Mar 2, 2022
Operator
Good morning, ladies and gentlemen. Welcome to the Kinaxis Inc.
Fiscal 2021 Fourth Quarter Results 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 questions.
I'd like to remind everyone that this call is being recorded today, Wednesday, March 2, 2022. I will now 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 our fourth quarter and year-end results which we issued after close of markets yesterday. With me on the call are John Sicard, our President and Chief Executive Officer; and Blaine Fitzgerald, 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 2, 2022, and contains forward-looking statements that involve risks and uncertainties. Actual results may differ materially from those set forth in such statements.
For a discussion of these risks and uncertainties, you should review the forward-looking statements disclosure in the earnings press release as well as in Kinaxis SEDAR filings. During this call, we will discuss IFRS results and non-IFRS financial measures.
A reconciliation between IFRS results and non-IFRS financial measures 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 IR section of our website. Neither this call nor the webcast archive may be rerecorded or otherwise reproduced or distributed without prior written permission from Kinaxis.
To begin our call, John will discuss the highlights of our quarter as well as recent business developments, followed by Blaine, who will review our financial results and outlook. Finally, John will make some closing remarks before opening up the line for questions.
We have a presentation to accompany today's call which can be downloaded from the Investor Relations home page of our website, kinaxis.com. We will let you know when to change slides.
I'll now turn the call over to John.
John Sicard
Thanks, Rick. Good morning everyone and thank you for joining us today.
I'll be starting on Slide 4. I'm very pleased to report that Kinaxis had a strong end to our fiscal year both and our financial results and key operating metrics.
For Q4, we achieved SaaS revenue growth of 18% to 46.9 million. Total revenue growth of 25% to 68.5 million and an adjusted margin of 16%.
For the year, we hit all of our financial targets including those we raised within the year. Turning to Slide 5, we are thrilled with the continuation of accelerated momentum Kinaxis is experiencing.
In Q4 and for the full year, we achieved a record high level of incremental subscription bookings and in Q4 also set a new all time high for new customer wins. In fact, we more than doubled the number of new customer wins for the full year compared to 2020.
We were incredibly humbled to welcome some globally recognized brands across multiple vertical markets and geographies. And I'm happy to highlight just a few of them for you here today.
In life sciences, we earned the trust of Cardinal Health loop unlimited and we're particularly pleased and proud to be working with biontech. In consumer products, we added Boston Beer, Edwards Limited, High Liner Foods, Jamieson Wellness and Robert Bosch.
In automotive, we welcome Mazda Motor Europe to our ever growing list of iconic customers in that market. In high tech and right here in Canada, Rogers Communications joined us.
And in the industrial sector, we won BP International Limited our second bellwether account in oil and gas. There are so many other names I hope to be able to share with you in the future, but these views shared with you today demonstrate that accelerated momentum is upon us.
And in fact, as maintained, it has maintained pace in the opening weeks of 2022 as we continue to add major global brands to connect to the Kinaxis family of customers. Our success through 2021 in winning new customers combined with expansion from our installed base as resulted in very strong annual recurring revenue.
At year-end, ARR was recorded at $225 million in constant currency, and our backlog of business recorded at a very healthy 484 million. Add to that a four quarter rolling pipeline that continues to grow and we have confident visibility into SaaS revenue growth of 23% to 25% for 2022.
Our recent initiatives to expand into mid-market opportunities and accelerate time to value for new customers have been very successful. Year-to-date, we saw roughly 55% to 45% split between new enterprise customers and mid-market or smaller customers.
RapidStart was chosen as the initial implementation approach by roughly one-third of all new customers and this is a trend we believe will persist. As we exit pandemic protocols, we continue to see supply chains at the forefront of boardroom conversations and in the news.
The need for supply chain resilience has never been more apparent and demands for transformation towards true end-to-end concurrent planning. Kinaxis simply has never been more relevant nor better positioned to serve the needs of our markets.
We are responding to this accelerated momentum and responding to market indicators by continuing to invest to grow our market share and enhance our platform and service offerings to further distance ourselves from the competition. I'll now ask Blaine to discuss results of our Q4 and the year.
Blaine?
Blaine Fitzgerald
Thank you, John, and good morning. As a reminder, unless noted otherwise, all figures report on today's call are in U.S.
dollars under IFRS. Moving on to Slide 6, total revenue in the fourth quarter was up 25% to $68.5 million.
SaaS revenue grew 18% to $46.9 million, driven by record new customer wins in recent quarters and the expansion of existing customer subscriptions. Subscription term license revenue was 1.4 million versus 1.9 million in Q4 2020.
Fluctuations in this revenue item are generally tied to the normal renewal cycle of our customer focused software subscriptions and will vary period to period as a result. Our professional services activity was strong again, resulting in $17 million in revenue or 50% growth over the corresponding quarter of 2020.
The rapid growth reflects accelerate new customer wins in recent periods and expansion of our service offerings. Generally, this revenue item varies from quarter-to-quarter based on a number, size and timing of customer projects underway, as well as the proportion of work assumed by partners.
