TSX:KXS - Post Discussion
Post by
retiredcf on Nov 17, 2022 8:38am
More RBC
November 16, 2022
Kinaxis Inc.
Highlights from the RBC Global TIMT Conference
TSX: KXS | CAD 156.00 | Outperform | Price Target CAD 200.00
Sentiment: Neutral
Key takeaways: We hosted Blaine Fitzgerald, Kinaxis' Chief Financial Officer, at the 2022 RBC Capital Markets Global Technology, Internet, Media and Telecommunications (TIMT) Conference today. Enterprises are prioritizing resilient and agile supply chains, in light of global supply chain disruptions, which is driving demand for Kinaxis’ software. The company is seeing strong growth, record sales efficiency and a larger TAM as a result. Maintain Outperform.
Supply chain modernization is a long-term tailwind. Global supply chain disruptions have been one of the largest pain points for companies over the past two years. The financial and reputational impact from shortages is leading companies to adopt a more agile and digitized approach to supply chain planning, which management believes is likely to persist regardless of the macro environment. Kinaxis’ concurrent planning approach is highly differentiated and has been delivering significant ROI to customers in this environment. As a result, Kinaxis has reported 8 consecutive quarters of record SaaS revenue. In Q3, ARR rose 30% Y/Y on a constant currency basis to a record $259MM.
MPO acquisition effectively doubles Kinaxis’ TAM. On August 16, Kinaxis announced the acquisition of MPO, a provider of real- time, cloud-based supply chain execution software, for $45MM. The acquisition effectively doubles Kinaxis’ TAM from supply chain planning only to both supply chain planning and execution. MPO’s optimization of multiple external parties in supply chain execution is akin to Kinaxis’ real-time concurrent optimization in supply chain planning. In regard to future M&A, the company is open to opportunistic acquisitions that accelerate the company’s product roadmap. The previous acquisition of Rubikloud in 2020 provided Kinaxis with a strong team of AI/ML developers as well as access to the retail vertical, which presents a significant opportunity for the company.
RapidStart driving shorter sales cycles and mid-market traction. RapidStart is a pre-configured version of RapidResponse, which accelerates deployment time from several months to just 12 weeks. In addition to accelerating time-to-value for its core enterprise market, RapidStart has provided Kinaxis with a starting point to proactively target mid-market customers. While the initial contract size in mid-market is roughly half of enterprise, mid-market increases Kinaxis’ TAM from ~4k customers (large enterprises) to 20k. Mr. Fitzgerald noted that the majority of mid-market still uses Microsoft Excel for supply chain planning.
Sales efficiency at all-time highs. The increased demand for Kinaxis’ software, coupled with shorter sales cycles with RapidStart and lower customer acquisition costs in mid-market, has driven Kinaxis’ sales efficiency to record highs. Mr. Fitzgerald commented that sales efficiency was “almost too high,” meaning that the company could invest more in sales given significant demand. Kinaxis has historically balanced growth and profitability. Mr. Fitzgerald believes the company could operate at 30-35% adj. EBITDA margins in the long term. Currently, Kinaxis is making investments to drive sustained strong growth.
Public cloud improves long-term scalability. Kinaxis announced the launch of its public cloud offering at its user conference in May of this year. The move to support public cloud reflects the need to increase long-term scalability, given customer adoption and growing demand outside of Kinaxis’ core regions (e.g., APAC). Additionally, the public cloud is now technically capable of running RapidResponse and the economics are now almost in line with private cloud.
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