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Good morning, ladies and gentleman. Welcome to the Kinaxis Inc. Fiscal 2018 Fourth Quarter Conference Call. [Operator Instructions] I'd like to remind everyone that this call is being recorded today, Friday, March 1, 2019.I will now turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis Inc. Please go ahead.
Thanks, operator. Good morning, and welcome to the Kinaxis earnings call. Today we will be discussing our fourth quarter and full year results that we issued after the market closed last night.With me on the call are John Sicard, our President and Chief Executive Officer; and Richard Monkman, our Chief Financial Officer.Before we get started, I want to emphasize that some of the information discussed on this call is based on information as of today, March 1, 2019 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 on our SEDAR filings.During this call, we will discuss IFRS and non-IFRS financial measures. A reconciliation between the 2 is available in our earnings press release and in our MD&A, both of which can be found on the Investor Relations section of our website, kinaxis.com and on SEDAR.Participants are advised that the webcast is live and is also being recorded for playback purposes. An archive of the webcast will be made available on the Investor Relations section of our website. Neither this call nor the webcast archive may be rerecorded, or otherwise reproduced or distributed without written permission from Kinaxis.To begin our call, John will discuss the highlights of our quarter and year as well as recent business developments, followed by Richard, who will review our financial results. Finally, John will make some closing statements before opening up the line for questions.I'll now turn the call over to John.
Thank you, Rick. Good morning, and thank you for joining us today. In 2018, we grew subscription revenue by 21% to $122 million and delivered adjusted EBITDA of 26% of revenue, all prior to adoption of the new accounting standards.Reflecting the new standards, subscription services revenue was $107.9 million, and adjusted EBITDA was 28% of revenue, both at the upper end of the guidance we provided last quarter. As Richard will discuss, our total revenue for the year didn't fully meet our expectations due to fourth quarter professional services revenue falling below our projections. Total revenue for the year was $155 million prior to adoption of the new accounting standards and $150.7 million, reflecting the new standards. Overall, 2018 -- overall for 2018, I'm very pleased with our continued delivery of high growth and strong profitability that Kinaxis has become known for. It's a reflection of the sustained strength in our business and the significant value we continue to deliver to our customers and the markets we serve.I'm also happy to share that we successfully closed each of the delayed deals that we referenced on our last quarterly results call. While timing of customer wins can fluctuate for various reasons, they do not impact the long-term outlook for Kinaxis in any way. The management team and I will continue to focus on doing what's right for the long-term success of the business as our investors have come to appreciate. Throughout the year, we executed on a number of strategic investments, including the expansion of our global sales team and key product innovations. These investments helped drive our strong financial performance in the fourth quarter and the year and will position Kinaxis for accelerate growth in 2019.Our investments in Europe continue to yield significant business, most recently with Novartis, Unilever and Dyson. For the full year, approximately 22% of our revenue came from Europe, compared to 13% last year. These important wins also highlight our growing strength in consumer package goods and the ongoing strength in our largest market, life sciences and pharmaceuticals. Our partner network continues to expand as demonstrated by the recent announcement of a strategic partner with EY, where our initial focus will be joint activities in Europe and North America.Product innovations is in our DNA and remains a key enabler to the success at Kinaxis. In 2018, we added many notable features to great public acclaim. We recently announced new data visualizations and analysis capabilities, including the formal launch of Live Lens, our mobile-first, executive-level view into the supply chain health. Dynamic supply chain network visualizations, new tools to personalize reporting so users are always looking at the most relevant information for their role. During the fourth quarter, our product was recognized by Nucleus Research, who ranked Kinaxis highest for usability out of 13 vendors in their Control Tower Value Matrix Report. Similarly, Ventana Research recognized our unique cell fueling supply chain capabilities with a digital innovation award in the operations and supply chain category.We expect to accelerate our investments in product innovation even further in 2019. Throughout the year, we continue to scale our global workforce and strengthen the management team, most recently, adding Anne Robinson as Chief Strategy Officer. Anne has a world-class pedigree in supply chain, including spending the last 7 years at Verizon as an Executive Director, global supply chain strategy, analytics and systems. She will be instrumental in helping to shape and deliver on our strategy towards accelerated innovation and growth.With that, I'll turn the call over to Richard for an overview of the financials for the quarter and the year.
