a follow-up, how may you think that could impact the revenue model going forward?

Well I -- Go ahead, Blaine.

I'll start, and you can jump in, Bob.

Yes, yes, sure.

The -- so we do have some volume-based pricing that occurs. What you're referring to is a new pricing package that -- and some planning that we're working around with the -- some of the new AI modules are coming out.

So we do get extra variable revenue from number of orders, number of scenarios. But as we move forward, we are looking at a hybrid approach to -- with consumption-based pricing that will be effective with the deployment of our AI solutions.

We -- obviously, Connections, we did -- the team did a great job of showcasing why it's so important, why it's going to help a lot of organizations become more efficient, more effective and more accurate as they plan for their supply chains. We do have a healthy amount of demand right now.

We are capping the amount of initial customers that are going through this just to make sure that we obviously go through an appropriate data deployment of this, but we have more than enough demand to cover that. And so we're -- at this point, we're -- over 50% of them will not have the tool in the initial month, but then we expect to have a pretty nice onslaught of customers coming on board with that.

We have been testing this out already. We -- I think I've talked about this in the past.

We have a almost like a help bot or a chatbot that what it does is it takes 14,000 pages of Kinaxis documentation on how to use Maestro effectively. And that's being used more than we've ever seen before.

It's the highest adoption we've ever seen of any module. For the customers that could potentially use it, we're sitting right now at 75% that are using it.

And that's just a testament to the demand that we have with our AI products. Now when we move on to Chat with Data and Agentic AI, which are both coming out this year, that pricing and packaging tool.

We are in an urgent mode right now and prioritizing that to get that out to make sure that people understand how this will work with the revenue tiers and the consumption pricing that will be along the way with that as well. So we think that will help with our revenue growth, but I think we have a little bit of planning and work to do to make sure that it rolls out effectively.

Yes. I'll add to it.

It's not going to have an impact on the short or medium-term revenue. You don't have to start changing your models.

But the industry is moving this way. And the reason for it is that it ties value to consumption.

It is becoming a more normal way of making sure that as you consume capacity, you get the appropriate cost base with that capacity, particularly around AI solutions. More and more, we're exploring and we've been working on transactions that allow that increase, the contract increases, with the consumption of the solution, both traditional SaaS and consumption pricing.

And so look, this is something that we're starting to develop as modern company. It's not as dramatic as the kind of economics that you saw when you went from on-premise to cloud in terms of how the revenue tracks.

But it's got similar economic opportunities that I've seen in the companies I've helped make that transition. And customers are asking for it.

They're seeing it from other vendors. And so we're working -- we're in early days of working through this.

And you should think about it as a company that is committed to modernization, is listening to our customers and finding ways to make sure that as our customers get value, we get paid, but also give them pass to get value in a way where they can control consumption more. As simple as that, in a construct called product-led marketing, where if you can let customers have broader access to your solution, then they're going to find ways to use it more within their organization.

And so all of these things are things that are on our mind as we look towards the future and as we lead this market around artificial intelligence and Gen AI solutions.

Okay. No, I really appreciate that color.

Just one last one. You guys have obviously talked a lot about what you guys are doing differently and how you're innovating.

Just in terms of like a big win like the semiconductor company, maybe if you could just narrow down the top couple of differentiators that you think led them to go with you guys versus competitors?

I mean, I'd love to tell you about all the problems our competitors have, but I'll hold myself on this call. We -- okay, I'd probably say the number 1 thing is these are very educated clients.

These are the most sophisticated consumers of software and some of the most important companies in the world that have consistently picked us over the last 4 or 5 quarters. And the first thing that they look at is, am I going to be successful with the project?

Is this a solution that I can get quick time to value? And we do that better than anybody in the industry.

Secondly, references count. And if you cross -- go across our industry sectors, the ones that we've doubled down and are focused on, we have the leading companies in virtually every one of those industry categories already using our solution.

And they talk to each other. And they're not just looking to understand the differences in our product versus others by listening to Kinaxis, they go out and do the research and see the value that the biggest companies in the world are getting.

number 3, the differentiation really gets advanced when you start looking at the challenges of -- the challenges that are faced in things like this tariff complexity. And when I was at Connections, one of the -- a very, very senior executive from one of the biggest farmers in the world, [indiscernible] company told me: "we are so happy that we picked Kinaxis, and the only mistake we made is waiting too long."

So when you have customers in a conference telling other customers that, that is the way they should have gone or should go, that's helpful. And then, these large companies already have experiences with some of our competitors like SAP and others.

