Kinaxis Inc.
(KXS-T) C$183.77
Q1/23 Preview: Expecting Solid SaaS Growth
Event
Q1/23 Results: Wednesday, May 3, 2023, after the markets close. Conference Call: Thursday, May 4, 8:30 a.m. ET. Registration link.Impact: NEUTRAL
We expect total revenue of $101.1mm, up 3.0% y/y. We forecast SaaS revenue of $61.9mm, up 25.4% y/y; Maintenance & Support revenue of $4.4mm, up 14.0% y/y; Professional Services revenue of $28.3mm, up 32.0% y/y; and Subscription Term Licenses of $6.5mm, down 72.3% y/y following last year's peak renewal cycle. Consequently, we estimate $20.3mm of EBITDA, or 20.0% EBITDA margin.
Starting the year with a healthy backlog. Last quarter, Kinaxis reported a total backlog of $598mm, up 24% y/y. SaaS backlog grew 30% y/y to $550mm. We are optimistic that demand will continue as companies invest in projects with proven ROI, such as supply chain modernization. We believe that the backlog and historical growth support the potential for SaaS to crack the elusive 30% growth rate in 2023.
Supply chain transformation remains a priority with a long runway for growth.
In our recently published AI Thematic, we highlight a McKinsey survey which identified an average of only ~9% of respondents across all industries have adopted AI for supply chain management, yet 52% of those adopters saw cost decreases, above the average of 32% across other functions. Given low industry adoption rates, material cost reduction opportunities, and revenue enhancement prospects with modernized supply chain technology, we believe Kinaxis will continue to benefit from increased demand in the medium and long term. Ongoing investment into supply chain capabilities from transformational partners such as Accenture highlight the opportunity available for organizations to adopt digitized supply chain solutions. In the near term, resilient IT budgets and Kinaxis' expansion into new verticals is expected to support robust growth.
Strong balance sheet for continued growth. We forecast Kinaxis will have $233.5mm of net cash and generate $30.3mm of FCF in the NTM.
TD Investment Conclusion
We maintain our BUY rating and C$210.00 target price. We remain confident that demand for Kinaxis' industry-leading supply chain technology will remain high despite the uncertain macro backdrop.