Thank you, John, and good morning. As a reminder, all figures reported on today's call are in U.S. dollars under IFRS.Kinaxis adopted IFRS 15 and 16 or what I will refer to as the new standards, effective January 1, 2018.While we have not restated 2017 financial results to enable comparison with Q4 and fiscal 2017 results, we have presented current period financial information on a basis reflecting both before and after adoption of the new standards.Prior to the new standards, total revenue in the fourth quarter increased 15% to $39.5 million. This total is driven predominantly by subscription revenue, which increased 18% to $31.8 million, due to contracts secured with new customers as well as the expansion of existing customer subscriptions.After giving effect to the new standards, total revenue in Q4 2018 was $38.3 million, and total subscription revenue for the period was $30.6 million, of which $28.2 million related to the subscription services and $2.4 million related to subscription term licenses from on-premise or customer-hosted arrangements, which by their nature, will vary quarter-to-quarter.Professional services revenue also varies quarterly, reflecting a number of factors, including the size, timing and scheduling of customer engagement as well as the level of partner-led engagements. Given the timing of some of our new customer wins in Q4 and the higher participation of partners in delivering engagement services, professional services revenue for the fourth quarter was lower than expected. With this modest PS growth of 3% to $7.4 million for the revenue -- for the quarter under both standards was just below our expectations. The level of sales activity in the quarter fully met our expectations. In particular, we are very pleased with the amount of new subscription bookings closed in Q4 from both securing new customers and landing expansions from existing customers. As a number of these multiyear subscription deals closed late in the quarter, their influence on Q4 revenue was limited. However, the value of these commitments is disclosed in our December 2018 backlog and is reflected in our guidance for fiscal 2019.Prior to the effect of the new standards, gross profit grew 9% to $27 million. This represents 68% of total revenue compared to 72% in Q4 2017. The change in gross profit margin reflects investments in additional headcount, which relate to compensation cost and higher depreciation of cost associated with the expansion of data center capability.In addition to expanding existing data centers, we also established new centers in Japan in 2018. We will continue to invest in our global infrastructure to support new and ongoing customer engagements. Under the new standards, gross profit for the fourth quarter was $25.9 million, which is 68% of revenue.Prior to the effect of the new standards, profit for the quarter was $3 million or $0.11 per diluted share compared to $5.5 million or $0.21 per diluted share in Q4 2017.The change reflects an increase in operating expenses resulting from our expanding European and Asian operations, increased sales compensation, expansion of the product innovation team, together with other planned investments. Under the new standards, profit in the fourth quarter was $2.9 million or $0.11 per diluted share.Prior to the effect of the new standards, adjusted EBITDA for the fourth quarter was $8.7 million or 22% of revenue compared to $11.2 million or 32% of revenue in the same quarter 2017. As previously noted, this change reflects an increase in operating expenses, net of increases in revenue and gross profit. Under the new standards, adjusted EBITDA for the fourth quarter was $9 million or 23% of revenue. Full year 2018 results included total revenue of $155 million prior to the new standards and $150.7 million after. Subscription revenue of $122 million prior to the new standards and $107.9 million thereafter. Subscription term licenses revenue of $9.9 million, or total subscription revenue, together with the subscription services of $117.8 million after applying the new standards.Adjusted EBITDA margin of 26% prior to applying the new standards and 28% after application.The nature of our long-term subscription contracts provides us with a high level of visibility into future revenue. While the vast majority of our subscription arrangements are cloud or SaaS-based where Kinaxis hosts the solution, we also support a limited number of customers through on-premise or hybrid arrangements where the customer hosts or has the opportunity to host RapidResponse in their environment for the term of the subscription arrangement. Under these customer-premise arrangements, rather than recognizing the subscription revenue ratably over the multiple-year subscription term, the subscription revenue is split into 2 elements based on the economic value. The majority of this economic allocation being to subscription term licenses, which represents the right to use RapidResponse for the term of the subscription. This is fully recognized upon the commencement of the term. The remainder of the subscription fee is then allocated to maintenance and support provided over the subscription term. This maintenance and support revenue is recognized ratably over the underlying subscription term.For fiscal 2018, we reported subscription services revenue of $107.9 million, which consisted of $97.2 million in SaaS subscription revenue, and $10.7 million of subscription term license, maintenance and support.To provide enhanced insight, we have begun separately disclosing these 2 recurring revenue elements. Currently, we separate the small amount of maintenance support related to our legacy perpetual license business, which contributes less than 1% of our revenue. Starting with 2019 reporting, we plan to combine this maintenance and support revenue stream with the subscription of on-premise maintenance and support stream into one single line item. Again, to provide enhanced insight, we have begun to separately disclose the minimum contracted revenue backlog of these various revenue elements and will be providing 2019 guidance on this basis.As detailed in Note 14 to our financials, as at December 31, 2018, total minimum backlog was $237.5 million, of which the vast majority or $222.3 million related to SaaS subscriptions.The total $237.5 million of backlog will be recognized in the following periods. $109.9 million will be recognized in fiscal 2019, of which $100.4 million relates to this year's SaaS business. $65.5 million will be recognized in fiscal 2020, of which $62.1 million relates to the SaaS business, and the remaining $62.1 million, of which $59.8 million relates to SaaS business will be recognized in fiscal 2021 and thereafter.Following the calculation we have used in previous quarters of 2018 for the blended subscription services, we booked $66.5 million of multiperiod business in Q4 compared to $26.2 million in the third quarter. Virtually all these bookings were SaaS or cloud with that amount being $65.6 million.In summary, we believe our expanded disclosures will help you better understand the strength and growth of our core SaaS subscription business as well as the dynamics of other aspects of our business. Last year was an IFRS transition year, given our adoption of both IFRS 15 and 16 on January 1. To support that transition, we provided guidance and supplemental reporting on both a pre- and post-IFRS basis. IFRS only permits this expanded disclosure during the first transition year. Consequently, effective 2019, our guidance and reporting will be only on a post basis reflecting the adoption of IFRS 15 and 16.We are pleased to provide the following guidance for 2019 on that basis and reflecting our expanded revenue disclosure, note the following: Total revenue will be in the range of $183 million to $188 million. We anticipate that software SaaS revenue will grow in the range of 22% to 24% over the $97.2 million base for 2018. We expect subscription term license revenue, which is that right-to-use portion of the long-term subscription term license revenue stream will be between $20 million and $22 million for the full year. Approximately 1/3 of this amount being recognized in Q1. We further expect approximately 1/2 of this amount will be recognized in Q4, with the remainder of them split between Q2 and Q3. This significant increase over 2018 reflects the timing, number and term of these underlying subscription arrangements. We expect that maintenance and support revenue in total, combining the streams from both the subscription term licenses and legacy perpetual licenses will be relatively in line with the $11.8 million total in 2018.We expect the full year gross margin will remain in the 70% range, again, with some variability depending upon the timing of the subscription term license.We expect full year adjusted EBITDA to be in the range of 23% to 25% of revenue, which reflects accelerated growth of our engineering team to provide further product innovation and continued expansion of our global sales and marketing and other support organizations. Please note that as subscription term licenses fully recognized in the quarter in which the customer renews or commences a new arrangement, quarterly gross profit and adjusted EBITDA will vary correspondingly.With respect to operating expense line items, we expect that sales and marketing expense will be between 23% and 25% of revenue. Research and development expense will be in the range of 18% to 20% of revenue, and G&A will be between 13% and 15% of revenue.Overall, we are very pleased to provide this guidance for fiscal 2019, reflecting accelerated revenue growth, accelerated investments in the business and continued strong profitability.Thank you for your continued support in Kinaxis. And with that, I will turn the call back over to John.
