Kinaxis Inc T.KXS

TD

[retiredcf]

Certainly a buying opportunity at this price. GLTA

Kinaxis Inc.

(KXS-T) C$153.37

Q2/23 Results: Strong New Wins

Event

Recommendation: BUY

Risk: MEDIUM

12-Month Target Price: C$210.00

12-Month Dividend (Est.): C$0.00

12-Month Total Return: 36.9%

Market Data (C$)

Q2/23 results. See our previous notes for a review of the results and conference call.

Impact: SLIGHTLY POSITIVE

Strong new wins imply strong expansion opportunity. Strong SaaS bookings, record new account wins, and an increasing win rate are all supportive of Kinaxis' improving sales efforts. Over 70% of new business won and ARR growth in Q2 were from new accounts. As the rapidly-growing sales team ramps up, we expect the pipeline to accelerate. New accounts are being won with smaller initial deployments, but follow-on expansions are part of the contract. Management noted that it has historically seen subscriptions double over 3 years for enterprise customers. It's still early to determine the expansion trajectory for SMB customers, but they don't believe there is anything to suggest it will be different from enterprise.

Macro showing signs of improvement. While the macro remains uncertain, management's tone sounded more positive. Average sales cycles declined below one year for the first time ever. Enterprise customers continued to exhibit lengthened sales cycles, while SMBs shortened. Management is seeing strong SMB demand and traction. The sales pipeline remains very active as evidenced by the company's rapid ramp in S&M expenses.

Changes to the model. The changes to our model largely stem from the new Subscription Term Licensing (STL) customer in Q2 reducing our SaaS estimates. This flows through into future periods. We've also pushed out the timing of the Q1 STL customer into Q1/24 given the uncertainty in timing on recognizing that revenue. We have also lowered our gross margin assumptions given the added costs of migrating to the public cloud. We estimate recurring software gross margin could remain compressed through 2024. Once the public cloud migration is complete, we expect software gross margin to normalize as datacentre leases are reduced and capitalized development costs are fully amortized.

TD Investment Conclusion

Maintaining BUY rating and C$210.00 target price. We are encouraged by the strong bookings and new logo wins in the quarter, which we believe sets the company up for future growth acceleration.

[ghostzapper]

I like the company but dislike the volatility. 

[retiredcf]

Volatility pretty much applies to every tech stock.  GLTA   Kinaxis Target Lowered by ATB Capital C$220.00 C$210.00