So they can see the differences in the way we approach the business versus our competitors. So right now, we got it going.

Like we're winning all the important deals and it's because of the product, it's because of our culture, it's because of references, and we expect to keep that going.

Great. Awesome color, appreciate the insight guys.

Cheers.

Congrats on the quarter. I want to touch on go-to-market.

You guys talked about seeing higher conversion rates and now you rolled out the tariff response offering, which I think should benefit your pipeline. Can you speak a little bit about some of the more recent changes in your go-to-market approach to support this elevated demand backdrop that you're seeing?

What's working? What do you need to improve on?

I mean, look, we're always going to try and improve. But -- I mean, we did a lot over the last year.

If you look at the differences in execution, it's just palpable, right? So where do I start?

We have added talent throughout the organization. We're supporting -- we were already winning a lot of big customers.

We were focused on net new. This is not a new phenomenon that I just described with the most important companies in the world decided on Kinaxis.

But now we're supporting the existing teams and adding to those existing teams with a huge amount of talent input. We've got better process.

We're doing more company-to-company selling. Our pipeline is growing.

The way we work with customers to make the decision has improved, accelerated in their ability to make decisions faster. So we've got Mark Morgan that's leading it, who is world-class.

Arguably, I'm biased, but one of the most experienced and capable executives in this category. So all those things are working for us.

And then on top of it, we've really, really upgraded and set a different set of expectation for our installed base, working with our customers, some of the most important companies in the world were using us in maybe two or three divisions when they've got 30. And our game plan coming into this year, starting Q2-Q3 last year was to really mine these incredible customers that are global.

So I think, look at it, it's just every quarter, we're just trying to get a little bit better, and we feel like we are.

Great. Thank you for the color.

Blaine, maybe this question is for you. On cash flow, can you remind us on your CapEx commitments in the quarters ahead here?

And how do you expect free cash flow margins to track relative to EBITDA margins over the near to midterm and longer term?

Yes, the -- that's a good question. So we had a nice healthy difference this quarter, and we're going to have probably a difference for the rest of 2025 just because of how the trailing of those two payments we made in Q1 will play out.

But as you -- as we -- the reason why we gave the adjusted free cash flow was just to show how close it is to adjusted EBITDA. So if we adjust it up to where we think it will be normalized going forward, we're actually fairly close.

It's 25% versus 24.4%, which is kind of what we -- our expectations were. So as we potentially see our adjusted EBITDA continue to rise in the number of years ahead of us, free cash flow should be pretty close to it.

We are going to be a little bit higher on CapEx this year versus what we've had in 2024, just for some -- the end of life of some of our data servers that we have to play out for -- especially on the North American side to make sure that we get over the line before the full migration is done. But we don't anticipate that we will get much higher than where we are in 2025.

So that CapEx piece should be a little bit thinner. And as I said at the beginning of this, we expect that EBITDA and free cash flow will be fairly close together compared to maybe some of our peers.

I wanted to chat about professional services. Revenue this quarter looks like it declined year-over-year.

I assume part of this is the proportion of services completed by SI partners. But just curious if there's anything else to call out there?

And also, I guess, the current guide assumes that PS growth will really reaccelerate. And hope you can chat a little bit about the drivers that you see for the rest of the year.

Yes. Look, we have dove in on this.

If you look at what's going on in the general economy, you want to make sure that this is not a leading indicator on a challenge for our professional services organization. But you got to understand, like I've done this before.

And the first thing that you check is how is our backlog? And it's phenomenal, like the combination of what you would look at in net new wins plus the extension of the opportunities that we're creating with our installed base to extend the capability.

The -- clearly, when you make a shift to partners, to give a little bit more color on that, it's a double impact. The first impact is you see fairly significant partners to some of the -- or revenue to some of the most important partners in the world that can take -- equally take on these major transactions like E&Y and Accenture.

And then, more and more, we're also seeding revenue where we're doing joint implementations. And that's going to become more of the phenomenon, Stephanie, is that second category, where we might have been prime and for purposes of skills transfer and customer outcomes, that part of the revenue will also go to the partners.

And we'll lead them there in some cases, but in some cases, they'll be lead. So that ends up being pretty quickly from, say, 2 years ago, 60% of the backlog or the potential pipeline for services.

So there's not a demand issue. I think in this macro environment and maybe it goes back to guidance, we got to be cautious.