As Richard just highlighted and given the strength of our backlog and pipeline, we are very confident in achieving accelerated revenue growth this year. But we're also in the enviable position of making some very important investments for our future without compromising strong profitability and cash flow. Europe and Asia-Pacific continue to show great potential for us, and we will continue to invest in these regions to drive new business.In addition, we will continue to make significant investments in our product organization in order to deliver the platform capabilities necessary to succeed in penetrating new market verticals. Our sales funnel continues to grow in size and more importantly, has maintained a very healthy distribution across each of the market verticals we serve and across each geography in which we focus.With our growing partner alliances and strengthened management team, we are well prepared to support the accelerated growth we expect to realize in 2019.On behalf of Kinaxis, I would like to thank you for your support. And as always, for taking the time to join us on the call.With that, I'll turn the line over to the operator for Q&A.
[Operator Instructions] Your first question comes from Richard Tse with National Bank Financial.
With respect to the full year guidance, I was wondering if there's any way of providing us a bit of color in terms of how that's going to scale through the year? Is it sort of back-half loaded? Just to kind of get directionally where that's going here?
So the different elements, Richard, so subscription, SaaS subscription, in particular, we fully anticipate seeing a -- just as our past quarterly trends have continued to compound, we'll see that compounding now. We anticipate that compounding carrying on. With regards to the subscription term license, that's the $20 million to $22 million. We anticipate about 1/3 of it coming in the first quarter and 50% in Q4.
Okay, that's helpful. So on the term licenses, I was going through the MD&A, and what I noted was that some of your existing customers are taking on term licenses, and kind of wondering if you can provide some color like, is it a trend? Like, why is that happening? Just a bit of color would be appreciated.
Sure. And by the way, these are just for -- I think you understand, and just for the other listeners, for instance, if we had a 3-year arrangement. The majority of that 3-year revenue is going to be booked on Day 1 of the subscription terms. So if we signed it -- if the renewals was up on January 1 in Q1, you'd have all that revenue, and then the residual would be taken over the next 3 years. It really is a function of the timing. The vast majority, as we've noted in the few -- actually look it -- if you run can some of the math, you'll see it's in the 80% range of our subscription, long-term subscription arrangements are [ SaaS ] over the cloud base. It's -- we go back to this model in 2005, and back in 2005, it was more common to -- for companies back then to want to host and of late, it's a rarity. And so we don't anticipate that as really an area that's going to be growing anywhere close to what we have with regards to the SaaS side of things. We're very pleased, and a lot of this -- our long-term customers that are renewing their customer-hosted arrangements. And it's really a function of the cycle in that. That's a 3-year, 4-year period, what'll come up. So this year it's a higher amount. And going forward, we'll provide annual guidance as well as to the timing and our expectations with -- of that revenue.
Okay. And just one last one for me. With respect to 2018, you clearly made a bunch of investments on the channel side, start building up the sales org. Obviously, those things take some time to scale. So would you say from a sales channel perspective, you're kind of fully ramped now? Or there's still some capacity to sort of -- and get those investments fully up to scale?
Yes, I would say, we continue to invest particularly in Asia and Europe to meet the demand. And as I mentioned, the pipeline itself continues to grow. It's a function, in fact. I look at it as a function of the investments we made in 2018, where we substantially grew the sales engine. And so yes, I look at it now as quite a mature engine, with a very, very mature and robust and large pipeline in front of it. But again, as we see potential, whether it's potential in the major markets we serve. I mentioned life sciences now -- again, our largest but it could be in other market verticals. We're going to continue to hire and ramp to make sure that we take advantage of the potential.
Your next question comes from Robert Young with Canaccord Genuity.
I was hoping you could give me a little more context on how you set the guidance. When I look at the SaaS guidance of 22% to 24%, just on the math from the $97 million reported that would give a range of $118.5 million, $120 million. But the backlog for SaaS that you're reporting as of December 31 is $100.5 million. So that's a significant component. And so when you look at the backlog today, could you potentially share the coverage of that guidance that you have now? And maybe just revisit how you set the guidance.
