Mar 2, 2018
Executives
Rick Wadsworth - Vice President of Investor Relations John Sicard - President and Chief Execution Officer Richard Monkman - Chief Financial Officer
Analysts
Thanos Moschopoulos - BMO Capital Markets Richard Tse - National Bank Financial Paul Treiber - RBC Capital Markets Paul Steep - Scotia Capital Gus Papageorgiou - Macquarie Kevin Krishnaratne - Paradigm Capital Nick Agostino - Laurentian Bank Securities Suthan Sukumar - Eight Capital Rob Young - Canaccord Genuity
Operator
Good morning, ladies and gentlemen. Welcome to the Kinaxis Inc.
Fiscal 2017 Fourth Quarter Conference Call. At this time, all participants are in a listen-only mode.
Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for you to queue up for question.
I’d like to remind everyone that this call is being recorded today, Thursday March 1, 2018. [Audio Gap] I will now like to turn the call over to Rick Wadsworth, Vice President of Investor Relations at Kinaxis Inc.
Please go ahead Mr. Wadsworth.
Rick Wadsworth
Thanks, operator. Good morning, and welcome to the Kinaxis earnings call.
Today, we will be discussing results that we issued after the market close last night. With me on the call, are John Sicard our President and Chief Execution Officer and Richard Monkman, our Chief Financial Officer.
Before we get started, I want to emphasize that some of the information discussed in this call is based on the information as of today, March 1, 2018 and contains forward-looking statements that involve risk uncertainty. 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 and non-IFRS financial measures.
A reconciliation between the two is available in our earnings press release and in our MD&A, both of which can be found in the Investor Relations section of the Kinaxis Web site, kinaxis.com and on SEDAR. Participants are advised that the webcast is live and is also being recorded for a playback purposes.
An archive of the webcast will be made available on our investor relations Web site. Neither this call nor the webcast are archived maybe re-recorded or otherwise reproduced or distributed out prior written information from Kinaxis.
To begin our call, John will discuss our 2017 highlights and recent developments followed by Richard who will review our financials, and then John will make some closing remarks before opening up the lines for questions. And now I’ll turn the call over to John.
John Sicard
Good morning. Thank you for joining us today.
2017 is a fantastic year on many fronts. We remain true to our business pedigree of sustaining strong revenue growth and profitability.
Subscription revenue grew 23% and we achieved adjusted EBITDA of 30% with solid cash generation. We’ve added a number of great names to our customer base and continue to expand across many others.
This year, we also strengthened our executive team while simultaneously building our global operations in Europe and Asia. Our consistent business performance and growth is directly related to healthy benefits our products bring to the market.
We are the only company in our industry uniquely capable of delivering the immense potential of concurrent planning. More than just unique technology, we are bringing forward a new and unique technique to planning.
This vision and capability continues to attract the business of the world’s largest companies looking to revolutionize their planning processes. New and existing customers that recognize the need for a change and how they plan are leveraging our expertise in concurrent supply chain planning to drive greater business outcomes.
While our single solutions spans a number of industry verticals, I am pleased to note, we’ve enjoyed increasing success with automotive, consumer package goods and life science enterprises. In fact, we have just closed our fifth major automotive plant and continue to see additional interest from other major accounts.
Last months, we announced that Toyota has selected RapidResponse to manage its automotive demand and supply chain processes. As one of the world’s largest automotive manufacturers with a strong reputation for quality, Toyota will leverage the power of RapidResponse to optimize its inventory levels, while providing improved production flexibility as customers demand changes.
We are thrilled to have earned the trust and confidence of Toyota, and look forward to demonstrating the strong value of RapidResponse, while growing our relationship with them overtime. As a further validation of our market leadership, Kinaxis has once again been recognized by an Influential Industry Analyst Group.
Nucleus Research just identified Kinaxis as a leader in its recent control power of value metrics, which provides an in-depth review of the constant team control how our vendors. Nucleus cited some of our unique concurrent planning capabilities as a key factor in its assessment.
As I mentioned throughout the 2017, the vast majority of our new customer activity was influenced by our global partners. With our growing partner ecosystem, we are accelerating our ability to engage perspective customers and they are accelerating their ability to deploy our solutions.
