Ottawa’s Kinaxis cracked the $150-million mark in annual revenues for the first time in its history in fiscal 2018, but its bottom line took a hit as the company continued to ramp up its operations in Europe and Asia and invest in new products.
Kinaxis (TSX:KXS), which makes software that helps clients manage their supply chains, reported revenues of $150.7 million for the year ended Dec. 31, up from $133 million a year earlier. However, the 2017 figures were based on previous accounting standards that were modified in 2018; under the old standards, Kinaxis said its revenues in the last fiscal year would have been $155 million (all figures in USD).
The company’s money-making streak continued in 2018, with Kinaxis posting a net profit of $14.4 million – or $15.8 million under the old accounting standards. But that was a marked decline from the profit of $20.4 million Kinaxis booked in 2017, a drop the company blamed on increased investments in sales and marketing in its target markets of Europe and Asia as well as a boost in R&D spending.
Although the $150-million revenue figure fell within the company’s guidance – a target the firm lowered back in November – CEO John Sicard conceded Kinaxis “didn’t fully meet” its objectives for the year.
While the firm’s subscription software revenues jumped 21 per cent to about $118 million, Sicard said revenues from the company’s professional services division, which implements Kinaxis software and trains its users, were lower than expected at $32 million.
Much of Kinaxis’s revenue growth in 2018 was fuelled by its expanded presence in Europe, where the firm landed key customers including Unilever, Dyson and Novartis. Kinaxis generated about 22 per cent of its sales from European customers last year, up from 13 per cent in 2017, and European and Asian clients now account for 30 per cent of the firm’s overall revenues. The company said it will keep pushing to grow its market share on both continents in 2019.
“We’re thrilled with the pickup in Europe,” Sicard told analysts during a conference call to discuss the firm’s year-end earnings on Friday morning. “When we see opportunities to grow, we’re going to invest.”
While customers in the life sciences and technology verticals continue to form the bulk of the firm’s client base – each accounting for about 30 per cent of total revenues – Sicard said the consumer packaged goods and automotive sectors are gaining momentum thanks to “marquee” contract wins such as the one with Unilever.
“It’s absolutely a catalyst,” he said of the deal Kinaxis inked with London-based consumer goods conglomerate last year. “It’s a statement in confidence that we are able to drive value in those verticals.”
The CEO also said the company’s new partnership with EY will bolster its network of reselling partners who help it land new customers, adding its pipeline of potential clients “continues to grow.”
Kinaxis set its revenue guidance for fiscal 2019 at between $183 million and $188 million.
In response to an analyst’s question about potential M&A activity, Sicard said he expects the vast majority of the firm’s growth over the next year to be organic. At the same time, he wouldn’t rule out the possibility of Kinaxis pulling the trigger on a deal if it could help the company branch out into a new market vertical.
However, he quickly added that any potential M&A targets would have to be “SaaS-able” – that is, they would need to fit the firm’s subscription software model.
“Non-SaaS-type products are poisonous for us,” Sicard said. “We’re hyper-cautious about things like that and focused on organic growth. But if something were to manifest itself that passes those gates, we’d certainly look at it.”
Shares of Kinaxis closed Friday down 7.75 per cent, or $6.41, to C$76.32 on the Toronto Stock Exchange.