Kinaxis is serious about AI, National Bank Financial says

A new acquisition by Kinaxis (Kinaxis Stock Quote, Chart, News TSX:KXS) won’t be immediately adding to the company’s top line but its contribution will be felt in KXS’ artificial intelligence and machine learnings capabilities.

So says National Bank Financial analyst Richard Tse who reviewed the deal in an update to clients on Monday.

Ottawa-based Kinaxis, a cloud-based SaaS supply chain management vendor with a proprietary technology Rapid Response, on Monday announced the acquisition of Toronto-based Rubikloud, a provider of AI solutions for automating supply chain prescriptive analytics and decision-making for the retail and CPG industries. The all-cash deal is for $60 million with an expected closing date within 60 days. (All figures in US dollars unless where noted otherwise.)

On the acquisition, Kinaxis called Rubikloud a “disruptive and emerging provider of AI solutions.”

“Rubikloud has capabilities and value that we can offer our CPG customers today, leads us into the retail industry with some bellwether accounts, and adds a group of approximately 80 people to an already-impressive AI and machine learning team here at Kinaxis. Over time, this enhanced group will contribute to new and existing AI-powered capabilities across the full Kinaxis RapidResponse platform and applications,” said John Sicard, President and CEO of Kinaxis, in a press release.

In his update, Tse estimated the venture-backed Rubikloud has raised about $45 million in financing to date, with the most recent round being a Series B raise occurring in January 2018. The analyst said the VCs look to be a reputable group which includes Horizon Ventures, Intel Capital, Salesforce Ventures and Inovia.

“In terms of the importance of AI / ML in the supply chain, as noted in the recent edition of our Technology Series: Thoughts for the Other Side (Issue #2, Getting Supply Chains Ready for Whatever’s Next), we noted that 65 per cent of respondents of a recent IDC survey viewed their supply chain as a competitive differentiator. We believe the use of AI/ ML to analyze data plays a big part in that differentiation,” Tse wrote.

“What’s interesting is that Kinaxis was already on its own path to broadening its platform with Demand Sense; as such, this acquisition should help fortify that push by adding incremental technology (and people) to that effort while offering Rubikloud a channel for its products and technology. Additionally, we see this acquisition as opening up a new segment for Kinaxis in enterprise retail,” he said.

The analyst said the deal will likely leave KXS with a cash and short-term investment balance of $173.6 million.

Looking ahead, Tse thinks Kinaxis will generate fiscal 2020 revenue and EBITDA of $215.1 million and $50.2 million, respectively, and fiscal 2021 revenue and EBITDA of $273.3 million and $69.9 million, respectively.

With the update, Tse has reiterated his “Outperform” rating and C$200.00 target, which at press time represented a projected 12-month return of ten per cent.

Year-to-date, KXS is up 80 per cent, while over the past 12 months the stock has returned 114 per
cent.