As technology companies cut staff and lower financial expectations amid a collapse in valuations and economic prospects, Kinaxis Inc. KXS-T is following a different script.
The Ottawa-based supply chain management software company is increasing revenue at a steady clip, hiring hundreds of people and has twice raised financial forecasts this year, including last week when it reported second-quarter results that beat analyst expectations. While shares of fellow Canadian software companies Shopify Inc. and Nuvei Corp. have fallen by more than 40 per cent in a brutal year for tech stocks, Kinaxis is down just 6.5 per cent in 2022.
Meanwhile, Kinaxis is also expanding through deal-making. On Tuesday, Kinaxis announced its fourth acquisition since early 2020, picking up Dutch supply chain planning software company MP Objects NV for US$45-million.
The acquisition will broaden Kinaxis’s capabilities from its core business of helping companies plan out supply chain decisions to include managing product shipments. With revenue in the high-single-digit millions of dollars, MPO will not materially affect Kinaxis’s results but will “provide its customers with a better end-to-end view of their supply chains – and, we presume, improve the accuracy of its forecasts, leading to more effective planning,” BMO Capital Markets analyst Thanos Moschopoulos said in a note.
“We’re a shining light in all that darkness,” Kinaxis chief executive officer John Sicard said in an interview. “We find ourselves in the right place at the right time, in that society can’t function without a resilient supply chain. The methods used to run supply chains for the past 30 years won’t survive the next three; that’s why we’re experiencing this momentum.”
Many tech companies experienced enormous growth early in the pandemic as commerce and communications shifted online, only to see that pace slow as economies reopened. But global disruptions sparked by the COVID-19 crisis – as well as the war in Ukraine – have continued to snarl supply chains. That has benefited Kinaxis.
“Supply chain has been one of the most prominent issues for enterprises today,” said National Bank Financial analyst Richard Tse in an interview. The disruption “is helping all vendors in the market.”
Kinaxis has also created a version of its flagship RapidResponse product that is geared to relatively smaller companies than the global giants it typically serves. That has expanded its potential market to more than 20,000 companies, up from 3,000 (it now has between 200 and 300 customers). Kinaxis has maintained a steady pace of revenue growth in the 25- to 45-per-cent range, “growing responsibly” compared with other rising tech companies that have struggled to maintain their velocity, Mr. Tse said.
The sector’s misfortunes have also eased up a talent crunch that has benefited Kinaxis, which has 1,400 full-time staff and is in the midst of hiring 500-plus people this year.
Meanwhile, Kinaxis is bucking another trend by completing an acquisition amid a slowdown in software deals across North America, said Ed Bryant, CEO of Ottawa-based Sampford Advisors.
The volume of deals across the continent has slowed by roughly 50 per cent since earlier this year, to about 100 to 120 a month.
“The market is still good for good companies that are still growing and are profitable,” said Mr. Bryant, whose firm advised Kinaxis on the transaction. “For venture-capital-backed companies that raised loads of money and that are losing loads of money and not growing, there is no bid for them right now.”
Last week, Kinaxis reported revenue of US$80.8-million in the second quarter, up 35 per cent over the same period last year, while adjusted operating earnings increased by 45 per cent to US$10.4-million. The company also forecast it would generate between US$355-million and US$365-million in revenue this year – raising the range by US$10-million from last quarter while maintaining a target operating margin of 16 to 19 per cent of revenue. Kinaxis generated a net profit of US$9.9-million in the first half, up more than sixfold year-over-year.
Kinaxis went public in 2014, three decades after it was founded by three former Mitel engineers to help large companies make timely business decisions. Its technology originally cut the time for clients to run “what-if” simulations to 14 minutes from 36 hours.
Today, Kinaxis offers its platform over the internet, allowing disparate employees to monitor all aspects of an organization’s supply chain and quickly run hypothetical business scenarios by creating virtual “digital twins” of company data where they can play with numbers without altering what is in their systems. Clients include many of the world’s largest companies, such as Ford Motor Co., Unilever NV and Merck & Co., as well as newer customers Carlsberg and Kimberly-Clark.
Mr. Sicard said his acquisition strategy is not to buy up competitors but to bring on companies with people, technologies and features that accelerate its product or geographic expansion plans.
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