Sure. Thank you, Rob, for that question. And as we've noted in the past, a lot of the strengths of this forward visibility and the consistency. And what we have talked about, and now you are seeing it firsthand, is that when we look to set the annual guidance, we take a look at what is the minimum committed, the contracted amount, minimum contracted amount in our backlog. And we tend to base that guidance on about an 80% level. So as you noted, what we currently have, the $100.5 million, does represent the -- actually just over 80% out of that extrapolation that you presented. And with our view then, that remaining 20% to meet that level of expectation for the full year, it will be derived from renewals. So for instance, if we had a customer that was up for renewal on July 1, there's only 6 months of contracted revenue and backlog as of this time. So it'd be renewals, it would be new name wins, and it will also be expansion from existing customers. And so that has been our trend for the last while. And that's the math behind the equation.
Okay. I got a few questions. Maybe I'll ask about the term license, the $20 million to $22 million that you're expecting. Could you break out how much of that would be new customers? And how much of that is renewals?
It is predominantly related to really existing customers and renewals. Some of which, as I noted earlier, go back to 2005 or even pre-2005, the market from both -- Kinaxis' focus, and quite frankly, from our customers' perspective, is very much cloud orientated. They understand the value of that, they understand how we could continually monitor the environment, how we can scale it for them rather than them investing. And the vast arrangements -- the vast majority of current arrangements cumulatively are, as you could see, from a revenue perspective are SaaS. And it's not really anticipated that we'd have those types of arrangements or the customer-hosted, on-premise, that's something that we'd actually would forecast at this juncture. But should that change, then we would reflected it in future quarter guidance.
Okay. So that's consistent with the way you do the guidance for the SaaS business. You wouldn't include a prospect customers that's in the pipeline until they're signed in that guidance for the term license component, correct?
Correct.
And then it'd be helpful to understand where you think the professional services business will go over 2019. I think we can get to it by math, just by subtracting the pieces of the guidance, but it's been flat for last couple of years. Do you expect it to grow with -- do you see growth over the next couple of years? Or is that a line of business that we should expect to stay flat? Or maybe decline a little bit as you move that over into the channel?
Yes, absolutely, it was relatively flat last year. And that, as we noted, really reflects a couple of things. It -- predominantly, it's really related to the level of partners that are coming in, and majority of our new name customer wins have been partner influenced. And so it's natural for the partners, especially now given the very strong base of certified partners, to take up that activity. The -- we are, though, with regards to 2019, we are anticipating growth. And that would -- our expectation is that's going to be in the midteens. So it will be stronger this year based upon activity related to new business. But it's not going to be growing at the high growth rate of the SaaS side.
Okay. Last question for me. You've announced a lot of deals from the -- with big companies. One, if you could talk about the size of average deals, is that continuing to grow? And if you could help us understand whether any of those announced deals would not be in the backlog that you reported? I think in the financial statements, it was as of December 31, but if you could clarify if any of those announced deals were not in the backlog you reported today, that would be helpful. And I'll pass the line.
Yes. So obviously, we're quite humbled with the recent announcements. And I mean, we're thrilled at the pickup in Europe. And as you know, Rob, we -- a part of our DNA is to land and expand, and there's really no difference with those large deals. And we're anticipating, obviously, there's potential for future expansion in every case. In terms of actual numbers and average sizes and things like that, it's not something that we disclose. As you know, we have customers that pay us 5 digits, and some customers pay us 6 digits a month. And so it varies depending on the vertical, varies depending on the size of the company, it varies depending on the scope of the deployment. But we're obviously very thrilled with the pickup, particularly in Europe.
I think you said you closed the deals. All the deals were delayed. But were there any deals that would have fallen into Q1, that wouldn't be in the backlog that you reported today?
We continue to -- absolutely, we continue to close business. So what's -- the statements reflect our transactions' commitments from customers that were closed prior to December 31. And now it is not uncommon for just the nature of the business, the deals will close late in the quarter, but deals do close throughout the quarter. So -- and that's about the color we can provide at this stage. Any activity that as we move through the year, it would be appropriate if -- as to update the guidance as we move through those transactions. But what we have noted also in the case of Q4, that pattern did prevail. And so that's why there was a relatively little revenue from some of these arrangements in Q4. Because, again, it's -- these are SaaS arrangements, so they're ratable over their 3-, 4- or whatever year term. And because of that, was also -- was below our expectation, it was the level of professional services activity related to that deployment. So that would be coming this year.
Okay. Maybe I'll just try one last time, but like some of the deals that you announced were in the beginning of 2019. But you did -- had a lot of backlog in Q4. And so I'm just trying to avoid misunderstanding around where some of those deals might have fallen. Should we assume that those deals you announced, it should be assumed that they would have been closed in Q4? Then I'll pass the line.
Well, again, we don't -- John, no, we don't talk about customer-specific arrangements. We can tell you again that we were very, very pleased with the level of business activity. We have noted before that there was a continued disruption in the supply chain. And last year in particular with market conditions, with trade and so on, that did, we believe, result in delays of some arrangements. And we're pleased to see that the value of current planning, the value of the Self-Healing Supply Chain. And these companies came to the realization that, that is the type of value they need to deal with this disruption, and so they closed. And, Rob, we will continue to close arrangements throughout the quarter. And again, as appropriate, we will update the guidance.
