Ottawa’s Kinaxis continues steady growth with international, automotive wins

John Sicard

Kinaxis (TSX:KXS) shares sank Thursday morning despite CEO John Sicard championing the “predictability” of the Ottawa firm’s growth.

The supply chain management software developer threw a wrench into its own numbers with new accounting standards that dominated most of the conversation on the firm’s quarterly earnings call on Thursday, as analysts attempted to parse what the new figures mean for the SaaS firm.

(You can read a full description of these changes at the bottom of the article, or by clicking here.)

Revenues for the quarter ending March 31 were $36.8 million, with $30.5 million coming from subscriptions. (All figures in USD.)

Under the old standards, revenues were $35.9 million, an increase of 10 per cent year-over-year. Subscription-based revenue was $29.5 million, growing at a rate of 24 per cent.

The new standards put net profits at $5.0 million for the quarter. The old standards would put profits at $3.4 million, about the same as last year’s figures.

Sicard remained confident in Kinaxis’s “strong execution” in its latest quarter, saying everything was going according to plan.

“With all the accounting changes this quarter, it would be easy to miss the fact that our underlying business hasn’t changed one bit,” he told listeners on the firm’s earnings call, adding that the company’s SaaS model entails high-growth “predictability.”

Sicard highlighted recent high-profile customer wins such as Toyota and Nissan as evidence of the firm’s growth in the automotive sector. He said another “marquee name” – a large European automaker – had recently signed with the firm, adding he hopes to be able to identify the customer soon.

Sicard also expressed excitement about Kinaxis’s international prospects. The firm’s recent hiring spree in Europe has bolstered its sales team in the region, and two new data centres in Japan are slated to come online in the third quarter, which will help Kinaxis serve some of the large aforementioned customers in the region. The company also announced earlier this week that it had signed the world’s largest tofu manufacturer, a South Korean fresh food company, to a deal.

Investors seemed less bullish on the firm. Shares of Kinaxis dropped roughly three per cent on the Toronto Stock Exchange when markets opened on Thursday, trading at around C$80 at the time of writing.

Accounting changes

The new standards, called IFRS 15, help Kinaxis to reconcile revenue from its on-premise subscription services, which are delivered on a fixed-term basis. Previously Kinaxis deferred counting this revenue over the course of agreements, as is done with the firm’s cloud-based customers. Now, the software component of that revenue is accounted for upfront, with maintenance and support earnings recognized over the course of the term. Customer acquisition costs are also spread over the life of the agreement.

A second set of standards, IFRS 16, requires the firm to list leases as liabilities with other nominal effects on expenses throughout the books.

The accounting change means that Kinaxis can’t offer year-over-year revenue comparisons between the two different standards, so it will continue to provide earnings results under the old system as reference.