Maintenance and support revenue for the quarter was $3.2 million in line with recent periods, but up 72% from Q4 2020, which was largely due to an adjustment made to this revenue item in the comparative period. We continue to be pleased with the diversity and strength of our total revenue base.
For the quarter and year-to-date, our 10 largest customers accounted for 26% and 25% of our total revenues, respectively, with no individual customer accounting for greater than 10% of total revenues. Fourth quarter gross profit increased by 26% to $43.9 million as a result of a revenue growth.
Gross margin in the quarter was 64% compared to 63% in Q4 2020. Adjusted EBITDA was up 85% to $11.3 million for a margin of 16% compared to 11% in the fourth quarter last year.
Our loss in the quarter was $2.9 million compared to $1.6 million in Q4 of 2022. Q4 cash flow from operating activities was approximately level with the comparable period at $3.2 million.
At December 31, 2021, cash and cash equivalents and short-term investments totaled $233.4 million, compared to $213.1 million at the end of 2020. We remain pleased with our outstanding track record of cash generation.
Move to Slide 7. Full year 2020 results included total revenue of $250.7 million, up 12% from 2020.
SaaS revenue of $174.5 million, up 17%. Subscription term licenses revenue of $6.1 million, a decrease of 66%, which is simply a reflection of 2021 being the low point of the three cycle three year cycle of customer hosted subscription renewals.
Adjusted EBITDA margin of 16% compared to 24% in 2020, reflecting the natural dip in subscription term licensed revenue, and a significant strategic investments we made in 2020 and 2021, which are now resulting in acceleration across our business. A loss of $1.2 million compared to a profit of $13.7 million reflecting the same item that's for adjusted EBITDA plus higher share based compensation and depreciation expense.
Finally, cash flow from operating activities was $50.1 million, compared to $59.5 million in 2020. As John mentioned at the beginning of the call, we are very pleased that I've met or exceeded all aspects of our initial and increased guidance for the year.
Ultimately though, our focus in 2021 was growing our incremental subscription bookings. And in that respect, 2021 was our most successful year by some measure, as reflected in some key operating metrics.
Looking at Slide 8, let's look at the most important metric first. Annual recurring revenue or ARR including currency effects, our ARR grew $36 million to $221 million or 90% compare to an increase last year of $26 million or 17% growth.
The currency movements math demo some even stronger underlying growth. We're very pleased that our ARR on a constant currency basis grew $40 million in 2021 to $225 million or 21% growth compared to an increase last year of only $24 million, or 15% growth.
This dramatic improvement is a reflection of the unprecedented strengths. We have experienced all year winning new accounts to success winning incremental business from our installed base.
I'll remind you that growth rate for SaaS portion of ARR is higher than for total ARR. So, we have full confidence that we can grow SaaS revenue by 23% to 25% in 2022.
I'll also note that an unusual number of the contracts and signed in the fourth quarter included provisions that build in meaningful expansion of the subscription amounts throughout 2022 and 2023. Our ARR at year-end is conservative in that it has not yet reflected guaranteed growth, including those announcements which resulted in even higher ARR growth rates.
Moving to Slide 9, our remaining performance obligations or RPO is very strong at $484 million up 27% from December 31, 2020. Of that total $424 million relates to SaaS business, which is up 20%.
Further details on our RPO can be found in the revenue notes to our financials. The RPO growth reflects the record level of incremental subscription bookings in 2021 from new and existing customers, but also reflects the fact that more renewals have been scheduled for Q4 than in recent quarters, as we indicated would be the case on our last call.
Our RPO is a valuable metric, remember that isn't impacted by the normal schedule of existing customer contract renewals and their duration among other factors. ARR is a more specific indicator of momentum in winning the subscription business which in turn drives future revenue growth.
Of the 2021 RPO amount, approximately $217 million will be recognized as revenue in 2022, of which approximately $179 million relates to SaaS business. This guaranteed backlog of SaaS business provides us over 80% coverage of our 2022 SaaS revenue outlook at the midpoint, which has been a typical target for us.
Go on to Slide 10. With respect to our outlook, we are pleased to be able to provide you with initial guidance for fiscal 2022.
We expect total annual revenue to be between $335 million and $345 million, representing approximately 36% growth at the midpoint. SaaS revenue expected to grow between 23% and 25% over our 2021 level.
Subscription term license revenue will hit the peak of his three year cycle in 2022, so we're expecting between $30 million and $32 million. The growth in this amount since the last week of $26 million in 2019 largely reflected expansion activity within the on-premise customer pool.
Roughly two-thirds of this revenue will be recognized in the first quarter, just less than one quarter of the amount in Q3 and the remainder in Q4. I should add that due to the growth in this item mainly support revenue will also grow by a couple of million dollars in 2022.
Finally, for 2022, we expect our adjusted EBITDA margin to be between 15% and 18%. The market for supply chain planning and our own unique differentiation within it have never been stronger.
So, we decided to continue to invest aggressively in all aspects of the business. R&D, sales and marketing, professional services, customer care and G&A were necessary to support greater scale.
As momentum behind digitalization of supply chain continues to pick up pace, we will make sure that we have all the resources available to meet the opportunities and extend early. Looking at other financial targets for 2022, really aiming for a gross margin in the 63% to 65% range.