To further support our partners’ capabilities, we recently launched the Partner Enablement Program, we specifically develop the new in direct collaboration with our partners with the sole intent of accelerating their skills and knowledge. As I have mentioned in the past, we are seeing an increase in partner led deployments of our product as we intended.
We believe that the stronger our partners become the greater our business potential will grow. Our partner program is just one of the key investments we will continue to make as we enter 2018.
First, we are significantly expanding our sales and marketing capabilities. In particularly, we are increasing the sales team, which comprises of account executives, business consultants and industry principles by 40%.
These addition will be made globally. However, to continue our significant momentum in Europe and Asia, we will apply heavier weighting towards these regions.
Our partners have been supporting us very well in Europe and Asia and we are well positioned to take advantage of that success and a growing and robust pipeline of new opportunities. Second, we are increasing our investments in research and development.
As we continue to enhance the industry’s only concurrent planning solution. We will be working on a number of initiatives, but in the short-term, some areas of focus include enhancements to our analytics to support the growing opportunities in automotive and consumer package goods verticals and productizing our initial machine learning capabilities as a step towards creating the self gearing supply chain.
Third, we will be building out world class data center capabilities in Japan later this year. These are just some of the key investments we are making to continue to scale our business through 2018 and beyond.
I am thrilled with the success our team has achieved in 2017 and my confidence in our future remains very high. With that, I’ll turn it over to Richard for an overview of the financials.
Richard Monkman
Thank you, John and good morning. As a reminder, all figures reported on today’s call are in U.S.
dollars under IFRS. Total revenue increased 14% and 15% in the fourth quarter and full year periods respectfully to $34.4 million and $133.3 million.
Our revenue is driven predominantly by our strong base of subscription revenue, which increased 19% and 23% in the fourth quarter and full year periods respectfully to $27 million and $100.8 million. As we’ve discussed on previous calls and as John has just noted, our partners continue to assume a greater role in new customer deployment activity in 2017.
As a result, professional services revenue declined by 2% and 5% in the fourth and full year periods to $7.2 million and $31.5 million. Gross profit increased by 19% and 17% for the fourth quarter and full year periods respectfully to $24.7 million and $93.5 million.
As a percentage of revenue, gross profit was 72% in Q4 2017 and 70% in fiscal 2017 compared to 69% in the prior year periods. The increase in gross profit in the respective periods was driven by the higher growth rate of our revenue compared to our cost and also the subscription revenue to total revenue mix.
Adjusted EBITDA, as a percentage of revenue was 32% in Q4 2017 and 30% in fiscal 2017 compared to 25% and 21% in the respective prior year periods. This was an increase of 73% and 40% for the fourth quarter and full year periods to $11.2 million and $40.1 million.
This strong performance was again a result of a higher growth of total revenue compared to operating expenses, excluding share based compensation. In particular, for the fourth quarter and full year, selling and marketing expenses decreased compared to the prior year periods due to a decrease in the contract customer acquisition cost related to timing of securing new contracts.
Our policy is to expense contract acquisition cost related to new and expanded customer arrangement upon commencement of their related revenue. Consequently, selling and marketing expenses for the fourth quarter of 2017 do not reflect customer acquisition cost for certain contracts secured with customers in the fourth quarter of 2017 for which revenue recognition commenced in fiscal 2018.
Q4 2017 profit increased $3.8 million to $5.5 million or $0.22 per basic and $0.21 diluted share at full year 2017. And full year 2017 profit increased $9.6 million to $20.4 million or $0.81 per basic and $0.77 per diluted share.
The increase of profit was primarily driven by the increase in subscription revenue, partially offset by our investments in professional service and data center capability, research and development and an increase in share based payments. Demonstrating the ongoing robustness of our business model, cash generated by operating activities was $12.5 million for the fourth quarter and $33.6 million for the full year period.
This strong performance represents 25% of 2017 revenue and 27% for 2016. The nature of our long-term contracts provided us with a high level of visibility into our forward 12 months of revenue.
Our customer base is diversified across multiple vertical markets and our pipeline of new opportunities remained strong. This supports our ability to provide full year guidance with confidence.
Under IFRS standards as applicable at December 31, 2017 and based upon the existing contract backlog and the strength of our sales funnel, we expect total annual revenue for fiscal 2018 to be in the range of $158 million to $163 million. Subscription revenue will continue to be the growth driver.
