Kinaxis shares rise as software firm boosts EBITDA guidance after strong Q3 report

Kinaxis headquarters

Kinaxis stock got a bump Thursday after the company reported strong third-quarter earnings and said its sales pipeline continues to grow despite stiffening economic headwinds that have caused some customers to delay signing contracts.

The Kanata-based software firm, which keeps its books in U.S. dollars, generated revenue of $108.1 million in the quarter ended Sept. 30, up 21 per cent from $89.5 million in the same period a year ago.

Kinaxis, which helps manufacturers and retailers track inventories and shipments in real time while forecasting demand for future inventory, posted a net profit of $7.4 million, compared with a net loss of $1.7 million a year ago. That amounts to a profit of 25 cents per diluted share in the third quarter, as opposed to a loss of six cents per share in the same period a year ago.

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Markets reacted favourably to the report. Kinaxis’s share price jumped more than seven per cent to $144.49 in late-afternoon trading on the Toronto Stock Exchange.

Kinaxis reiterated its revenue forecast of between $425 million and $435 million for fiscal 2023. It also upped its projected adjusted EBITDA margin to the range of 16 and 18 per cent from its previous forecast of 14 to 16 per cent, thanks to what management called a more disciplined approach to spending and other factors such as a shift to deploying software in the public cloud that lowered amortization costs at its private data centres.

That means Kinaxis expects its full-year earnings before interest, taxes, depreciation and amortization to be higher as a percentage of its revenue than it originally predicted. While adjusted EBITDA is not an officially recognized IFRS accounting measure, many tech firms use it to demonstrate profitability.

CEO John Sicard conceded the company’s recurring revenue growth has slowed over the past few quarters as factors such as persistent inflation and rising interest rates have made it tougher to close deals. 

As an example, he cited one “rather large” contract to expand services with an existing customer that was expected to be finalized last quarter but has yet to be completed.

At the same time, he said Kinaxis continues to score big wins, such as adding global auto manufacturing giant Volvo to its customer count in the third quarter. Sicard suggested that more big announcements are coming in the closing months of 2023.

“We know what the pipeline is ahead of us, and that’s what’s giving us that level of confidence,” he told analysts during a conference call Thursday morning. “We have pens in hand; we have some rather exciting accounts that we’re working, and that’s what’s fuelling our confidence.”

The CEO said Kinaxis has not lost any of the momentum it gained earlier in the pandemic, when demand for its software soared amid mounting supply chain disruptions. Sicard told analysts the company has signed more new clients in the past three years than it did in the previous 25 years before COVID-19.

“It has become obvious to most that legacy techniques are no longer fit for use in supporting the demands of a modern supply chain practice,” he said. “CEOs and boards can’t unsee what they’ve been exposed to.”  

While the bulk of its revenues still come from Fortune 500-level companies such as Ford, General Motors, Toyota and consumer packaged goods giant Unilever, Kinaxis is now spending more time and energy targeting smaller businesses it hopes will grow into big ones. 

Sicard noted that more than half of the firm’s new contracts this year are with mid-market as opposed to enterprise customers.

“Serving this much broader market increases both our growth opportunities and business resilience,” Sicard said.

The company is also introducing new applications in a bid to further diversify its revenues. 

They include a platform that helps companies manage global production schedules, a solution that factors greenhouse gas emission requirements into supply chain decisions, and artificial intelligence tools that predict future demand for products. 

Sicard said Kinaxis’s AI offerings will be “instrumental” in expanding its share of the quick-service restaurant market, an area the company believes is poised for significant growth. 

“There’s some pretty exciting stuff in the pipeline,” he said. “If there’s opportunity, we’re certainly not going to waste it.”

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