Sales and marketing and research and development to be approximately 22% to 24% of revenue each and G&A to be in the 16% to 18% range. We expect CapEx will be between $23 million and $20 million, mostly related to expansions to our data center capacity to support our growing customer base.
We've seen our best from 2020 and 2021 pay off and we see plenty of opportunities for continued growth. Our ongoing investment in strategic initiatives, as reflected in our guidance for 2022 demonstrates our highest level of confidence that we are moving in the right direction as we build for the long-term.
With that, I will turn the call back over to John.
John Sicard
Thank you, Blaine. Let me reiterate a few important points before we move to the Q&A portion of the call.
First and foremost, the quality and quantity of customers that continues to join the Kinaxis family is beyond humbling. For both investors and our end markets, our blue chip customer base continues to represent the biggest proof point of our entirely unique differentiator concurrent planning.
Secondly, key strategies that we have recently put in place including our decision to proactively target the mid market and to accelerate time to value with RapidStart all working. New customer wins have had record levels and thanks to the proven value and stickiness of rapid response we expect each to grow with us for a very long time.
Third, we have exceptional visibility into 2022 that will deliver greatly accelerated SaaS revenue growth as reflected by expansion in our ARR and RPO numbers shared today. Finally, our confidence and the markets demand for our flavor supply chain transformation remains very high, and we will continue to invest to ensure we are ready to absorb success.
We see tremendous opportunities to capture more market share and enhance our platform and service offerings to distance ourselves even further from the competition. Momentum in the business is at an unprecedented level, and we intend to take full advantage of that.
As always, thank you for taking the time to join us on the call. And with that I'll turn the line over to the operator for Q&A.
Operator
Thank you. We will now begin the question-and-answer session.
[Operator Instructions] Our first question comes from Thanos Moschopoulos from BMO Capital Markets.
Thanos Moschopoulos
John, you mentioned that when with BP, which is interesting, since that's obviously a nontraditional vertical. And maybe you can tell us about that use case, whether we're talking upstream or downstream.
And just in general, in terms of the pipeline and opportunity you're seeing in oil and gas?
John Sicard
It's a great observation Thanos and we are seeing some interest, some general interest from that sector. As I mentioned, this was our second bellwether for that.
I'll call it a sub-vertical of industrial. And we're generally in the upstream of that, of those use cases are obviously not in the refinement or the exploratory side of their supply chain.
But we do see it as a very interesting sub segment of the industrial market. And you may very well here's some other names as the year progresses.
Thanos Moschopoulos
Can you update us on the competition? So I assume an enterprise probably the usual suspects, but as you're going into the mid-market, is it a different cast of characters, some existent or what are you seeing?
John Sicard
There hasn't really been a meaningful change. We continue to see SAP is the traditional incumbent, we see Blue Yonder online from time to time.
I would say the Gartner Magic Quadrant has done an exceptional job of showing where the gaps are between the competitors and I will say we are certainly looking forward to the release of the 2022 MQ. I'm told is imminent, we shall see, but I think the Gartner does an exceptional job at highlighting the differences between competitors.
But again, I'll say, we have not in the field seen any meaningful shift in one direction or the other.
Thanos Moschopoulos
And then finally on M&A, you announced small tuck-in an opportunity to call out there, and then in general any commentary on M&A pipeline would be helpful?
John Sicard
Thanks for that. Yes.
So we are, I think I've said this on prior calls being a lot more thoughtful about filling whitespace. And what I would call technical gaps that we might see opportunities for.
And so at the same time, our approach to rapid response as a platform, and really driving, driving other companies to build their own intellectual property on top of rapid response is also part and parcel of that strategy. So, as far as, as it relates to this little tuck-in that we did, for competitive reasons, we're not going to go into much detail here.
In a while companies come with a private, this company comes with a small product, and more so significant expertise in an area that we are strategically focused on. We won't be commenting too much on exactly what that area is.
But essentially, it was a $3 million or $4 million acquisition all cash approximately 10 people in North America and more to come on what we'll be doing from a roadmap perspective.
Operator
The next question comes from Daniel Chan from TD Securities. Please go ahead.
Daniel Chan
You talk about the recent wins having some expansions throughout the next couple of years. Can you just help quantify how much those expenses are over the current ARR?
And whether they're in the current guidance and in the current RPO?
Blaine Fitzgerald
Yes, great question. So number one, we don't disclose how much the amount of ramping that's involved, but it's a significant amount.
We would have had, when I think about our ARR growth, if we would have been including that amount, we would add an all time high with our ARR growth, which is a great sign. It will be spending between mostly in 2022 and 2023 more of the backup 2022.
We included obviously the '22 amount that we know is already committed, as part of our forecast. So, all the information is included in our guidance at this stage, but we're really pleased, I mean, it's, I don't like always point to RPO.
Our RPO is partially increasing at the rate it was because we have a lot of faith that was put into us by some new customers that decided they want to keep growing with us in the future. And that was a great sign and a great testament to the success we've had in 2021.