Just for further color, when we announce anything, especially the larger the company -- the larger the company is, there's often a very significant delay in getting all of those words approved through comms. And so the actual announcements we make don't necessarily reflect the actual close of that deal, it's sometimes weeks or months in between.
Your next question comes from Thanos Moschopoulos with BMO Capital Markets.
Just a couple of follow-ups on the term licenses. But -- you'd be able to comment on whether the base of on-premise contract that's coming for renewal will be higher or lower in 2020 as compared to 2019?
We only provide guidance for '19, Thanos. And one of the earlier questions was, are we going to be closing any new customers on those spaces? And this juncture, that's not determined. And so this is obviously a higher level of, just the way the cycles of those multiyear arrangements compound, just the renewal is higher. In some cases, as we deal with our SaaS customers, there is a [ lot ] to expand. And so -- and some of our guidance does reflect expansion of these customers, and so that gets included. But we're not in a position right now to comment on 2020 or 2021. These arrangements, I will expand that, they're generally not reflected in backlog as the subscription term component again is recognized at the very start of that arrangement. And so unless there was an arrangement that we signed on, renewed again, on December 31 with a renewal in January 1, for instance. I know you wouldn't see the subscription term component in backlog, in other words, it's going to happen right away. And by the way, you won't see the deferred revenue because of the way we have to accelerate that portion of revenue, there's no deferred revenue on the balance sheet. You will, though, and as we have disclosed in the financial statements, you will see the recurring subscription term license related to those deals. And that's the revenue that we said that we will anticipate being in line with -- substantially in line with 2018.
And just to clarify, was that...
Does that help?
2020 guidance, per se, but rather an understanding of what the expiry timing looks like of the current contracts. But maybe, that's a different question. In terms of the current on-premise base, you mentioned some of them are expanding, is the opposite also happening where some of them are moving to cloud? Or are you not seeing that trend?
Oh, we have. Absolutely, we have converted a number of customers. And that actually happened -- we had a number of customers several years ago move to the cloud. In some cases, whether it's because of their industry, or whether it's just because of the -- their own significant investments in data centers, they prefer to remain as custom-hosted. And in our case, I know, obviously, we've got this revenue element, but underlying this is the ongoing cash. If it's a 3-year deal, they typically are paying us over those 3 years. We are engaged, we have that broader visibility with them. And so that's really -- and our focus is, we want to be a win-win with the customer. But absolutely, we do, and we are open to looking at converting customers as it makes sense for both parties to the cloud.
Okay. And on a different topic, can you update us on your thoughts regarding future operating leverage? Clearly, you're guarding from some margin compression this year due to higher investment. As a general principle, should we expect operating leverage over the next 2, 3 years? Or given the very large market opportunity in your competitive position, are operating leverage and margin expansion just going to take a backseat and be far less of a priority relative to positioning the business for strong revenue growth?
Yes, so ever since we went public in '14, our focus has been and our message has been one of growth. And so we do view ourselves as really as a growth. We do view it with a long term. As you know, Thanos, arrangements often take 18 months or so to close just because what we do is so unique in the market, and people want to work through that process with us. And at the same point in time, this model, as we've seen in other quarters, has significant leverage potential. And in fact, we have, as just this past year, 28% EBITDA performance is with -- the growth that we had is, we believe, a very powerful investor view, but it's the opportunity, but it is very much one of long-term growth. And as John noted, we've been extremely pleased with the return on our investment and the sales and operations team expansion in Europe. In fact, if you take a look at the segmented information, you'll see a growth even when it's -- 2017 is the pre-IFRS, you'll see growth in Europe and Asia. We are very excited about the innovations that our teams continue to develop such as the Self-Healing Supply Chain. And with now, not only a -- the addition of Andrew and Anne to the innovation and product team but the expansion of our engineering base, we believe that it's -- now is the time to continue to drive that innovation. And so yes, we're going to do an increase in those areas. So we don't view it as a compression of the operating. I mean, it may -- obviously, it manifests itself as less than the 28% or 30% EBITDA performance. But I think people do see the potential that we have, and quite frankly, having these long-term subscription agreements and where we are in terms of not only our backlog but our view of the funnel, allows us to continue to make these investments with confidence, knowing that we will be driving out these long-term sustainable returns for the company.
When clearly demonstrated that with the recent European wins. I guess I'm just wondering more from a longer-term modeling perspective. But then finally, one last one for me. If I look in the financials, seems like your U.S. full year revenue was flat year-over-year. I'd imagine that that's just an apples-to-oranges comparison due to the IFRS transition? Or is there any other dynamic there?
Absolutely, it is. That's -- these -- if you recall, we had to basically, as at January 1, 2018, we've already advanced approximately $21 million of revenue. So this is $21 million of revenue that will not be recognized in '18 or in the future years. So we had to do -- for those subscription term arrangements that had commenced, the renewal terms had commenced prior to January 1, '18, we had to basically put in the rearview mirror. And as such, and given the -- I shared with you that a lot of this was related to longer-term customers who were predominantly U.S.-based. It really was focused on that segment of the information. So it's absolutely apples to oranges. We continue to grow in North America. We're not -- it is a different growth rate than Europe. Europe, as you'll see, has been very, very strong as well as Asia. And we anticipate a continued growth based upon where we are with regards to deals in the funnel across all segments.