We expect subscription revenue growth to be between 23% and 26% over 2017. Reflecting the growth initiatives that John mentioned for 2018 and our expectations, the sales and marketing expense will grow from the range of 22% in 2017.
We expect it to grow to a range now of 24% to 27% of revenue. Given product initiatives, we expect net research and development expense will remain in the range of 17% to 19%.
This level of investment is critical in positioning us for long-term growth, and we expect to see this benefit our direct sales capabilities, our partner relationships knowledge services. We also believe this will provide us with greater scale through enhanced customer success.
The visibility of our long-term revenue continues to provide us with support and confidence to invest in these future growth initiatives. Based on our investments and near-term custom opportunities, we expect annual adjusted EBITDA as a percentage of total revenue to be in the range of 23% to 26% for 2018.
As noted in our MD&A and financial statements, beginning in 2018, Kinaxis will be adopting the new IFRS 15 and IFRS 16 provisions. We will report on the first quarter results in May.
We will provide a reconciliation of the adjustments related to adopting these new standards. We will also provide guidance for the remainder of 2018 that reflects this adoption.
To further assist readers, we will continue to provide results for 2018 based upon prior year’s IFRS standards for ease of comparability. Through RapidResponse, we provide very large enterprises the capabilities to solve the critical business challenges.
We support them in driving savings, while strengthening their relationship with their customers. While no sector or business is immune to economic cycles, the majority of our model, the diversity of our revenue base and the strength of our innovative product provides us with sustained confidence.
With that, I’ll turn the call back over to John.
John Sicard
Thank you, Richard. As you’ve heard from Richard, we made great progress in 2017.
We are in an enviable position to continue our growth through 2018 and beyond. The continued strength of our financial performance, the growing adoption of our breakthrough product, and the continued participation from our partners, provides me with great confidence in our business model and business potential.
With this confidence, comes an acceleration of key investments needed to accelerate that growth. We will accelerate our investments in the global sales and marketing team, in particular, throughout Europe and Asia where we have seen great success.
We will accelerate product innovation through incremental investments in research and development, and we will continue to expand our data center capabilities. These investments will better position Kinaxis to capture the strong demand that we are seeing from the world’s largest companies.
On behalf of Kinaxis, I’d like to thank you for your support, and as always for taking the time to joining us. With that, I’ll turn the line over to the operator for Q&A.
Operator
[Operator Instructions] Your first question from Thanos Moschopoulos from BMO Capital Markets. Your line is open.
Thanos Moschopoulos
John, you mentioned your plans to increase the sales team by 40% and you mentioned -- focused on geographic expansion, which make sense. But my question is why is the big step up happening now as opposed say last year.
Is that reflective of an acceleration in the growth in the pipeline. Might it be reflective of the increasing maturity in the partner channel and the increase for their needs to clarify that?
Thanks.
John Sicard
It’s really all of the above. We’ve always been responsible operators and part of being responsible is recognizing when you start to see that moment grow is to get prepared.
And we’re definitely seeing strengthening activity in Asia. In just in 2017, you saw our release with Nissan, Toyota, Santen.
Santen was our first life-science customer in Japan. We opened up our data center recently in Europe, and we’re seeing a strengthening pipeline there.
And more importantly, we’re seeing a lot of activity from our partners in those two regions. And that’s not to say that we’re seeing any weakening in North America whatsoever, this is additive.
We’re seeing strengthening activity in those two regions. And as we said in the past, while the vast majority as we saw in 2017.
The vast majority of new named accounts that we’re winning our partner influence, we have a sales team that comprises of account executives, industry principles and business consultants that work hand and glove, if you will, with the teams at those partners to win those deals. So that’s where we are confident enough that now is the time to accelerate our investments in sales and marketing.
Thanos Moschopoulos
And for the geographic dynamic that you highlighted. Have there been any other changes that you’ll call out with respect to the composition of the pipeline that you’re seeing?
John Sicard
I think, it may have been the last earnings call, but definitely I’d make this statement. During earnings calls in the past that life sciences has surpassed our previous vertical in terms of the highest component of our revenue.
And as I just noted, we’ve just closed our fifth large automotive company. And so both of those are yielding quite well for us, high-tech continues to be strong, consumer package goods continues to be strong.