Daniel Chan
And then I was wondering, if you can get some color on the record number of new customers that you won, whether most of those were competitive displacements or largely greenfield, and whether they were in market or enterprise anything too helpful?
John Sicard
Yes. So, they're -- I would say that largely competitive replacement, frankly.
And I think what we're seeing in the market now more than ever is that we're getting the term resilience quite often, right. A lot of organizations are driving towards a more resilient supply chain, and obviously, the conditions the planet finds itself in.
You would see that how that makes a lot of sense. And resilience is into competence, it's an outcome of one.
And we believe the competence that brings about resilience is agility. And obviously, with agility comes concurrent planning.
And so, the customer wins, I would say, by and large, are offset a traditional approach what I might call a legacy software package that they're replacing, and moving towards concurrent planning. Blaine, you might comment on the split between enterprise and mid-market?
Blaine Fitzgerald
As we mentioned, in the script, we were at around 55% to 45% or 55% being enterprise and 45% mid-market, which actually changes the way that we have on competitive dynamics, because you can imagine that with enterprise is a very, very competitive scenario and place where we were grabbing displace, generally, another solution in that situation. With mid-market is not as much that what we would see it as competitive displacement, but it is a very competitive arena that we're fighting with other companies to win those companies.
Daniel Chan
Last one for me, professional services revenues coming in much stronger than expected. Let's try doing that considering you were expecting most preserve to go to your SI Partners?
Blaine Fitzgerald
Great question. And maybe start that, you're absolutely right.
The majority of the services are going to our partners in our ecosystem. We have less than 30% of the total revenue that's going for processor.
But at the same time, this is a situation where we're in a great position and everyone's in a great position in terms of everyone is in high demand. We're in high demand, our partners in high demand.
We simply just to be -- seem to be a little bit ahead of some of our partners in terms of be able to fulfill and deploy the requests that are coming in right now. And so although our partners are within, we want our long-term to be even less than that 30% number or 20% number and 10%, we will have a smaller market, smaller portion of the total professional services, ecosystem revenue that's out there.
For the time being, because the demand is so high, everyone is trying to do whatever they can to keep up with this demand. And we just simply happen to be in a great position.
I'll let John add on that.
John Sicard
Yes, we are monitoring the bench strength of our partner Alliance very, very carefully, and it's hot in every geography, in every vertical. And as Blaine said, we're responding to the demand being put upon us and the speed at which our customers are driving these transformations.
So our thesis has not changed whatsoever. We continue to sign partners as in fact we signed up record level number of partners in 2021.
So we're continuing along that path. It's a situation right now where the demand for transformation projects outpaces pretty much the environments capacity to deliver it.
And so everyone is exceptionally busy. And we're working very hard with the partner Alliance, who's part of our investment thesis for 2022 is investing heavily in partner enablement to accelerate partner enablement, just to keep up with the demand.
Operator
The next question comes from Robert Young from Canaccord Genuity. Please go ahead.
Robert Young
Maybe I'll just continue on that last line. The EBITDA margin guidance for '22 is maybe a little bit lower than expected.
And so I'm curious if that's reactive on the professional services? Are you just trying to pull people into the business?
Is that where the impact on EBITDA margins are? Or is this thinking of script you said, it was reacting to the demand that you're seeing out there and expanding?
So is this more go-to-market sales expansion as it already does? If you could just give a little more color and maybe some idea of whether this is professional services driven enough?
John Sicard
Great question. And I think the first answer is nothing we're doing is reactive at this stage, it's intentional.
And I'll just go back to what happened in 2021. We made some intentional investments, we had as a result we had some great situations that came out where we had five quarters in a row now you name account customers, that are what we want.
We just had a highest increase on bookings ever. We have highest gross bookings ever, expanded our TAMs are that period of time.
We're going to be talking about 36% year-over-year total revenue growth that we're expecting in 2022. So right now, we've seen that the investments we're making are working.
And I'll be very candid and say that, we are 30% to 35% adjusted EBITDA company in the long-term. When we want to do that, we'll do that.
Today, what we're trying to do is grow that that as we expect to big as we can, so we can share it with our investors in the future. And so, we're investing in professional services like events, they're screaming.
And it's not us, it's like us and our partners screaming for support because there's so many customers are asking for the service right now. Sales and marketing, as you can imagine, sales and marketing, we are trying to keep up with the pipeline and our pipeline keeps on growing and growing and growing, we need to make sure that we have some experience at ease in RVCs that can help them along the way.
And they've done fantastic jobs over the last year. Data centers, we see the pipeline, we see the potential customer growth that we're expecting.
We need to make sure that we have those data centers up and running in advance and so part of that is hitting us as well and that's hitting our gross margins, particularly. Customers support another great example of an area where we need to have people who are boarded and ready to go to go to support this bigger customer base has been growing quite rapidly.
And then the other piece to remember is, as we made a big investment in R&D last year. And we did that because the opportunity is growing, we're continuing to maintain that R&D growth, because we're no longer a company that is thinking that we're going to have 200 customers for the rest of our life.
It's going to be 2,000 customers at some point. And we need to make sure that our platform is able to support that rapid scaling growth.