And service is one of those things that you'll see the impact of a difficult period. But it's more the economics of making a shift to give a lot more revenue to the professional services organizations that you're seeing.

And when I've done this before, which I did at SAP, we did at Altus Group, it can be a little bit choppy because you're trying to formulate your backlog into something that's going to make sense for the customer and make sure that they get a good outcome. And so you're seeing some of that.

And like every quarter with professional services, sometimes there's some timing things coming up that go on around that. So it's really the economics of that shift.

That makes sense. And then just maybe touching on the broader space.

There was a strategic acquisition announced recently. Just curious about your thoughts on consolidation here and your interest in M&A at this point?

Well, consolidation has not worked. It's part of the reason that we're beating companies like Blue Yonder, EA Open, which is a mess.

And if you look at our strategy and where we're going is that we want to serve all -- from the center of supply chain planning and through the advent of orchestration, we -- we're in a place where we can give the information. We can drive the orchestration through all parts of the supply chain without having to buy software in each of those categories.

And so the trends are such that we can be the control tower, the orchestration point, the autonomous supply chain planning across the whole ecosystem. And that's why we signed partnerships with Databricks.

That's why we're doing work with Infor and more to come on that front. We think we can really, really solve a complete view of the supply chain with our strategy and where people have tried to do M&A to do it has been a disaster.

And we probably -- if we look at M&A, it's all with a view to the future and this orchestration strategy that we're looking at. And then secondly, we'll continue to do share buyback as we go forward.

We're going to be generating a lot of cash. And we do have opportunity to go after what I would call innovative companies in this orchestration mindset.

Nice job on the quarter. Bob, earlier, you noted that the firm was leaving guidance unchanged despite the solid start to the year, mainly due to macro uncertainties.

I just wondering if you could provide additional commentary on what's changed with respect to buying behavior over the past 90 days or so?

I mean we've seen enthusiasm, clearly, for our product, like -- originally, I talked about Gartner Group, I talked about Connections. I talked about our pipeline.

If anything, maybe I would say that you got to be on your game, like I mentioned this briefly, to sustain not just our company, for all software companies. The growth that we want and frankly, to set ourselves up for the future quarters and even into 2026.

You better be talking to the CFO. You're competing for capital against other priorities in these companies.

There's definitely pressure on capital. You see it.

Company -- there are so many companies in other industries that can't even give guidance, abandon the idea of giving guidance, right? So those are things we observe, but we worked pretty nicely through the quarter.

It's consistent with how Mark and I think about being an enterprise software company. You should be talking to the CFO anyways and other parts of the company.

So the need to absolutely improve your execution and alignment with companies is enhanced in this environment. And so far, so good.

We feel -- as you know, we did confirm guidance, but we're also being cautious against that. For us, so far, great quarter.

Things are going well. People see our solutions, both existing customers and new, as being really strategic not only for the environment we're in now, but it has reminded them that they need these kind of products to deal with other kind of complexities in the future.

But yes, you got to be on your game in this environment. There's no doubt that as an enterprise software company that you're competing for capital right now in a very cautious world.

That's helpful. And then as a follow-up, I was wondering if you could just expand a little bit on your partnership with Databricks.

For instance, is the arrangement strictly a technology partnership at this stage? Or is there a co-selling component to it as well?

It's technology, joint development. We're already in market together, exploiting relationships and developing that opportunity.

It's a part of our buy-build partner strategy, meaning that there's some parts of the Databricks capability that, in the past, we might have tried to build ourselves. And by working with Databricks closely, we'll find ourselves in a place where we can absolutely go faster.

We can tap into the development talent. They have their technical conference coming up -- I think it's in June.

We've got seven or eight people going to that. They've been on site with us.

And they're very, very excited about the partnership, as we have. It actually -- there's three very senior executives at Databricks that either directly work for me or work in my organization.

And similarly, Mark has very good relationships with some of the Databricks team. And it comes back to what I described with customers, now, where if you're going to be selling these kind of complex, high-value, high-priced solutions, you better have a relationship across the organization.

What we set up with Databricks is a situation where we're not only connected to the technical group, we're connected to the senior executives at their company. And Andrew Bell is going to be speaking at their conference coming up as well.

So yes, it's got the makings of a great -- I'm not declaring victory, but it's got the makings of a great partnership in the form that we want to develop these kind of partnerships in the future.

Thanks, operator, and thank you, everyone, for participating on today's call. We appreciate your questions and your ongoing interest and support of Kinaxis.

We look forward to speaking with you again when we report second quarter results. Bye for now.