More CIBCEQUITY RESEARCH
November 6, 2024 Flash Research
KNEAT.COM, INC
Q3/24 First Look: Solid Quarter Highlighted By 59% ARR
Growth
Our Conclusion
Kneat’s third-quarter results emphasize our positive outlook on the business,
as ARR growth of 59% exceeded our expectations and gross margins
expanded to 77% even with a greater-than-expected amount of professional
services revenue. ARR growth remaining near the 60% level is excellent to
see and supports our view that Kneat is well positioned to capture share in
the eValidation space. Expenses largely declined Q/Q and capitalized R&D
expenses were flat Q/Q. Looking forward, we do expect expenses growth to
accelerate as Kneat invests the proceeds of the October equity raise into
growth initiatives. We will be looking for additional information on the makeup
of the new ARR in the quarter and more specific management commentary
regarding the use of the proceeds from the October equity raise on the
conference call at 9 a.m. ET tomorrow.
Key Points
Q3/24 Results
• Revenue of $12.8 million was 4% above consensus ($12.3 million)
and 2% above CIBCe ($12.5 million). SaaS license fees of $11.5MM
were up 48% Y/Y while professional services revenue of $1.2MM
was up 90% Y/Y and well above our $0.6MM estimate.
• Total ARR of $49.9MM was up 59% Y/Y as Kneat added $4.5MM in
ARR in the quarter.
• Gross margin in the quarter was 77% versus our estimate of 74%.
The gross margin outperformance is notable given lower-margin
professional services revenue was higher than forecast.
• Cash-adjusted operating expenses were $13.0MM in the quarter, up
15.5% Y/Y and made up 54% of revenue vs. 76% in the prior year.
While Kneat is still investing heavily, operating leverage is
materializing as the business scales.
• Free cash flow was -$5.0MM in the quarter, up from -$9.5MM in
Q3/23. Working capital changes were -$2.9MM in the quarter.
• While we do not think the metric is particularly useful given Kneat’s
elevated amount of capitalized R&D, adjusted EBITDA of $2.9MM
was up from -$0.5MM in Q3/23.
• Conference Call Details: Management will host a conference call to
discuss results on Thursday, November 7, at 9:00 a.m. ET.
Webcast.