Kinaxis Inc.
(KXS-T) C$176.80
Q1/23 Results: Market Still Active Despite Macro Uncertainty
Event
Q1/23 results. See our previous note for a review of the results.
Impact: NEUTRAL
Focused on capturing the opportunity ahead. The conference call was positive with management remaining optimistic about the demand conditions across all customer segments, verticals, and geographies, reaffirming confidence in delivering on both its raised 2023 guidance and mid-term targets of 30% SaaS revenue growth and 25% EBITDA margin. The slow start to RPO growth was largely expected, given seasonality and the timing of deals, but should improve in Q2/23 and through the remainder of the year. With ~$273mm in net cash, management may look to deploy capital through M&A, focused on acquiring technologies rather than buying market share.
Active sales pipeline despite macro uncertainty. Management remained very upbeat about the market as demand for supply chain modernization tools remains robust. While there has been some added level of caution in customer behaviour leading to sales cycle lengthening, this is largely driven by additional rigour placed at the board level, with final-stage approvals delayed due to the timing of scheduled meetings which should be temporary. Overall, the sales cycle remains well below the pre-pandemic range of ~18 months, with deals moving into future quarters rather than evaporating altogether. This is reflected in the company continuing to ramp up its Professional Services (PS) and S&M teams.
Changes to our model. We flow the higher expense levels from Q1 throughout our forecast period. We expect the company to continue investing in growing its platform, but at a slower pace, resulting in margin improvement throughout the year, particularly in PS gross margin which has already begun to show signs of improvement. We have also increased our STL revenue estimate given a major new customer win that has opted to have the on-prem option in their contract, despite cloud-based deployment, which is expected to be recognized in Q3/23. This STL revenue flows directly to EBITDA and also helps drive our higher maintenance estimates. Our 2024 estimates remain relatively unchanged.
TD Investment Conclusion
Maintaining BUY rating and C$210.00 target price. We continue to believe that Kinaxis will perform well despite the uncertain macro environment.