So again, those are the -- I’d say, if I were to apply some color, we’re seeing some strength in those specific market verticals.
Thanos Moschopoulos
And then one for Richard. Could you clarify the impact of U.S.
tax reform on 2018?
Richard Monkman
You said the U.S. tax reform?
Thanos Moschopoulos
Yes, will that be changing your tax rate at all?
Richard Monkman
We anticipate a modest adjustment. We are a Canadian parent company.
We’ve had the long-term transfer pricing models in effect. The Canadian tax rate continues to remain low.
So there will be some benefit but it won’t immaterial at this time.
Operator
Next question comes from Richard Tse from National Bank Financial. Your line is open.
Richard Tse
Those investments in the sales and marketing and the momentum you’re talking about. Is that -- we do assume that the growth rate here not necessarily for ’18, but ’19 going forward, could actually accelerate on a subscription basis?
John Sicard
I mean, that’s a great observation Richard and exactly what we’re preparing for. Our sales cycles, even with the partner influence, while it can drive some momentum in the overall pipeline, we haven’t necessarily seen acceleration in deal closure.
We’re still, as you know, becoming part of business fabric for these large enterprises. And so as I said previously, part of our job is to recognize when you start to see momentum and investment in advance of that to make sure that you can take advantage.
And so the answer, short answer to your question is, yes. These investments we’re making today are in direct preparation for acceleration that we can see through 2019 and beyond.
Richard Tse
And then with respect to sales and marketing, again. Does that also have to do with Paul joining the company and his evaluation and input in terms of what he’s seen in the past in terms of what you need to do from a scaling perspective?
John Sicard
In fact, Richard, Paul has extensive experience working throughout Europe. And that has definitely proven to be helpful to Kinaxis in growing the partners in that region and building momentum.
We brought Paul on for that purpose. He knows what $1 billion of revenue looks like.
He has carried that for many, many, many years. So bringing him on and having him build the appropriate relationships with partners and building the appropriate sales support team to seize the potential is what you’re seeing reflected in our forecast.
Richard Tse
And then last one from me is that maybe you can give us an update on the competitive environment? Some of the things that we’ve been hearing about, you’re clearly doing a lot of damage to some of your competitors.
And so they’re resorting to tactics like aggressive in pricing here. So how has that changed over the past while?
And that’s my last question. Thanks.
John Sicard
In fact, you’re right we call it poisoning the well. When a competitor knows they’re losing, they try to fight based on price.
We don’t play that war. It is common in fact that we win our opportunities and our price is higher than our competitors, that’s common.
And in the end, our prospects, our customers are looking for a cure not a placebo, they’re looking for a cure. And when we talk about the potency of concurrent planning that’s the cure and we go through extensive proof of concepts with them, they’ve experienced the power that we’re bringing them and the business outcomes.
And so the monetary aspects, if you will, play lesser of a role. Our prospects are looking for something that works.
I have to say that the most expensive decision and the most expensive decision you can make is to buy something that’s free. And so, essentially this hasn’t necessarily been a friction point for us.
Operator
Your next question comes from the line of Paul Treiber from RBC Capital Markets. Your line is open.
Paul Treiber
Just related to the sales and marketing investments, just given the sales cycle, the typical long sales cycle that you have. How long do you anticipate to ramp up these programs.
And how long do you think it would take for the new hires to begin driving revenue?
John Sicard
So Paul as you know, a little over two years ago we brought Sarah Sedgman as our Chief Knowledge Officer. She since taking on more responsibility in fact and in the company for part of her mandate was to build an education framework not only for partners.
I mean the initial start was to prepare partners to learn and sale and deploy RapidResponse, we’re using and leveraging all of her work, her team’s work, to accelerate learning of new hires. So while everyone is different, we anticipate certain individuals that we’re hiring in sales will be ready to contribute within that six month to eight month timeframe.
Now that said, we’re allocating pipeline as we hire these particular individuals and connecting them with associated partners. In Europe, for example, we announced last year a partnership with MSE.
And they’ve been extremely active with us and so we’re making those associations and growing the team appropriately. So the other thing I would say and this is I think also very important.
When we say that we’re accelerating our investments in sales and marketing and particularly growing the sales team by 40%, its frontend loaded. We are accelerating that as we speak very aggressively.
