Kinaxis Inc T.KXS

TD

[retiredcf]

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.

[Welland]

I sold my KXS stocks on Friday. If KXS was selling at a lower p/e ratio, I wouldn't care about lost renewals. But since KXS is priced on perfection, lost renewals matters.

[retiredcf]

Perhaps it's the cynic in me but I find it interesting that you inform us that you've sold your holdings in what looks to be your first ever post on KXS. As you've never commented on the company before, why do you feel that we need to know that you've now sold? GLTA

[Welland]

I did many post on other companies. I purchased KXS about a week ago. After reading the TD and National Bank comments on KXS, I became very nervous to hold this stock since it is priced for perfection. GLTA

[Hiphopapotamus]

NB still has a target price of $250 and I belive TD is around $255. Dont get worried about a company that is growing client base, expanding relationships with existing client base, and is a leader in a growth space. No company has a 100% retention rate. EPS up 42% from last quarter, Sales up 3% ... I am buying more KXS ..  

[ace1mccoy]

Couldn't agree with you more. A choppy ER gives way to either a good entry point or accumulating more in a growth core holding .

[VicesVertus2222]

Hello retiredcf, I noticed your posts here. I followed you on others boards and appreciated your inputs. Thinking of jumping in on this stock. Goodtiming now?

[retiredcf]

Hi Vices - I may not be the best guy to ask about timing because I recently added more KXS before the tech sector went into a bit of a freefall as investors began to rotate from growth to value. That said, (and this shouldn't be a surprise given my recent stockchase post) yesterday, 5iResearch was asked to provide a list of 10 companies that are well positioned going forward and KXS again made

[VicesVertus2222]

Tks for your input. Actually doing my DD. I'll keep you informed if I decided to jump in or not. Good luck to you.