Buy Kinaxis on the dip, says Laurentian

Laurentian Bank Securities analyst Nick Agostino reiterated a “Buy” rating on supply chain management software name Kinaxis (Kinaxis Stock Quote, Charts, News, Analysts, Financials TSX:KXS) in a Thursday report, saying investors should take advantage of any pullback in share price.

Kinaxis reported first quarter earnings on Wednesday, featuring sales up three per cent year-over-year to $101.1 million, which was in-line with Agostino’s modelling at $101.7 million. Adjusted EBITDA was down 48 per cent to $17.1 million and compared to the Laurentian Bank call at $17.9 million. (All figures in US dollars except where noted otherwise.)

In his quarterly commentary, Kinaxis President and CEO John Sicard touted recent contract wins with Havi, which manages supply chains for the world’s largest quick service restaurant brands, along with two more (unnamed) “iconic” brands, according to Sicard.

“We’re thrilled to see market leaders continuing to partner with Kinaxis to leverage the power of concurrent planning and our unique ability to combine state-of-the-art machine learning/AI, optimization, and configurable heuristics to drive their digital transformations,” said Sicard in a statement.  

Looking at Kinaxis’ Q1, Agostino called the impact mixed, saying, “While Q1 results were largely in-line and select guidance was increased, bookings activity was slower due to economic-driven caution. As with similar past cautionary events (pandemic), we would be buyers on any attributable weakness.”

Agostino noted that Kinaxis’ backlog at $567.7 million was up 48 per cent year-over-year but down five per cent sequentially. In particular, SaaS backlog was up 46 per cent to $527.6 million but dow four per cent sequentially and annual recurring revenue was up 23 per cent year-over-ear to $285 million.

Agostino said management expressed caution on the uncertain macro picture and its effect on clients’ purchasing processes but that experience says there’ll be an upswing again soon.

“We heard similar caution at the onset of the pandemic, but within one to two quarters saw reinvigorated demand and bookings activity normalize,” he said.

Agostino also noted management’s full 2023 guidance, which saw sales projections increase by $5 million to $425-$435 million, while the consensus projection was for $426.6 million.

For his part, Agostino said he’d be looking for colour on the conference call regarding public cloud client interest and adoption, total addressable market expansion with small companies and new verticals, geographical pipeline prospects and wins, Kinaxis’ RapidResponse/MPO platform integration, the status of its sales cycle and the level of inbound sales leads and any cross-sell wins from the company’s MPO and Rubikloud acquisitions.

With the update, Agostino reiterated a “Buy” rating on Kinaxis and 12-month target of $225, which at press time represented a projected return of 27 per cent.