And so again part of our features if you will is bring all of these people in immediately and train them simultaneously, and as opposed to spreading it out, that’s what we’re doing.
Paul Treiber
And then these new investments, I mean, obviously, they’re focused on scaling the company. What do you see as the biggest risk as you scale the company up to the next level?
John Sicard
Well, certainly when we look at the geographic expansion and our ever growing partner ecosystem, getting coverage frankly, maintaining coverage for the number of partners that we have signed is one of those things that keeps me up at night. We have signed more partners than we have announced.
And so there is a lot of activity going on right now with those partners. And so I’m working very closely with Paul on this particular topic.
And again, some of these partners are in Japan, some are in Europe and making sure that we’re getting adequate connection points with sales and marketing staff is one of those areas that I’m focused on.
Operator
Your next question comes from Paul Steep from Scotia Capital. Your line is open.
Paul Steep
John, could you talk a little bit about any thoughts around realigning the professional services team that you and Paul have had, given that you’ve increasingly utilized that partner network over the last couple quarters. Any changes we should think about there?
John Sicard
I think precisely what we have described and it began last year, if you recall, mid-year. We recognized the speed at which our partners were adopting the deployment scale was faster frankly than we had anticipated.
And we had planned this to happen. We’ve always thought great successful SaaS companies look more like an 80% subscription, 20% services support.
And we’re definitely seeing that trend continue. Obviously, we have an insurance program with our partners so we are -- it’s very common to have a professional services team working alongside our partners, where our partners are prime.
But I wouldn’t say there is any change in how we’re working with our partners there. Again, we’re definitely seeing partners pick-up the prime position and Kinaxis picking up the supporting role.
Doesn’t mean no role, it means the supporting role of those deployments. And the forecast that you’re seeing here and what we’re reflecting for 2018 frankly it reflects that program continuing as we’ve designed it.
Paul Steep
I guess the second one from me would be. Richard, how would we want to think about the data center build-outs and CapEx through ’18 in terms of relative levels?
’17 was a fairly heavy year. Is it the same level into ’18 again?
Richard Monkman
Yes. Paul, we anticipate that it’s still going to be in that range.
As you pointed out, in particular as we guided in Q4 with the launch of the datacenter in Europe. Now, with the expanding capabilities and Japan as well is quite frankly just to support the other growth in the business, other data center expansion.
We anticipate CapEx will probably be in -- continue to be in 11 to 12 range for 2018.
Paul Steep
One quick last one for me, for either of you, I guess. We’ve talked a lot about Europe this morning on the call.
How should we think about that in terms of the mix? As you of exit over the next couple of years, you’d said that obviously the U.S.
or North America is not slowing, but there’s a ramp. And we’ve seen that in the last couple quarters.
Where do you think you want to see the European and then the Asian business get to on a percentage basis out a couple years? Thanks.
Richard Monkman
So we’re very excited. I mean, we’ve had significant success.
And as John noted, our expectations are that we’ll continue in Europe. But as you know, Paul, we deal with global companies.
And in many instances, while the focus is being with the European base company, they have often sign that through the year subsidiary. So we have the situation ongoing basis where our supplement note disclosure really doesn’t align with where our customers are based.
But absolutely growth in Asia, growth in Europe, well growth in North America, but these are again global scale operations.
Operator
Your next question comes from Gus Papageorgiou from Macquarie. Your line is open.
Gus Papageorgiou
Just a clarification first, John you said you had -- you want to -- auto customer, so that not true that someone in addition?
John Sicard
That’s correct.
Gus Papageorgiou
And I guess my broader question is, you guys are unique as a SaaS company that you’re highly profitable. I think you’re much more profitable than much larger SaaS companies.
I’m just wondering how do you balance this growth versus maintaining profitability. Do you see the accelerating spending year, why is the 40% increase in the sales staff the right number and why is it 100%.
So I was just wondering if you’re looking forward and how do you balance how much you’re investing versus how much you should grow. And is there a profitability level that you just don’t want to break that you don’t want to beat regardless of how much growth you can achieve?
Richard Monkman
Gus, we are as you’ve -- thank you for noting that. We are very unique in that it is a growth company, as well as a very strong bottom line.
