Kinaxis: Eight Capital remains bullish

A solid quarter from Kinaxis (Kinaxis Stock Quote, Chart, News, Analysts, Financials TSX:KXS) is keeping Eight Capital analyst Suthan Sukumar positive on the stock, saying management’s guidance could prove overly cautious. In an update to clients on Wednesday, Sukumar kept both his “Buy” rating and C$190.00 target price for KXS, which at the time of publication represented a projected 12-month return of 22.9 per cent.

SaaS-based supply chain management company Kinaxis reported first quarter 2021 results on Tuesday, coming in with revenue up nine per cent year-over-year and five per cent sequentially to $57.7 million and adjusted EBITDA down 40 per cent year-over-year to $9.0 million. Cash from operations was down one per cent to $20.6 million. (All figures in US dollars except where noted otherwise.)

In his comment, Kinaxis president and CEO John Sicard said the results were a good initial step into 2021 and that while COVID-related delays are still a factor, the environment for booking new business is showing signs of improvement.

“We won a record number of new customers for a first quarter, which together with project expansions resulted in record first quarter incremental subscription bookings. Overall, we continue to see a heightened level of interest from companies looking to drive hyper-agility in their supply chain,” Sicard said in a press release.

On guidance, KXS reiterated its forecast for 2021, calling for revenue of $242-$247 million and an adjusted EBITDA margin between 11 and 14 per cent.

Looking at the Q1 numbers, Sukumar said the $57.7-million in revenue was in line with his forecast for $56.7 million as well as the consensus estimate of $57.4 million. Adjusted EBITDA of $9.0 million turned out better than Sukumar’s call for $6.6 million and the Street’s $6.4 million. KXS’s adjusted EPS at $0.13 per share was also better than Sukumar’s and the Street’s call for $0.11 per share.

Breaking down the sales numbers, Kinaxis’ SaaS revenue of $40.6 was in line with Sukumar’s $40.1-million estimate, Subscription Term Licenses revenue of $2.1 million was better than the analyst’s $1.2-million estimate, Professional Services revenue of $12.0 million was in line with Sukumar’s $12.2-million estimate and Maintenance and Support revenue of $3.1 million was in line with the analyst’s call for $3.0 million.

On a regional basis, Kinaxis’ first quarter saw four per cent year-over-year revenue growth in its US business to $35.9 million, a seven-per-cent increase for its European business at $11.6 million, a 28-per-cent rise in Asia business at $8.0 million and a year-over-year doubling in revenue in Canada to $2.3 million.

As far as the 2021 guidance for $242-$247-million in revenue went, Sukumar was expecting $247 million versus the consensus expectation of $246 million. The adjusted EBITDA margin outlook of 11-14 per cent was under Sukumar’s 12.6-per-cent call and the Street’s 12.2-per-cent.

Sukumar judged KXS to have improving forward visibility due to its growing backlog and that the $20.6-million in cash flow was looking healthy.

“KXS reported in-line revenue with a slight beat on earnings. Strength in the demand backdrop post COVID-19 continues to fuel robust pipeline growth with KXS noting record new customer wins along with record bookings for Q1, a typically slower period,” Sukumar wrote.

“However, the company maintained prior F21 guidance, implying a conservative outlook for timing of new bookings and pace of backlog to revenue conversion. That said, we continue to see potential upside to guidance over the course of the year given the strong customer win and bookings trends, particularly when considering the company’s track record in prior years. Positively, KXS continues to target a return to a 23-25 per cent SaaS growth profile beyond F21,” he said.

Sukumar said he will revisit his forecasts and valuation on KXS after the conference call on Wednesday morning.

Kinaxis shot up in the early days of the pandemic and while the stock gave back some of those gains over the second half of the year its still went on to an 80-per-cent return. So far in 2021, KXS is down 14 per cent. The stock dropped 1.5 in trading on Tuesday.

Last quarter, Kinaxis launched its PartnerLink global partners program as part of its supply chain alignment services. PartnerLink combines resources, training and business alignment to help companies in services, sales, marketing and product capabilities.

In March, KXS added ten system integrators and referral partners to PartnerLink.

“Our partners play a significant role in helping Kinaxis achieve our primary objective: to create unparalleled supply chain agility and resiliency for our customers,” said Conrad Mandala, Vice President Global Partner Organization, Kinaxis, in a March 15 press release. “We introduced PartnerLink to accelerate our customers’ time-to-value, and we couldn’t be happier with the response that we’ve received so far. Together, we bring the full strength of our technology, expertise and global reach to bear as we help the world’s top brands navigate volatility and uncertainty.”