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Kinaxis shares fall as company predicts lower revenue growth for 2024

February 29, 2024

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Kinaxis shares fell Thursday as the maker of supply chain management software said its revenues are expected to grow at a slower pace in 2024. The Kanata-based company, which keeps its books in U.S. dollars, said its revenues for the fiscal year ending Dec. 31, 2023 were up 16 per cent from the previous year to $427 million. Fourth-quarter revenues rose to $112 million from $98.5 million in 2022. Kinaxis said it expects sales for the current fiscal year to be in the range of $483 million to $495 million, which would represent an increase of between 13 per cent and 15.9 per cent. The company’s shares dropped nearly nine per cent by the close of trading on Thursday. Kinaxis makes software that helps manufacturers and retailers track inventories and shipments in real time while forecasting demand for future inventory. Its sales skyrocketed from $250 million in 2021 to $366 million the following year as pandemic-fuelled supply chain disruptions triggered a flood of interest in the 40-year-old company’s products. However, that growth has slowed over the past 18 months. While Kinaxis has started pouring more sales and marketing resources into attracting mid-market customers, global manufacturing and consumer products giants such as Ford and Unilever still account for a major chunk of its revenues. Kinaxis executives conceded Thursday it’s taking longer to get big-name multinationals to sign on the dotted line than it did a couple of years ago, when supply-chain woes were keeping CEOs around the world up at night. “They're still in our pipeline,” chief financial officer Blaine Fitzgerald said of enterprise customers. “It’s just they’ve been sitting in our pipeline longer than we had seen in 2022.” Kinaxis CEO John Sicard noted that many large customers are taking “bite-sized chunks” of the company’s software and delaying further purchases as they look to conserve cash amid lingering economic uncertainty. “Certainly, there’s competition for dollars in large enterprises,” he told analysts Thursday morning. “That’s one of the challenges we’re seeing.” Still, Sicard said the company’s sales metrics leave a lot to be bullish about.

Winning fight for new customers

Kinaxis is winning more than 60 per cent of head-to-head battles for new business with its three largest competitors, he told analysts, adding its customer retention rate of more than 95 per cent is among the best in the industry. In addition, Kinaxis has recently begun to regain clients it had lost to competitors, Sicard said, a development he expects will help the company maintain the sales momentum it’s generated from back-to-back years of record-breaking new customer wins. “We’re feeling pretty good about the health of the pipeline,” he said. “It’s healthy in all geographies and all verticals.” Sicard also said the company plans to keep investing heavily in artificial intelligence-powered software in an effort to make its solutions even better at forecasting customers’ supply chain needs. “The market for supply chain management is in excellent shape, and I believe its renaissance will continue for many years to come,” Sicard said. “Our (total addressable market) is growing, and we are working hard to serve every last opportunity that presents itself.” Kinaxis posted a net profit of $10.1 million, or 36 cents per share, in fiscal 2023. That compares with a profit of $20.1 million, or 73 cents a share, a year earlier. The company reported net income of $4 million, or 14 cents a share, in the quarter ending Dec. 31, down more than 50 per cent from the previous year. Kinaxis attributed the lower profits partly to a dip in higher-margin subscription term licence revenues for on-premise software products, which fell 50 per cent year-over-year in 2023. Kinaxis said licence revenues ebbed as part of a recurring multi-year cycle that saw fewer on-premise software deals get renewed in 2023. The company said it expects 2024 to be the “low point” of the subscription term licence revenue cycle. Kinaxis shares finished the day down $13.70 to $140.68 on the Toronto Stock Exchange.