And I think you saw the note we’re very strong cash generation. But we are first and foremost a growth company, and so all our efforts are based on that.
We’ve said all along that we are not shy to apply the rigor that John discussed. And as example, here is the significant increase in sales and marketing from that 22%, 23% range we’re guiding at 24% to 27%, because we believe now we’re taking advantage of those additional opportunities.
But just the description nature of the business again with the area of 8% of our subscription loss in backlog when we provided the annual guidance, we can do that with confidence, but our goal is to accelerate the growth rate. And as indicated our by our initial guidance, the subscription revenue growth rate is higher for 2018 than it was for 2017.
So this is very much a growth focused and can sustain the investment. And it is the longer-term view, I think as you know this is not quarter-by-quarter.
So that business model is going to continue.
John Sicard
And Gus, I’d just add to Richard’s comment. We don’t throttle the business.
It’s not a question that of us throttling to maintain some profitability. We do believe these responsible facts companies should be very predictable in both growth and profit.
And so that’s always been our pedigree. And so we are now, as I said, we’re monitoring what I’ll call momentum indicators.
For example, we monitor unsolicited inbound leads, and that’s a key for me it’s where -- we’re not harvesting out of the marketing program, no, someone is ringing our door bell and coming to us. And we monitor that very closely, and as a momentum indicator.
Obviously, our growing partner ecosystem and having their relationships and their privilege grow the pipeline. We monitor that.
And so our plan for this fiscal year and what we presented represents, I’d say with great precision what we believe is the appropriate investment to continue along our pedigree.
Gus Papageorgiou
Just wondering if there is any way you could give me a sense of that index of the unsolicited inbound leads. How much that has increased, if that’s possible?
John Sicard
It’s again not something that we would be -- that we have presented in the past as an indicator. I can tell you that it has been increasing steadily for at least the last five quarters or so.
And again, that isn’t the only indicator, it’s one. When combined with the other elements that we monitor and the success that we’re seeing, especially in Europe and Asia, that is where the management team has made the determination that we’re starting to see -- we actually prepare ourselves for that momentum.
Richard Monkman
And Gus, what is exciting is we’ve always felt that -- and we’re going to continue to increase our awareness being a public company is help that, certainly being continually recognize the leadership quadrants and other market notes. But what we’re seeing through the partners as well is now recognition of the value of the current filling.
And so it’s a number of awareness themes. And one of the investments is that it is sales and marketing.
So we will be continuing to work to enhance that profile and our visibility.
Operator
Your next question comes from Kevin Krishnaratne from Paradigm Capital. Your line is open.
Kevin Krishnaratne
First, just a quick one from me on the expense side of things. How do we think about your expectations on gross margin in and beyond, especially if partners are taking bigger ticket client wins?
I’m just wondering how margins will evolve versus the 70% range you we saw in ’17?
Richard Monkman
As mathematically, the subscription revenue is at a higher margin, I think clearly than professional services. And you already saw some gross profit expansion.
We are continuing obviously to invest to not only professional services but in the data center, that’s a cost. So I think longer term, you’ll see that expansion trend continue.
But given this investment theme, I think that 70% ranges is plus or minus is the appropriate range for the near-term.
Kevin Krishnaratne
And then next question from me again, just to pull back on the sales increase there. I’m just wondering you can talk a bit.
You mentioned that you’re trying to accommodate the growing partner roster. Is that to mean that it’s to actually support the partners that you have right now or are you get in front of potential partner wins?
And then also did some of that increase, is that because your existing partners are just seeing an increase in their client conversations they come back to you saying, look we need some more support?
Richard Monkman
It’s really both. We’ve shared that and we now have over dozen partners we’re continuing to build the partners.
I think you are familiar that in our case it’s not simply a low-load acquisition. These are individuals that are investing in training, as John noted, with the knowledge services and expanding.
We’re very pleased to see -- well we’re not in a position to disclose specific numbers of trained practitioners in our communities in the order of 2x range over the last year. So we are going to continue to see.
They are investing we’re investing with them. And so absolutely, we’re going to putting additional resources for them, additional personnel, because that’s where we see the long-term win rate and that’s where we see not only a capability to accelerate our growth rate, but also to assure the quality execution of those wins.
Kevin Krishnaratne
And then just a final one from me, just to speak on the R&D investment. I know you did call out some related builds related to auto and perhaps any other verticals there.