Your next question comes from Paul Steep with Scotia Capital.
John, could you maybe talk just a little bit about how we're thinking about selling back into the base and in terms of new module uptake from those existing clients? It's been a while since we've chatted about that.
Yes, so absolutely. Things like Live Lens and Self-Healing Supply Chain, those types of things, those types of investments are geared precisely for that. We -- and our customers are constantly looking for innovations and expansion of the platform, and so that's what's driving that particular investment. We don't comment on the exact penetration of new modules like that. I will say, in both cases, we're seeing some success, and we're pleased with it. I mentioned on the -- in the earlier part of this call that we continue to make investments in the platform. And what we're seeing and I made these comments in the past, that creating a platform-like strategy where we have partners engaged in potentially expanding RapidResponse and assisting us in expanding RapidResponse to serve new markets, is also a very important investment for us. When we think about -- you know us to be in 6 verticals. And you -- I had said in the past that we are in other verticals other than those 6 today. We haven't necessarily announced exactly where and how we're progressing, but I would tell you that it's very likely you'll hear that we're entering new markets. And obviously, those are very purposeful. So our investments in R&D will continue to be focused on new modules as you've heard. And obviously, we're thrilled in both cases on the Control Tower and Self-Healing Supply Chain to be recognized for those investments. You'll hear more and more of this investment towards platform and just basically allowing our partners to assist in expanding new modules and expanding into new market verticals.
Great. Can you also maybe comment a little bit, obviously, there's an implied, big jump implied in the HR and the number of staff you're going to bring on in '19. You gave us a good little description at the beginning and in the release about what functions they'd be in, how should we think about what geographies you're going to add that staffing to? And maybe the other twist to that is, has there been thought of doing a small tuck-under acquisition to actually help accelerate you achieving those headcount goals?
Yes, great question, Paul. So in terms of the -- yes, we are investing across the line. The investment in support and sales, in particular though, is going to be predominantly weighted to Europe and Asia. We have strong teams in place already in North America. And so it's been in the last couple years that we've really further strengthened those theaters. So that would be a key focus there yes, but there'll still be growth in North America but more so in those theaters. R&D, I mean, we have, as John noted, we view it as a platform. It is a one product, currently one team. And that is based in Ottawa. And so we're going to be continuing to expand the R&D team in Ottawa. And so that's where that [ weighting ] will proceed. And then part 2, on the question and...
Yes, in terms of the acquisition strategy, obviously, we are an organic growth company, and we're growth first. Every day, we think about it, we think about how we accelerate that growth. And as it relates to tuck-ins and things of that nature, we're always looking for things that are technically accretive, right? Could something out there bring us into a market vertical or provide for solution that is whitespace for us? It's really important to be what I call SaaS-able, okay? And there's a lot of technologies out there that, frankly, are not. And so, non-SaaS-type projects are poisonous for us, and so we're going to be razor-focused on making sure we don't inflict any pain by accident. So we are looking at various...
Opportunities.
Yes, opportunities. I wouldn't project anything in the imminent future here. Again, we're hyper cautious about things like that and focused on organic growth. But if something were to manifest itself that passes those gates, we'd certainly look at it.
Your next question comes from Stephanie Price with CIBC.
On the back of the Unilever announcement, I was wondering if you could update us on the pipeline in the consumer goods industry, and maybe what stage of adoption you're at right now?
Yes, so we're -- the -- when I look at the pipeline right now, as I said, it's -- it continues to grow. And what's really -- what I'm really excited about is there's no signs of concentration. It is very well distributed across all 6. And even looking at aerospace and defense, we're seeing some growth there that we hadn't seen in previous years. And more importantly, we're seeing some great growth in the -- I'll call the newer verticals of focus, right? So the CPG space continues to be a great area of focus for us. And obviously, winning some great logos in that space is certainly driving what I might call trust by association. So we're quite excited about it. We continue to see strength in life sciences and high-tech electronics. Those 2 tend to be our largest, with life sciences again overtaking as the #1 vertical for us. But the ones that are accelerating the fastest right now when we look at acceleration in the pipeline, it tends to be CPG and automotive. Those are the 2 that we're seeing an acceleration in terms of opportunities.
Great. And then hoping you could touch on the competitive environment that you're seeing and if you're seeing any change to the cost to sign customers out there?
Yes, so we continue to focus on what I call a unique technique, a breakthrough technique in how we solve these problems. And to be frank, we're not seeing a competitive threat as it relates to that technique. And, I guess, that -- I would tell you that some of these marquee wins, these are enormous corporations that could -- they can buy whatever they'd like to buy. And I look at it this way. They -- if they didn't, if they could find a solution with their incumbent ERP system, they would. And part of the reason why we've been successful is they simply cannot. And so they have to find the solution elsewhere. At the same time, I'm not going to tell you that we are without competition. Competitors out there find all kinds of ways to cause delay and stall. I'd say that's one of the primary tactics that we see, okay? If you can't win on product, then you try to delay or poison the opportunity. So we're used to that, obviously, and we're used to seeing those tactics. But in terms of competitive threat, again, I'd say we're not experiencing it so much from I'll call it the main ERPs.
Next question comes from Gus Papageorgiou with Macquarie.