And I think we're going in the right directions. It's a great position to be in when you say okay, if we do this, this is going to be the result.
And that's exactly what happened in 2021. And in fact, it probably was a little bit better than we were expecting.
Robert Young
Okay. Thanks for all that color.
And my next question just be around RapidStart. I think you said it was one-third.
I think that seems to be to be lower. I might be wrong than that.
But is that a normalization of events? Are you seeing the core larger enterprise sort of go back to a more normal deployment, with more customization and RapidStart driving channel and midmarket or maybe there's talk about that dynamic, if that's okay?
John Sicard
Sure, absolutely. This quarter, we're going to see quarter-to-quarter fluctuations, we've seen quarters where it was half and half.
We've seen some quarters where RapidStart was being picked up by mid-market over enterprise. I'd say, in this past quarter, we were surprised to see enterprise companies, some enterprise companies moving in that direction, as well.
But we are going to see some fluctuations quarter-over-quarter. The key here is for us is just to be able to offer unmatched deployment speed for any size company.
And in that regard, RapidStart has been an absolute success. You think about its relatively new.
And so, we're thrilled to see the adoption and the uptake. And then I also wanted to clarify one thing that in some cases, we are signing long-term agreements, that's obviously building our ARR and RPO.
And it's an enterprise class, kind of a deal structure, where the first phase is still a RapidStart, it just doesn't stop there. So -- and so that to some degree is coloring those numbers a bit.
So, in any case, I would say the RapidStart methodology, it was a great decision. It's actually working exactly as expected.
And frankly, without it, some of the deals that we closed, we wouldn't have been qualified for without having a RapidStart and a rapid value go live in 12 weeks or less, kind of an approach.
Robert Young
Is that dynamic which driving that guaranteed expansion that you talked about?
John Sicard
Well, certainly, our land and expand strategy as always, it's been omnipresent as long as we've known each other Rob, right. So, and it continues to be.
We've had many cases where customers who started with a RapidStart 12-week deployment, they've already expanded. You see them expanding of one quarter later and they're already saying, okay, this is great, let's keep moving, let's expand from here.
And so, the expansion model is definitely baked into the model here. You certainly don't get any future state revenue because of RapidStart.
That's another very important statement to make. The fact that we are deploying this rapid time to value reducing the friction to making decisions getting live inside of 12 weeks by no means does that mean that Kinaxis is forfeiting any future state opportunity.
It's quite the contrary. We're looking at the expansion as soon as we hit that goal.
Robert Young
Okay. Last question, just on the sub-term, a lot bigger than I expected, I've always assumed that to be flat or maybe slightly declining business with expansion, so that was just going on here.
You had the new name in Q4 that you were talking last quarter you were talking about? So, is this sub-term all driven by expansion or is there new wins, is there some other dynamic that's causing the growth this quarter?
And I'll pass the line.
John Sicard
Great question and [indiscernible]. It is technically an expansion.
It's a number of companies coming together that fall under one umbrella. And so we've, that has expanded.
I want to jump into and go a little bit to question which is, we gave guidance of 23% to 25% SaaS growth. If we weren't expecting that, we would have the increase that we got in subscriptions or license revenue.
We thought it might have been more on the SaaS side, which would have provided us with the opportunity to give you maybe a higher guiding fee that we have at this point. So, we're very pleased that we're still getting subscription term license revenue.
It does come from expansion. It's an interesting scenario where we had a lot of great things that happened in Q4 and that expansion was one of the ones that was a nice surprise.
Operator
Our next question comes from Paul Treiber from RBC Capital Markets. Please go ahead.
Paul Treiber
Just a follow-up question about your comment on expansions and you mentioned it on for term license, but just in regards to renewals in the quarter, how has growth expansion been tracking in 2021? Have you seen an expansion versus historical rates?
And then also, do you see an improvement in logo retention and ultimately net dollar expansion this year?
John Sicard
Yes, great question. So we currently provide disclosure or guidance that we're over 100% ARR, but I will give you a little bit of color on that.
It is definitely going up into the right. It's hired amazing, a large part of that is driven because the revenue expansion that we've seen over 2021 is some of the strongest we've ever seen.
Our renewal expansion was extremely strong in 2021. When we think about these logo retention numbers, we've talked about this before, for enterprise type customers, you should expect somewhere in the range of 95% to 100%.
We're writing in the middle of that, despite the fact that we all have mid market and we have even smaller customers in mid-market. So, we are very strong on the logo retention I'll say.
Paul Treiber
A high level question in terms of the overall demand environment, meaning, obviously, your comments were positive about the demand environment. But just, there's a number of other digital transformation initiatives that large enterprises are going through right now.
And also supply chains have been disrupted. Based on the feedback from partners and customers, how do you see supply chain transformation ranking among all the digital transformation initiatives out there?
John Sicard
It's a great question. And I've had probably between 80 and 90 now one-on-one conversations with chief supply chain officers all over the world.
Call them interviews, if you will, as part of our process here. And it is absolutely at the forefront.
I mean, boards are asking their CEOs, what are you going to do next time? And if it isn't a pandemic, it's the inflationary impacts globally to the profit margin, or it's a war, or a stuck boat, a deep freeze in Texas.