I’m just wondering your thoughts on building versus buy given your cash balance?
John Sicard
So that’s a great question. And our strategy around the buy side of things is to look for things that might be technically accretive.
And there is a few dates obviously that we have to get passed, one technically accretive so bring us into the market vertical that we’re not in or provide some technical capability or strength where we have some weakness. And again, we have -- it has to be satisfiable, when I called sissify.
And there is a lot of other technologies out there that we’re built on an on premise perpetual type of model, which could quite frankly poise in our own technology. So we’re very careful about that.
There is scale, lot of great technologies out there that just weren’t built to support the hyper scale that you might encounter at Toyota, for example. And so in some case, we have to turn to our own R&D expertise to maintain this type of speed, scale and supportability of RapidResponse.
I will say it’s not a question of that door being closed. We have looked at some things in the past, they just don’t necessarily pass those specific gates.
And so, we don’t look at that as slowing us down, it just means we continue our investments in prioritizing in the verticals that we see as having some momentum.
Richard Monkman
And we will continue to evaluate…
Operator
Your next question comes from Nick Agostino from Laurentian Bank Securities. Your line is open.
Nick Agostino
I guess just a quick question with regards to comments you guys made earlier. You’d indicated that many -- you’ve got more F5 partners and just partners in general than you have disclosed to investors right now.
And then we also know that it typically takes both 12 months to 18 months for your F5 partners to reach a certain level of maturity so they can go out and be more effective. Can you maybe just give us a sense of just given the size of your partner relationships?
How many of them have reached that maturity level versus be more in the incubator stage. And specifically, I’m just thinking about being capital -- we haven’t heard much about them.
Just wondering if they have whereabouts, are they in that whole cycle. Are they reaching a point where you anticipate it’ll start to deliver some contracts for you, if they haven’t already?
And that’s it, thanks.
Richard Monkman
So first, as I mentioned, the vast majority of the new name wins for 2017 were partner influenced. Not every partner participated.
But I can tell this in 2017, we saw the most broad participation in the history of the partner initiative. So we have many partners directly involved and influencing deals.
Related to Bain -- again, we would say this about any of our partners. We don’t necessarily make specific comments about any one partner.
We continue to work with them and educate their teams and get them certified as we are the rest of the partner ecosystem. And to your question on us having more partners than we have announced, I’ve always talked about having partners in the incubation phase, what I call the incubation phase so there has not necessarily been a formal contract signed, if you will, like we have with Accenture, Deloitte and MSC and others.
But we are in direct participation and working with them on deals. And this is typical where that’s how it starts and then we start that relationship with a win, which then leads to a more formal arrangement.
The other thing I will tell you is this. We have signed arrangements where the partner doesn’t wish to make it public for their own reasons.
And so that is a situation that we also have where we’re actively engaged, lots of activity and pipeline development with a partner as we signed and in formal agreement with that we simply we’ll not make public because of the restriction on their side. So that gives you some color as to what the partner portfolio looks like.
Operator
Your next question comes from Suthan Sukumar from Eight Capital. Your line is open.
Suthan Sukumar
First question for me is, just given this continued strong traction you’ve seen in core markets, but with the growing pipeline. Can you speak to some of the progress you’re making in new verticals, especially some of the non-manufacturing opportunities that you’ve touched on in the past?
John Sicard
Well, there is a primary -- I would say the primary acceleration, if I was to pick one vertical where we’re seeing acceleration. Now necessarily the same volumes as we’ve discussed around life sciences, which continues to be very wrong for us, but the primary acceleration right now is in the automotive business industry.
And we’ve mentioned Toyota, we’ve announced Nissan in the past or others I’ve just mentioned there is a fifth, which we’ve not announced. That’s an area for us of great interest.
It’s a vertical right now undergoing tremendous transformation as it relates to supply chain, and so it’s right. So there is also one of those verticals similar to life sciences were you can gain trust by association.
The fact that you have learned the supply chain space within some of the largest companies in automotive. Let’s just say it attracts, it’s a bit of a magnet.
It creates a little bit of attraction for those that we’re targeting and pursing.
Suthan Sukumar
And could you provide us for the sense of your customer tally today compared to last year. Any change in the size of the perspective customer base and any observations on the changing nature of some of the customers that you’re seeing?
