Kinaxis Inc.
(KXS-T) C$218.26
Q3/20 Results: Don't Get Hung Up on the Renewals
Event
Kinaxis reported Q3/20 results and held its conference call.
Impact: POSITIVE
Don't get hung up on the renewals. The stock is down more than 2% on what we viewed to be a strong quarter. We believe investors may be concerned about a few customers not able to renew contracts amidst the pandemic. We believe this affects a very small proportion of Kinaxis' customers and should be expected during the pandemic. We believe that this is not material and is not a structural change in the market. We are more encouraged by the strong bookings and that the pipeline continues to grow.
Strong bookings suggest that deals are starting to get closed. Last quarter, SaaS book/bill came in at only 0.77. This was not all too surprising considering the June-quarter included the peak impact of the pandemic. We believe the 1.82 SaaS book/bill achieved in Q3 supports management's commentary that the pipeline continues to build and supports our view that there continues to be demand in supply chain modernization solutions, especially in the current environment. While sales cycles are likely to remain extended, the strong book/bill implies that deals are still getting closed in the current environment.
We continue to model EBITDA margin above the high end of guidance. If we assume that subscription term license revenue has EBITDA margin of 100%, that implies the non-term license EBITDA margin in Q3/20 was 17.7%, down from 24.9% q/q and 20.1% y/y. The lower margin is likely due to a full quarter's contribution from Rubikloud and from additional growth expenses. If we assume $1.9mm of subscription term license in Q4/20 (the amount to be recognized from the backlog) has 100% EBITDA margin and assume non-term license margin declines q/q to 14.0%, given higher costs from the users' conference and additional growth investments, our 2020 EBITDA margin still comes in at 25%, above the guidance range of 22%-24%.
TD Investment Conclusion
Maintaining C$255 target price. A beat, raise, and strong bookings leave us confident in Kinaxis' growth opportunities. We continue to believe that Kinaxis will be a strong beneficiary of the current environment and remain buyers of the name.