Kinaxis Inc T.KXS

RBC

[retiredcf]

Their upside scenario target is $230.00. GLTA

May 4, 2023

Outperform

TSX: KXS; CAD 177.55

Price Target CAD 210.00

Kinaxis Inc.

Guidance conservatism provides a buffer against procurement delays

Our view: Q1 was mixed, as SaaS slightly exceeded expectations, but EBITDA fell short and ARR/RPO growth decelerated. The ARR/RPO growth slowdown appears to reflect quarterly variability and “increased rigor” in buying decisions. Management reiterated that its pipeline remains strong. Moreover, the increase in FY23 guidance shows Kinaxis’ conservatism, which provides a buffer against potential near-term headwinds. Maintain Outperform, as Kinaxis remains a compelling long-term growth story.

Key points:

• Mixed Q1: SaaS beat, EBITDA miss. Q1 revenue was $101MM, in line with RBC/consensus at $101MM. SaaS revenue rose 28% Y/Y to $63MM, above RBC/consensus at $62MM. Due to higher opex, adj. EBITDA was $17MM, below RBC/consensus at $22MM/$18MM. As a result, adj. EPS of $0.40 fell short of RBC at $0.46 (consensus at $0.37).

• Quarterly variability and slipped deals weigh on several KPIs. Even though Q1 SaaS revenue was above expectations, constant currency (CC) growth slowed to est. 29% (28% reported) from 32% Q4. ARR growth decelerated to 24% CC from 26% Q4 and SaaS backlog (RPO) was down 4% sequentially, and up only 19% Y/Y, down from 30% Q4. The slowdown in ARR and RPO growth stems from quarterly variability and “increased rigor” in procurement, as several deals moved into future quarters.

• Conservatism allows for FY23 guidance raise. Despite slower RPO growth Q1, Kinaxis raised FY23 guidance. The company now sees $425-435MM total revenue (17% Y/Y mid-point), up from $420-430MM (16% Y/Y mid-point) previously. Term License is expected at $16-18MM, up from $12-14MM prior, while SaaS guidance was unchanged (at 25-27%). Adj. EBITDA is now expected at $65MM mid-point, up from $60MM previously. The increase in Kinaxis’ FY23 guidance shows the company’s conservatism; high SaaS RPO coverage (91% Q1 vs. 91% 3-year average) provides good near-term visibility, despite the environment.

• Record pipeline, robust win rates improve visibility. Management on the conference call was upbeat and indicated that its pipeline was at record levels, win rates remain robust and it has high visibility to its FY23 guidance. Moreover, Kinaxis reiterated its medium-term growth and margin targets. At this point, we expect ARR and RPO growth to strengthen through FY23. We are slightly increasing our FY23 financial estimates to align with updated guidance.

• Maintain Outperform. We believe Kinaxis represents a compelling long- term growth story. While the company is not immune to the macro environment, Kinaxis is continuing to benefit from strong demand. Growth drivers include: the ongoing prioritization of supply chain transformation initiatives, improved scalability as a result of the shift to the public cloud, and TAM expansion from new verticals and the mid- market. Kinaxis is trading at 8x FTM EV/S, in line with peers (at 8x) and towards the mid-point of its 5-year historical range.