Kinaxis boosts fiscal 2020 guidance despite 'protracted' contract approvals from some customers

John Sicard new
Kinaxis CEO John Sicard says the company's outlook is as strong as ever. File photo

Ottawa-based Kinaxis raised its revenue guidance for fiscal 2020 again this week as more customers look to its supply-chain management software to help guide them through the turbulence of the pandemic.

Kinaxis, which keeps its books in U.S. dollars, reported revenues of $55.1 million in the third quarter ended Sept. 30. That was up 17 per cent from a year earlier, a healthy gain but not as sizeable as the 45 per cent jump it reported in the previous quarter.

As a result of the strong year-to-date growth and a backlog of new deals, Kinaxis boosted its fiscal 2020 financial forecasts. The company says it now expects revenues for the current fiscal year to fall between $220 million and $223 million, up from earlier projections in the range of $216 million and $220 million.

But the company’s shares ​– which have gained about 130 per cent since late March ​– dipped slightly on Thursday after Kinaxis cautioned investors it has “not been completely immune” to the economic effects of the health crisis.

“Throughout Q3, and consistent with recent supply chain industry reports, we continued to see the impact of COVID-19 through protracted contract approval processes and deferred projects for some companies,” president and CEO John Sicard said in a statement. 

“Also, while retention rates remain very high, the environment has put some customers in a position where they are not currently able to renew their subscription agreements.”

Strong sales prospects

Sicard sought to reassure investors in a conference call with analysts on Thursday morning, saying the firm’s prospect pipeline remains robust.

“I can say that we’re seeing more sales activity now than we were three months ago,” he said. “That’s a fact.”

In response to repeated questions from analysts, Kinaxis executives said the “overwhelming majority” of customers with contracts up for renewal are sticking with the company.

Sicard said it’s normal for companies to put expenditures under a microscope during a time of economic upheaval, adding a certain amount of customer attrition due to circumstances such as insolvencies and acquisitions is inevitable.

“It would be abnormal to keep virtually 100 per cent of our customers over a 15-year period,” he said. 

Kinaxis’s RapidResponse software helps some of the world’s largest companies ​– including automakers Ford and Nissan as well as consumer products giant Unilever ​– ensure they have the right amount of raw materials on hand to manufacture their goods by tracking demand and inventory in real time. 

Sicard has said repeatedly throughout the pandemic he believes his company’s products are more valuable than ever as companies respond to ebbs and flows in demand for consumer goods. He reiterated that message to analysts on Thursday.

“Notwithstanding these side-effects, it is clear to me that supply-chain transformation initiatives have never been more urgent,” Ottawa’s 2020 CEO of the Year said. “Our confidence remains high.”

Revenue from the firm’s subscription-based software – which accounts for the lion’s share of Kinaxis’s income – climbed 26 per cent to just over $39 million, while the company’s professional services division, which implements Kinaxis software and trains its users, saw its revenues increase 23 per cent to $11.5 million.  

Net profit down

The firm posted a net profit of $731,000, or three cents per share, down substantially from $4.5 million, or 17 cents per share, a year earlier. Kinaxis attributed the drop to increased spending on product development as well as sales and marketing and costs related to its $60-million acquisition of Toronto-based Rubikloud earlier this year.

Rubikloud uses machine-learning technology to help large-scale retailers in the health and beauty, household goods and grocery sectors predict how much inventory they need to keep their shelves properly stocked and determine sales and pricing strategies. Kinaxis expects the deal will make it a force to be reckoned with in a vertical it hadn’t deeply penetrated in the past.

Sicard said the M&A play – a rarity for a company that’s grown organically throughout most of its 36-year history – is already paying dividends. 

Last week, Kinaxis announced its first joint customer signing for the RapidResponse and Rubikloud platforms, U.K.-based health and beauty company Koty. Sicard also noted the acquisition has brought well-known Rubikloud customers such as the Rexall Pharmacy Group into the Kinaxis fold.

In addition, the CEO noted the company’s recent Kinexions ’20 online conference drew a record 3,000 participants from more than 500 companies.

Sicard said the company’s overall outlook remains strong, adding he’s optimistic demand for its products will continue to grow.

“This pandemic has called into question the legacy approaches to governing supply-chain planning and the lethargy that comes with it,” he said. “In the 27 years I’ve been serving this market, I’ve yet to see a technology come close to what we do.”

Kinaxis shares ended the day down 38 cents at $217.88 on the Toronto Stock Exchange.