There's this appreciation that the only constant in all supply chain is disruption. And if anything boards have realized that supply chains haven't proven to be as resilient as they should be to absorb these types of things.
I will say that and this is a narrative that is really, really well received. This is not a technical problem and many people think has to ask to do with digital transformation.
I would posture that secondary. The primary dialogue that we're hearing, the primary narratives that we're hearing from practitioners, is that what's wrong with current supply chains is the technique, not the technology.
It's not a technological discussion at first, it's one of technique. So I do think this is absolutely at the forefront.
We're being asked now from some customers to do inflationary scenario management. And again, inflation occurs in different geographies at different rates.
And we'll see recovery of rates inflation at different rates and different geographies. And these companies are running daily scenarios, so try to understand what the implications are of that disruption.
So, I think, again, as I said earlier. I have just, maybe in previous quarters you would have heard me say, I'm not quite ready to call this systemic momentum.
Maybe I am now. And again Q4 was the success that we experienced.
And as I just said, earlier, the success that we've experienced in the first eight weeks of 2022, the momentum is the pace is maintaining itself here. So I would say this is at the forefront of enterprise discussions and what boardrooms are talking about.
Blaine Fitzgerald
And maybe I just add, there is an interesting article or an update from the forecast from Gartner in January of this year on applications software. And they made a statement saying that they expected that they're modeling growth rates to increase the most now within supply chain management sector in 2022.
That's just another testament the fact that, we're in this renaissance that we're going through, we're going through this push that is, we're in the process of land grab, get as many customers, because it's at the forefront of everyone's thinking right now. They need to figure out their supply chain.
Paul Treiber
Just a final question for me. And maybe the punch line here is in terms of win rates, and you talked a lot about pipeline, how is the pipeline converting through the funnel compared to your historical, like our customers closing at a faster pace or pace, but probability than what they historically have?
John Sicard
Paul, I know, you can't see my smile here, but you must be like just give me a slow pitch, right now, and if you do pop in that, these are great question. Our pipeline is often growing.
But the other big factor that you have to look at it, what our conversion rates so great that you asked that question, and our conversion rates are going up, up, up. Conversion rates, win rates, we were in a board meeting yesterday, we were looking at win rates and how they've changed over the last four years, and it's like up into the right.
Our conversion rates Q4 was one of the strongest, we went into Q4 going, our pipeline really good but to get the number that we want, we're going to have pretty high conversion rates, and then it converting higher than we were expecting, which is a great sign. So, all that to say is that, you make me very happy with your questions.
Our conversion rates are doing great. Win rates are doing great, pipeline is growing and those are all the things you'd want as a CFO right now.
Operator
Next question comes from Stephanie Price from CIBC. Please go ahead.
Stephanie Price
Just curious on inflation and how much inflation is factored into the margin guide here just in our talent acquisition and retention, specifically?
John Sicard
Sure. We're like every other company around the world.
We're getting hit by some of the inflation issues there happening. We've included increases in salaries and benefits within our guidance.
So that's already baked in. We do see that there is going to be a situation at some point where I think, because we're in an area that a lot of people are seeing more often supply chain, that I think we will benefit on the attrition that some of the other companies may have it and they may be attracted to our area.
We are seeing some attrition issues in our area as well. I think they're lower than what we're seeing throughout the rest of the industries.
But I think we're also in a great position that the more people talk with supply chain and the issues the supply chain have the more time the more chance we will get people attracted to our business.
Stephanie Price
And then just sticking on the margin guide, maybe you could talk a little bit more about the investments that you're making. I understand that it's kind of broad based but where specifically should we kind of think about?
John Sicard
I think like the, there's certain things that we need to do purely because of what we're seeing in current, the current environment and demand. But I would say sales and marketing is the one that you should really focus on.
We have an exceptional sales team, and they're very, very efficient. We do look at our sales efficiency.
We compare ourselves to our peers, we believe we're best-in-class in that sales efficiency metric, and we're looking at where it's going to be with respect to 2022. And we think it will be in a very, very strong position.
So sales and marketing is where I would say that people should focus and if they understand the efficiency metric, which you can actually calculate, we look at the next 12 months ARR growth divided by the last 12 months sales and marketing and then you can see the that you'll see the trend going up into the right over the next year, I believe, based on our ARR projections that we have baked in. So it's a nice place to be.
Operator
Next question comes from Richard Tse from National Bank Financial. Please go ahead.
Unidentified Analyst
This is [Eric] calling in for Richard. I just wanted to ask about the CapEx.
You notice there was a ramp and PP&E. from the looks of it, it seems like it's related to the new office.
Just wondering, if our thinking is correct? And then also have your guidance for 2022.
How much is there any sort of OpEx expense is basically baked into that?
John Sicard
I caught most of that. I think you're asking for Q4 ramping CapEx majority of that does relate to our headquarters that have been basically completed that day.
We got to say that we're 100% on all levels. And it came in, funnily enough, a little bit below our budget, which never happens.
And then for our guidance, just to make sure I understood your question correctly. Were you asking about what our guidance was, did a bake in the CapEx and after that is what you are asking?