Richard Monkman
The customer base absolutely continues to grow. We don’t disclose exact number of customers, because we can have an arrangement where the customer that’s in the order of 5 million or more per year and we can have an arrangements that’s in the 500,000.
Our focus is really securing it’s a line and expand model, securing that initial relationship with the customer showing the value and then providing them with stronger ROI. So they will continue to grow.
So we’re at a juncture whereby I would tell you, it’s growing. And as you can see, it’s growing also at the top line, but we’re not actually providing the specific customer count.
Operator
Next question comes from Rob Young from Canaccord. Your line is open.
Robert Young
First question, I want to ask is about the two large auto OEMs you just recently regarded. If you can build the sales cycle on those was accelerated with faster and I think you said earlier in the call that you had growth in ’18 and the duration of the overall sales cycles.
Is there any way you talk about that if I’m right there and the improvement…
John Sicard
So both of those accounts were in place for some time. They happen to close one following the other in relative close proximity.
But I wouldn’t necessarily suggest that the overall sales cycle was reduced for one or the other. I think what we -- what I can’t say as it relates to the automotive space is as we gain momentum with some massive name brands.
And it’s -- obviously we’re thrilled when you can earn the trust and confidence from one of the world’s largest companies let alone largest automotive company. It generally will create interest from many others.
And so that’s where we see, again as I’ve mentioned, if I would have to pick one that was accelerating and vertical that’s accelerating, it would be that vertical ahead of others. So to answer your question, Rob, I’d say necessarily you can learn from overall sales cycle life.
We still even for these, many of them very conservative, they know they’re making a decision on supply chain transformation. We’ve become part of that business fabric.
And so they take that very seriously and put us through our faces.
Robert Young
Second question to me is around the partner led deployment. You said earlier in the call.
Are these partners -- are they trying to take the lead on the lead generation and like talking to their customers and telling them that can act as the best solutions? Or are they waiting for the customers to make that decision themselves and helping them through the deployment.
Is anything changing there in the way that they’re engaging?
John Sicard
I think, as we mentioned, this technique and I am really quite passionate about it, obviously. I think more than just this unique technology that we’ve invented is, is that we’ve invented a new technique in how to find a supply chain, is what the message, I’ll call, the lead message that our partners are working with.
And yes, in many cases, they’re bringing us prospects because of conversations that they’re having with their customers about concurrent planning. And if one of these manufacturers makes that decision that concurrent planning is the future, is the breakthrough they’re looking for, while there is really only one place to buy it and that’s where that relationship gets merged with us.
Robert Young
And last question for me is just around the subscription revenue growth guidance. If I look back Q4 last year, the guidance that we gave is a little bit higher than it is now.
And it sounds as though you’re very bullish about particularly 2019 but it also sounds that the outlook is very strong. And so I am curious, are there one-time items in there, or is there any to think about why the subscription revenue growth to be lower at this time than it was -- when you gave it last year?
And then I’ll pass the line. Thank you.
John Sicard
Well, the beauty of our subscription revenue and also given our stickiness is that we view that very much as a stair function that continues to grow. We are guiding above the performance level in ’17.
And as our practice Rob, we’ll monitor that and provide guidance as we move through the year. As I noted briefly earlier on the call, whatever key metrics is looking at our 80% rule is to what’s actually locked and loaded.
One of the things that is also that we’re sensitive to is that we are interested in the long-term relationship of the customer. And we’re not going to focus on a quarter-over-quarter view.
And so therefore, our ability to close a customer, starting say in July 1st, obviously drives more revenue than if that customer starts September 1st. But if it makes sense for the customer to feel comfortable and for us to make sure that the relative values are aligned, that is deferred then we’re going to -- that might take a little bit longer to close.
So it really is focused on the long-term cumulative subscription revenue growth. And we’ll revisit this guidance as appropriate at our May call.
Operator
At this time, I will turn the call over to Mr. Richard for a closing remark.
Richard Monkman
Thanks operator. Thanks everyone for participating on today’s call.
We appreciate your questions and your ongoing interest and support in Kinaxis. We look forward to speaking with you again in May when we report our Q1 2018 results.
Good bye.
Operator
This concludes today’s conference call. You may now disconnect.