I'm just going to follow on with the -- on Stephanie's line of questioning. So you announced Unilever in the quarter. So by my estimation, you have the -- probably the top 2 consumer packaged goods companies in the world. In life sciences, you probably have 2 of the top 5. How important is winning these key customers within a vertical? And once you announced Unilever, do you notice the call activity within consumer packaged vertical, does it increase? Or is it -- or do other companies just not care? I mean, so I guess the question is, how much of a catalyst is winning these big names and penetrating further into these verticals?
Well, it's absolutely a catalyst, obviously, for many reasons. One, it's a -- I'll call it a statement in confidence that we are able to drive value with those verticals. And secondly, it's a statement of confidence that we're able to do it at scale. That's critical. And this is not uncommon for us. I think we might have talked about this in the past, that how we enter new verticals, we find bellwether accounts. We find really world-leading corporations in the space, whether it was in life sciences or whether it was in automotive, and we prove ourselves out. And then we push forward with that account into the vertical. So obviously, very critical to us. We've done exceptionally well in CPG. All -- the names that you might know are a clear subset. Not everybody is allowing us to use their name, but it's a clear subset, and we're thrilled. It could -- as I said, continues to be -- the CPG space continues to be one of 2 that are accelerating for us. And we're thrilled.
And if you look forward, I mean, let's say, 2 or 3 years. So life sciences has surpassed technology. Do you think CPG and auto could rival those 2 others, life sciences and technology? Or do you always -- do you think that life sciences and technology will always be your biggest verticals?
Well, yes. So, Gus, currently, it -- and it really is almost back to back on the quarters as to life sciences and high-tech. And high-tech was absolutely our initial focus many, many years ago because these are the companies that had to change their supply chains. We're now seeing, and as John noted, in not only CPG, consumer packaged goods and automotive, but other areas. And so absolutely. We do anticipate seeing those markets continue to take up a bigger share. So right now, high-tech and life sciences are about 30% each. So mathematically, our expectation would be yes, they will diminish, still grow in absolute but as a relative mix, diminish with expansion in CPG. And, I mean, it's got to add up to 100%, so CPG and automotive. And so not only will -- we're excited about that balance. As you know, we do not have -- we believe we do not have customer concentration. We have this nice balance across the verticals, which we -- to anticipate will grow as well as in theaters. So it's on purpose, if you will, how we're really targeting to not only grow the business but to grow it in a sustainable pattern.
Your next question comes from Deepak Kaushal with GMP Securities.
First one I got on sales, and then I'll come back to follow up on another question. John, I would have expected with increased partner-influenced sales that you'd be getting some operating leverage on your sales force, but you continue to invest. Can you help us interpret that? And maybe how you're building your sales team differently now that you've got partners involved?
Yes, absolutely. I mean, again, we continue to see anywhere from 12- to 18-month sales cycles. And so we're still going to invest in our sales function whether it's to break open a new vertical or break open into a new geography. And as last year, you saw us making pretty substantial investment in sales. And we said it's heavily weighted towards Europe. And then you've -- obviously, it's yielded for us. We're thrilled to see the uptake and great names, great business, and it's definitely yielding. And I would tell you we're -- as I said earlier, we're growth first. We're going to -- when we see opportunities to grow, we're going to invest. And as it relates to sales, we're going to continue to invest, perhaps not at the same rate as we did last year, and that is reflective of partner influence. Again, this -- in 2018, the vast majority of net new name wins were partner-influenced. And that remains today a core tenet, a core process for us. That does not mean, however, that our sales teams are not engaged with those partners. So it's not a situation where partners are off necessarily without our assistance selling direct because they still need access to our talent, they still need access to the environments and so on. So it's very much a collaboration. Obviously, we get great leverage by -- through that partner alliance, but we're going to continue to invest in sales and marketing as the opportunities present themselves.
Okay, and just a follow-up on that. Are you able to kind of characterize your wins with customers, large customers as a mix of top-down versus bottom-up types of sales? I mean, are you at the stage where now the majority of your new customer wins are sales to the CEO or CTO level and are being driven down through the organization? Or are they still kind of at a division level and have to be sold up into the management?
They have actually been predominantly, I'd say, top-down or middle-up and -down types of sales. I mean, our solution becomes mission-critical for these corporations. We become part of their business fabric. So these are -- this is one of the reasons why sales cycles tend to be in the 12- to 18-month time frame. These are very, very serious and long-term decisions that these corporations are making. So I would tell you -- in fact, I simply cannot recall a sales cycle where either myself or Paul Carreiro wasn't in direct conversation with the chief supply chain officer or the CEO or the CIO of these corporations. They're quite significant investments on their part, not just financial investments, these are significant process investments for them. And so I would tell you the vast majority of these opportunities will have direct interaction with the C suite.
Okay, excellent. That's very helpful. Last quick one, Richard. Can you guys give an update on the number of customers you guys have at this stage, given you have year-end?
So we don't -- we're not disclosing that. And so it is over 100, but we're going to just keep it in that range right now, Deepak. So we'll continue -- but we are growing the customer base but...
I mean, but it's been over 100 for the last couple of years. So can you say that it's meaningfully changed in the last couple of years? Or is it kind of the same?