Unidentified Analyst
No, I was just talking on the CapEx, like you guys got it for 23 million to 28 million. So is what we were in incremental basically OpEx related CapEx there is all related data center, et cetera?
John Sicard
Yes. Sorry.
It is almost all related to data centers, there are some small amounts that relate to office. We are in the process of moving our building in India.
So, we have a smaller data amount that we will have, but the majority of this has to do with data centers.
Unidentified Analyst
And then, sorry, I heard a bit of it. But I noticed that you said for the subscription term license, there is two thirds would be recognized in the first quarter, both the breakout for the rest of the quarters again?
John Sicard
No a 100% of that amount will be in Q1.
Unidentified Analyst
Okay.
John Sicard
100% of the -- sorry, I shouldn't say that. Two thirds of it will come in Q1 of the total amount that we guided to.
There'll be a very little amount in Q2 and then other amounts in Q3 and Q4.
Unidentified Analyst
And then just one question about whether there's been any change in the competitive environment including pricing?
Blaine Fitzgerald
So, on the competition side, we really haven't seen any meaningful shift, we continue to see SAP as the typical incumbents, especially in larger enterprise. I'd say, as it relates to pricing, I wouldn't say competitive pressures isn't necessarily where we're focused.
But RapidStart and the ability to lower the friction of getting started is where we have focused our attention now. And that has worked in our favor.
So, this certainly helps with mid-market companies that are looking for an extremely aggressive timeline to value. And so not only the pricing and the timing of RapidStart beneficial there, it certainly increases our win rate, I would say that.
Operator
And our next question comes from Christian Sgro from Eight Capital. Please go ahead.
Christian Sgro
I wanted to ask about the current pipeline. Maybe we could ignore geography.
I'm more curious on what you're seeing from the different verticals. Now, which do you think could be the strongest key verticals this year?
John Sicard
Yes, it's interesting as we were just at a board meeting, and describing to the board, that what the pie chart looks like by vertical. And I have to tell you, all six verticals are on the board in very meaningful ways.
We don't necessarily see any out weighting. That said, just looking at general pipeline, we continue to see high tech electronics and life sciences, as predominant drivers of subscription revenue.
But as we just heard during the opening remarks, I think I mentioned five or six consumer packaged goods companies in that list. And I think a prior call that said, we are starting to see that area warm up for us.
And so that has actually manifested, as I said, in previous calls, it's manifested in some significant net new names there. And so that's I would say, high tech electronics CPG life sciences tend to be the warmest.
But as I noted with Mazda in the automotive sector, there has been some wins in the aerospace and defense sector, which were not able to share, but I'd say all the verticals are warming up. In the pipeline itself, I don't see any concentration issues geographically.
I don't see concentration issues, from a vertical perspective. And I feel a little bit like a broken record, because I feel like I say that every quarter.
But it's, I'm saying it, because that's what the charts are telling me. So we're really, really happy with not only the strength and size, but the distribution of the pipeline.
Christian Sgro
My second question here on the partner channel, I wanted to ask about the finding one program with bar partners. So, maybe a two-parter, first, I was curious if mobile can access his level of engagement be with these bar partners, but only think of things like sales and support?
And then the second question is just some of the traction you're seeing what you're hearing from your partners to-date?
John Sicard
So I think I mentioned this earlier that, our thesis around the alliance partnerships remains very, very strong. It's working.
Our partners are as busy as we are. We're doing our best to leverage bench strength, where we can find it, and all of us, the partners and us, obviously, hiring to serve the demands.
Our program is quite new, we announced that in 2022, I'm happy to say that in a very short period of time, we've signed. I want to say it's close to 20, if not 20 bar partners around the world.
We're working right now on getting them ready for success, if you will, and on-boarding them, and the enablement side. And you're absolutely right to call on RapidStart as the foundation.
The planning one, planning one as a product, leveraging rapid service deployment methodology is obviously where we think we can get the most leverage. So stay tuned on that, as I said, it's a relatively new program for us but I would say the number of bars that we've signed today has outpaced our expectations.
And so we're investing right now. This is again, part of the investment thesis, in preparing for success is to make sure that we don't just sign bars and name only.
They have to be successful and they have to be properly on boarded and so we have to make investments.
Operator
[Operator Instructions] And our next questioner will be Paul Steep from Scotiabank. Please go ahead.
Paul Steep
I'll make my quick one, two parts. Just a clarification and a first one.
Blaine, can you just confirm that in terms of how you think about deploying capital and investments that haven't changed? How you're thinking about that in terms of data center, right?
In terms of the build profile, you're still looking one to two year out, when you're doing it if we sort of lead into the growth of that. And then the second follow-up quickly would just be on the terminal license, how should we think about the drop down of that over a three year period?
Should it mirror what we saw the last go aground?
Blaine Fitzgerald
So, the answer to the first question is, yes. The other, we're not saying anything on our capital employment.
But the second question, with respect to how we see subscriptions from license over the next three years. Again, we've seen subscription term license historically before Q4 and what you're seeing in 2022.
