Kinaxis Inc KXSCF

RBC

[retiredcf]

Their upside scenario target is $240. GLTA

May 5, 2021

Kinaxis Inc.
A good enough start to FY21

Our view: While Q1 revenue was just in line and FY21 guidance was unchanged, Q1 SaaS bookings rose 40% Y/Y and “incremental” subscription bookings and new customer wins were records for Kinaxis’ first quarter. We believe that Q1 is likely to further sustain the recovery in investor sentiment on Kinaxis’ shares, with Kinaxis’ TAM expanding and bookings expected to strengthen over 2021. Maintain Outperform.

Key points:

• Q1 revenue in line with consensus. Q1 revenue increased 9% Y/Y to $58MM, essentially in line with RBC and consensus at $58MM and $57MM, respectively. Term license revenue of $2.1MM (vs. RBC at $1.1MM) offset lower than anticipated SaaS revenue ($40.6MM vs. RBC at $41.5MM). On contribution from higher term licenses, adj. EBITDA was $9.0MM, above RBC at $7.9MM and consensus for $6.6MM. Adj. EPS was $0.14, above consensus for $0.11 (RBC at $0.16).

• SaaS bookings up 40% Y/Y. Q1 SaaS bookings increased 40% Y/Y to $48MM, though down from $58MM Q4 on typical seasonality. SaaS backlog increased 2% Q/Q to $360MM, with Y/Y growth improving marginally from 14% Q4 to 16% Q1. Q1 represents “record first quarter incremental subscription bookings” and is the 3rd highest quarter over the last 9 for incremental bookings, as the environment for new bookings continues to improve.

• TAM expansion. Based on unsolicited customer interest and the maturity of its software platform (e.g., deployments in as little as 12 weeks), Kinaxis is now deliberately targeting the mid-market (as opposed to only large enterprise). Additionally, Kinaxis has added distribution as a new target vertical, which reflects proven customer deployments and emerging pipeline. Moreover, Kinaxis sees 2021 as the year for greater traction in the retail vertical, following the acquisition of Rubikloud last year.

• Further recovery in sentiment expected through 2021. Since reporting Q4 results, Kinaxis’ shares have increased 8% (vs. S&P/TSX Composite +7%). Kinaxis is now trading at 11.4x EV/S, slightly below peers at 12.4x (vs. historical 1.8x premium to peers). We believe investor sentiment on Kinaxis is likely to further recover through 2021, given: 1) bookings momentum is likely to continue as Kinaxis’ pipeline remains strong (+40% Y/Y) and the deal close environment is normalizing; 2) improving investor visibility to SaaS growth accelerating from 17-20% in FY21E to 23-25% in FY22E; and 3) traction in new verticals/markets/geographies.

• Maintain Outperform and C$190.00 target. Our C$190.00 price target remains based on 12x CY22E EV/S (unchanged). Our target multiple is justified slightly below peers (12.4x) given Kinaxis’ slower near-term growth.