Kinaxis boss bullish on future after Ottawa software firm earns record Q1 customer wins

John Sicard

Events such as the Suez Canal blockage that snarled container ship traffic earlier this spring as well as “ongoing major disruptions” due to the pandemic are fuelling growing demand for Kinaxis’s supply-chain management software, the Ottawa-based tech company said Wednesday.

“All of these things are unplanned events, and all of these things require hyperagility to absorb,” CEO John Sicard told analysts Wednesday morning. “You can’t plan your way around it.”

Sicard said a record number of potential customers were “ringing our doorbell and asking to come into the store” during the first three months of 2021 – a quarter that saw the company’s revenues jump nine per cent year-over-year to US$57.7 million. 

Company executives said the flood of interest during what’s traditionally the slow quarter of the year bodes well for Kinaxis, which helps some of the world’s largest companies ​– including automakers Ford and Nissan as well as consumer products giant Unilever ​– ensure they have the right amount of supplies on hand to manufacture their goods by tracking demand and inventory in real time.

“We’re thrilled to see that,” Sicard said. “I am confident that Kinaxis has never been in a better position to serve our markets.”

As a result, monthly subscription revenues, which constitute a growing share of the company’s income, rose 19 per cent to $40.6 million. Kinaxis’s professional services division, which implements software and trains users, saw its revenues jump 13 per cent to $12 million.

$1.5M net loss

Kinaxis (TSX:KXS) said it remains on track to hit previously projected revenues of between $242 million and $247 million in 2021, roughly a 10 per cent gain over the previous year. 

Still, the company lost money for the second consecutive quarter. Kinaxis ended up US$1.5 million in the red, a loss of six cents per share, compared with a net profit of US$5.6 million, or 20 cents per share, in the same period in 2020. 

The firm attributed the loss to increased salary and other staffing costs as well as growing third-party service provider costs, higher depreciation costs related to its data centre expansion efforts and amortization costs related to its acquisition of Toronto-based retail supply-chain software firm Rubikloud a year ago. 

The market had a tepid response to Wednesday’s earnings report – Kinaxis shares ended the day down $8.03, or more than five per cent, at $146.60 on the Toronto Stock Exchange. 

But Sicard sounded upbeat during the investor call, noting Kinaxis signed a record number of new clients in the first quarter – including U.S. pharmaceutical company Alvogen, global medical device manufacturer Mölnlycke Health Care and Brooklyn-based L&R Distributors, a leader in a vertical that Kinaxis is just beginning to tap.

In addition, the CEO said the company is beginning to see dividends from the Rubikloud deal. Kinaxis is still working at integrating Rubikloud’s platform into its flagship RapidResponse software, Sicard noted, adding the firm will be poised to make a bigger splash in the retail vertical by 2022.

“I’d say we’re in the first quarter of the game,” he said. “We have our eye on the prize, and that’s entering the retail space. This calendar year is all about preparing to do that.”

While saying no other M&A deals are “imminent,” Sicard suggested the purchase has whetted the company’s appetite for further expansion via acquisitions.

“We’ve increased our muscle, I would say, in evaluating potential (deals),” he said.

Sicard also touted growing demand for the company’s RapidStart solution, a templated version of RapidResponse that’s quicker to implement. 

Mid-market gains

He said the number of customers signing on to RapidStart in the first quarter doubled compared with a year earlier, helping the firm make greater inroads with mid-market companies that use the platform to get acquainted with Kinaxis’s offerings before upgrading to more powerful solutions.

“I think we’re going to continue to see more success in the mid-market,” Sicard said.

“People are looking for a breakthrough. I think the mid-market is looking at how the greatest supply chains in the world have governed themselves and they’re just saying, ‘I’ll have what they’re having.’”

The CEO also weighed in on Panasonic’s pending US$7.1-billion acquisition of rival U.S. software maker Blue Yonder, a deal that’s expected to close in the second half of 2021. Kinaxis and Blue Yonder are currently embroiled in a patent dispute that’s now before a U.S. court.

“To the extent that a competitor is being disrupted and focusing on other things, well, that’s a good thing for us,” Sicard said after being asked how the acquisition might affect the marketplace.

“We continue to be successful in winning business in this arena, so that’s the way we look at it. We look forward to competing in good faith as the year progresses.”

The last word on Wednesday’s call went to longtime Kinaxis executive Richard Monkman, who is stepping down as chief financial officer in August after 15 years with the company.

“It’s been an absolute privilege to be part of the Kinaxis team and to share our story,” he said.