Really, like no renewals, a limited expansion. But obviously, we saw some union accounts in Q4 and then some expansion you're going to see in 2022.
So, what I would expect is, you'll see a similar drop off in 2023, compared to what you saw, again, the three years prior to that. And the same thing in 2024, but all of that is dependent on what happens with expansion in our subscription term license revenue area, and I don't expect it to go up to change.
But at this stage, I wasn't expecting to have the increase that we've seen over the past two quarters.
Operator
The next question comes from Nick Agostino from Laurentian Bank Securities. Please go ahead.
Nick Agostino
Yes. I guess, my one question is with regards to the big event, if you're big ideas event you guys hosted last year in October, obviously, well attended.
And my question is, how much of that event itself is contributing to the pipeline growth you guys are talking about on this call? And maybe how much of that event has led to deals that are being baked into the guidance for 2022?
Or is the answer, nothing, but you walk away with prospects that maybe you think are continuing to 2023, 2024?
John Sicard
It's a great question, Nick, and we were actually quite thrilled and surprised at how much these virtual events have driven, from an interest and ultimately, in some cases, real pipeline development. We track exactly who is, these are, I won't say by invitation, but they're by registration.
And so we know with absolute precision who is attending, and that gets mapped to our TAM, we know exactly which accounts are joining in on these virtual events like big ideas. And so that gives us an opportunity to warm up prospects that we know are in our sweet spot.
So, I can't tell you I know with absolute precision, what the percentage of pipeline of individuals that attended big ideas, but it is definitely not zero. That is for sure.
We have other events that we're doing and you'll see more during 2022, we are hosting an in-person connections event, and certainly hope to see our analyst community attending that in early May. And so, that we're going to continue with the, with the virtual programs as well, because, as you saw, we had 1000s of people tuning in to hear our story, and understand what makes us so long.
And so, I think, part of a big idea is absolutely fueling the pipeline, and part of it is coming from the likes of a Gartner and a recognition that concurrency is truly a breakthrough techniques.
Operator
Our next question comes from Suthan Sukumar from Stifel. Please go ahead.
Suthan Sukumar
I had a question higher on market opportunity. It really sounds like you guys are seeing some really strong broad-based demand globally I believe in the market today.
Do you see an opportunity for more geographic expansion to increase your presence in a market that may not be served today? Or do you already see yourselves well positioned with your current footprint than your partner reach?
John Sicard
I love this question because I mean the answer is an unequivocal yes. Just like whether it's geography or other verticals, and as a call started with Thanos pointing out, oil and gas, where you might not have thought of can access being a viable fit.
And I always say the same thing, are we going to break into this vertical or that vertical or cut and sew or forestry. Yes, it's a matter of time.
And so, the same is true for geometries. Now, that said, part of our thesis and I think part of what makes Kinaxis able to grow while simultaneously providing responsible profits, and cash flow is that where hyperfocus.
We're raised you're focused on the verticals and the TAM that we see before us. And I'm just not a believer in bifurcating our energy across too many geographies and too many verticals simultaneously and failing in all of them.
So the answer is, yes, we think about that a lot about geographies and verticals. We think more so on verticals in the geographies where we're already strong.
Frankly, I'm going to be frank about that, but you will see continued expansion, as we progress as a company. Part of that is, the investments we're making in R&D.
We will see us enter the retail sector, for example, in earnest during 2022 based on the investments that we're making. We already have retail customers and we have retail partners.
And at some point in the future, I hope to be able to describe exactly who they are. But again, these take investment, and you'll see us continue to do that for many years to come.
Operator
The next question comes from Martin Toner from ATB Capital Markets. Please go ahead.
Martin Toner
You've talked about the acute reasons for professional service. Are growths being higher than subscription and higher overall percentage than in the recent past?
Is there anything structural about that?
Blaine Fitzgerald
I don't see anything other than just fewer accelerated demand, when you have a certain collective bench strength between your partner alliance group and can access and obviously our own bench, and a combined market demand that's driving the need for service in an accelerated pace. That's where this is coming from.
We have customers asking us for sustainment services at a record pace. Again, a lot of this is a reaction, manufacturers are reacting to the volatility they're experiencing in the market, and that is driving a need to accelerate the value of concurrency.
And so, when you look at the demand -- the capacity required to fulfill that demand, well, the truth of the matter is we're seeing a demand is outpacing the collective capacity at a rate that we, well, it's a great problem, but it's problem. It's not just ours.
It's our alliance partners are tapping and they're hiring as fast as they can. And again, this is a reason for our investment thesis for 2022.
We are not going to be timid in the face of this momentum and nor will our partners, we're going to seize the day. And so, it's a great problem to have, but it's a problem.
And so, we're working on it every single day.
Operator
This concludes our question-and-answer session. I would like to turn the conference back over to Rick Wadsworth for any closing remarks.
Rick Wadsworth
Thanks, operator, and thank you all for participating on our call today. We appreciate your questions and your ongoing interest in support of Kinaxis.
We look forward to speaking with you again when we report our first quarter results. Good bye for now.
Operator
Conference has now concluded. Thank you for attending today's presentation.
You may now disconnect.