Kinaxis shed more than $700 million in market value on Thursday after the Ottawa-based supply-chain software maker reported lower fourth-quarter earnings than a year earlier and posted a net loss.
Kinaxis, which keeps its books in U.S. dollars, booked revenues of $54.6 million for the three-month period ending Dec. 31, down slightly from $56.3 million a year earlier. The firm’s bottom line also took a hit as Kinaxis lost $1.6 million in the quarter after turning a net profit of $7.8 million in the same period in 2019.
Kinaxis (TSX:KXS) attributed much of the “lumpy” fourth quarter to an 84 per cent drop in revenue from subscription term licences, which plummeted from $12.1 million in 2019 to $1.9 million in the fourth quarter of 2020. Monthly software-as-a-service subscription revenues, on the other hand, jumped 24 per cent year-over-year to $39.8 million.
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Company executives explained the drop in term licensing revenues by noting they typically run in three-year cycles, and the fourth quarter represented a low point that’s part of the “normal renewal cycle” of software subscriptions with long-term customers.
Chief financial officer Richard Monkman said that as monthly subscription revenues continue to generate an increasing share of the firm’s income, the firm will become less reliant on term licensing fees.
Market cap drops to $3.67B
“As the weighting of SaaS revenue continues to grow, that is probably the biggest driver for gross profit,” said Monkman, who also announced he will retire in August after 15 years in the job.
Still, Kinaxis’s stock price plunged almost 17 per cent Thursday to $135.49 on the Toronto Stock Exchange, with nearly 1.5 million shares changing hands by late afternoon – triple the firm’s previous daily high in trading volume over the past year.
The company’s market capitalization fell from about $4.4 billion on Wednesday to $3.67 billion at the close of trading Thursday.
The fourth-quarter figures put a damper on what was overall a year of unprecedented growth 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.
The company brought in revenues of $224 million last year, up 17 per cent from 2019 and slightly above the firm’s previously stated guidance of between $220 million and $223 million. SaaS revenues rose 25 per cent to nearly $150 million, while the company’s professional services division, which implements Kinaxis software and trains its users, saw its revenues jump 37 per cent to nearly $46 million.
Kinaxis posted a net profit of $13.7 million, or 49 cents a share, in fiscal 2020, down from $23.3 million, or 87 cents a share, a year earlier. The company attributed the drop to increased spending on product development as well as sales and marketing and costs related to its $60-million acquisition of Toronto-based Rubikloud last year and new infrastructure investments, including an expanded data-centre network.
CEO John Sicard has said repeatedly throughout the pandemic he believes his company’s products are more valuable than ever as companies respond to ebbs and flows in demand for consumer goods.
On Thursday, Sicard reiterated that message to analysts, noting new bookings are picking up.
Kinaxis is projecting revenues of between $242 million and $247 million in 2021, roughly a 10 per cent gain over the previous year, as the company’s pipeline of new business has rebounded after a hitting a “trough” in the second quarter of 2020.
“In the middle of (last) year, many organizations were taking a pause and trying to figure out how to absorb the condition they found themselves in,” Sicard said. “That caused a delay in terms of deal flow. If I look at Q4, I might believe that those delays are behind us and we’re seeing some momentum now.”
Eyeing more M&A activity
He said more and more potential customers are “exploring their options” for better ways of managing their supply chains after experiencing severe disruptions during the pandemic.
“Every board is asking their CEOs, ‘What will you do next time?’” Sicard said. “I think that is fuelling the pipeline for us.”
After growing mostly organically throughout its 37-year history, Kinaxis acquired two companies in 2020 – Rubikloud and India-based consultancy Prana Consulting.
In response to an analyst’s question, Sicard said the firm will continue to hunt for M&A opportunities in the year ahead.
“We are being a lot more thoughtful about accelerating customer value through acquisitions,” he said. “We’re going to continue to be thoughtful through 2021 and beyond.”