Growth Rec - Kinaxis - KXS

I’ve read and learned lots from this board. I’ve also provided a small bit of feedback but I’m proud to be sharing my first personal buy recommendation today… I consider this a big step forward in my investment maturity…

Kinaxis is an Ottawa/Canada based company (not to be confused with Shopify, although there are some similarities). It offers a state-of-the-art Supply Chain SaaS solution that is a world-class leader.

I’ve followed Kinaxis (including talking to the Ottawa tech community that works for/with Kinaxis) and only discovered positives. Recently, they had a slightly disappointing earnings report - I think the market is over-reacting to this report. I am confident that Kinaxis is just going through growing pains.

Recent Quarter Results
• Recent earnings miss: $36.59 million vs $39.51 million expectation

  • company explanation: some contracts slipped to Q4 - but deals still expect to close
  • EPS of $0.21 vs expectation of $0.23
    • Growth/fundamentals remain intact
  • Subscription revenue grew 19% to $30.7 million & revs were $39.6 million. Mngt expects further growth opportunities in 2019 for which KXS will provide guidance in 2019.
    • Good economic backdrop at this stage
    • KXS has delivered on promises in past
    • KXS has high valuation but is volatile

With reaction to this earnings, KXS has declined to 6.4 times forward sales - which seems reasonable to me. Adding the market potential, the reality that KXS has been as invisible to non-Canadian investors as Shopify was when I first bought it (early post-IPO days, I bought a little SHOP as a patriotic Canadian), and I expect great things from this company.

I invested 7% of my port in KXS.TO on Friday. I didn’t do this because I’m just excited about another Canadian company, I did it because I expect this to be a great investment over the next 3-5 years.

https://ca.finance.yahoo.com/quote/KXS.TO/profile?p=KXS.TO

Any feedback welcome!

…Marc

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Revenue Growth
9.3% YoY Q318
14.9% YoY Q417
14.2% YoY Q217
20.2% YoY Q117

Decelerating revenue growth into single digits.

No thanks.

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Hi Marc

Thanks for the suggestion.

What do you like about Kinaxis over an alternative small cap SaaS company such as EVBG/YEXT/CBLK/INST/MIME/BAND which all have better growth rates and similar or better valuations?

Or a stock like TTD or TWLO with tailwinds, superb growth and a track record of execution?

Trying to understand the appeal. Interested in your thought process and your views on the opportunity cost vs other potential investments.

Cheers

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I, too, was interested in Kinaxis for a while, but gave up when I read the summary of this Seeking Alpha article: https://seekingalpha.com/article/4214045-still-sell-kinaxis

The offending dot point was the very first: With a 1.1% market share in revenue for 2017, Kinaxis is ranked among the top 10 players in the Supply Chain Management (SCM) providers industry.

That prompted me to investigate just how may Supply Chain Management (SCM) companies are in existence - the answer is very many, not that I did an exhaustive global survey.

When a top 10 company can only muster a 1.1% market share, that points to a fragmented industry with power resting with the clients rather than suppliers.

For all the faults of the industry, I accept that Kinaxis is one of the more respected players, so it would be of particular interest if you were wedded to the SCM industry. But, as tchalla intimated, why would you be wedded to the SCM industry, when there are more profitable alternatives?

By the way, in the reviews of SCM products that I perused, Kinaxis rated neither particularly highly nor particularly lowly, nor did Kinaxis have a particularly large number of people rating them. On the whole, from the reviews alone, Kinaxis came across as being a pretty ordinary company with lots of competitors of roughly equal status. However, I accept that in reality Kinaxis probably commands more respect than it seemed to get in the reviews.

Happy to hear the converse argument, however, as I actually wanted Kinaxis to be the Ugly Duckling that would one day grow into a beautiful swan.

Bombora

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Thanks for the feedback. I’ll try to provide a bit more of my thinking…

Thanks for the feedback. I’ll try to provide a bit more of my thinking…

  1. I don’t think that KXS is a better growth play than the current slate of SaaS Saul stocks. For me, however, I see it as a safer moderate growth play with great longterm upside.

  2. As a local Cdn resident, I know several top notch individuals who work with and for KXS. Their feedback is universally glowing about the culture, leadership, and the customer acceptance of the Kinaxis flagship offering. I can point you to GlassDoor as supporting evidence of this: https://www.glassdoor.ca/Reviews/Kinaxis-Reviews-E13770.htm The CEO has a 90% approval rating.

  3. Their key offering is “RapidResponse” which facilitates decision-making and analysis for companies. RapidResponse is an easy-to-implement software solution that allows for complex supply chain planning and analysis across multiple processes. Opposed to most competitors of KXS, the company can address
    multiple supply chain issues with one product, which adds visibilityacross supply chains, adds efficiencies and improves response times to issues. RapidResponse can have applications added over time and provides solutions to issues such as inventory management, production scheduling, capacity planning and supplier collaboration, to name a few. To me, this means lots of cross-selling, up-selling, and future optionality.

The above is qualitative. I am working on pulling together a more quantitative perspective.

…Marc

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Thanks for the response Marc

There’s no doubt Kinaxis has been a winner (up 425% over the last 5 years). But I’mlooking forwards and see a suggestion of decelerating rev growth - is that correct?

Im intrigued as to why do you think it’s “safer” than the similar market cap companies I initially listed (none of which are in Saul current portfolio AFAIK)… I listed those because they have better growth rates and are less expensive on a fwd EV/S basis, so am interested to hear why this feels safer. I’d hazard the recent haircut in price is because of rev deceleration.

Qualitatively the feedback sounds positive. The “land and expand” argument is true for many software stocks favoured here, so am unsure if it is strong distinguishing feature.

Happy to hear your further thoughts. Always interested in learning from others. I hope it works out well for you

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