We're not going to comment further. But as John noted, the reason why, we're not trying to be overly coy. It's just that we could sign a multimillion arrangement initially with the customer. We could sign something that's maybe sub-$1 million. And we believe right now, given the nature of our customer base, given the nature of the competitive landscape, it's -- we're focused more on the absolute revenue growth as opposed to that level of disclosure. And at some point in time, we will provide that number, but it's a growing base, and we're very pleased and continue to welcome marquee names across the globe and across the verticals.
Your next question comes from Paul Treiber with RBC Capital Markets.
Just in light of 2019 guidance that you can't give under the old accounting, could you help provide maybe what the SaaS revenue growth was in 2018 just to provide a -- to help with comparability?
Well, it's -- the short answer is, Paul, I -- we cannot. We cannot because of the IFRS -- these are audited, these are our numbers. And so at the management level, we're very pleased with that sustained growth, but we can't publicly disclose the number. You will -- as you've seen here that when you look back, you'll see that 80% range. So the vast majority of the subscription revenue when we revert back is SaaS or at the cloud base. And we've indicated that as the -- I know this juncture, our expectation of growth of 22% to 24% per year. And this is a part of our long-term sustained growth. So it's -- we're not in a position. And why we purposefully divided this level of additional insight is to help you and others model that compound base going forward.
Okay, that's fair. In terms of term license revenue, when you mentioned -- there's a number of questions, obviously, where you mentioned that 2019 is towards the high end of the range. How would you characterize 2018? Is that at the low end of the range? Or is it more towards an average of the year?
So again, this is a -- IFRS is a new construct, and so you have to decouple. What -- I think you can gain some insight in that as of January 1, we had to again push back into the rearview just over $21 million of revenue. And then that is predominantly related to the subscription, the equivalency of that subscription term license that would have occurred in years prior to January 1. And I think you understand that most of arrangements sort of center around a 3-year mark. And so -- but I as I noted on the call, we do also extend a renewal in some cases. So it's -- there is going to be a -- it is going to be -- unfortunately, there's going to be some -- it's going to be back and forth lumpy, but we're going to provide this guidance not only for the full year but as we have here on the quarterly basis.
Great, and one last one for me just to sort of eliminate all the noise around the accounting and IFRS. In the past, you've given sort of long-term growth aspirations, I think, in between the 25% and maybe in the 30% range. How do you see that either if it's subscription or SaaS? How do you see that -- those long-term growth aspirations?
Well, I think we're still very comfortable with a mid-20% growth for the SaaS component. Again, that's why we'd now really on a laser-beam basis provided that information. I think that while professional services is a key part of the business just given the support and uptake of partners, we're going to see that at a lower growth rate. And that's what we indicated sort of in the mid-teens this year. The on-premise customer-hosted, if you will, maintenance support component. That is the ratable component of those longer-term subscription arrangements. I think that is going to be relatively stable. It really will be a function of our success on renewing those customers over the years ahead as well as if there is a mutual agreement to subscribe with that customer on that basis. So I think what I'm saying is I want you to focus on the -- listeners should focus on the SaaS engine, and we're -- our goal is absolutely in the mid-20% range, and then ultimately, with partners to further accelerate it beyond. But as John noted, it's a 12-, 18-month sales cycle. So you have to sort of factor that out and as we factor in those longer-term growth rates.
Your next question comes from Suthan Sukumar with Eight Capital.
Just a quick question for me. Just kind of on the -- on your product, on the increased investments on the product side of the business. Can you kind of speak to where your current focus is for your mid- to long-term product roadmap and how that might change, given these recent investments? And if that direction is being influenced by customers and partner input?
Yes. So we -- obviously, it wouldn't be appropriate for us to share the product roadmap information in any great detail. I will tell you, as I said, we continue to invest in new capabilities that we can -- that we're getting feedback from our own customer base as part of our expansion opportunity. And some of the things that we've announced like Live Lens and what we call network visibility, supply chain network visibility and visualization, the Self-Healing Supply Chain, those are all things that we've announced. And they're sort of driven from practitioners who were driving our initiatives. As previously stated, we're -- this year and in past years, we've been very focused on the platform. And obviously, the more flexible RapidResponse is, the more likely we'll be successful in entering new markets and driving -- having our partners drive new capabilities on our behalf. And so we're -- in terms of I'd say strategic direction, that's where we're going to see some investment.
And we have a question from Chris Martino with Laurentian Bank Securities.
With the Genpact acquisition of Barkawi, I was just wondering do you have any insight into how that integration is coming along? And is that translating into a potentially more significant channel for you than it was in the past. And are you seeing any interest from Barkawi's clients in the solution?
Yes, Barkawi has been a partner of ours for many years. They're very mature. They're a great partner of ours. And I personally met with Genpact's CEO. I'd been involved in, I'd say at a high level, the relationship building there. And Genpact, I think as they highlighted in their own earnings call recently, has a real focus on supply chain. So we're, obviously, thrilled to be working with Genpact, and the fact that they've ceded their practice with Barkawi, I think is -- it's going to be beneficial.
And we do not have any questions at this time. I will turn the call over to Mr. Wadsworth.
Thank you very much. Thank you, everyone, for participating on today's call. We truly appreciate your questions and your ongoing interest and support of Kinaxis. We look forward to speaking with you again when we report our Q1 '19 results. Bye for now.
This concludes today's conference call. You may now disconnect.