A Member of Pat McKeough’s Inner Circle recently asked for his advice on Kinaxis, a cloud-based subscription software company that specializes in supply chains.
Pat likes the company’s niche and recurring revenues from its subscription model. He also feels its recent acquisition is a good one and demand should be strong in an era of lingering supply chain disruptions.
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Kinaxis Inc. (Symbol KXS on Toronto; www.kinaxis.com) provides cloud-based subscription software that big companies use to manage their supply chains. Kinaxis is based in Ottawa. The company’s shares began trading in June 2014 at $13 a share.
Kinaxis’s main product is RapidResponse, which helps manage supply, demand, inventory, order fulfillment, and capacity planning. Its applications include matching production and inventory to demand, analyzing sales patterns, and forecasting.
Subscribers pay a monthly or yearly fee for software implementation, support and upgrades; contracts are typically two to five years in length. That provides the company with a steady revenue stream rather than a series of larger one-time payments for the initial sale and upgrades.
On August 22, 2022, Kinaxis announced the acquisition of Netherlands-based MPO for $45 million. The company paid for the cloud-based SaaS (software-as-a-service) platform with 75% cash and 25% in Kinaxis stock. The level of equity will depend on MPO hitting certain revenue goals over the near term.
MPO’s SaaS platform connects various parties in the supply chain, including manufacturers, logistics providers, and end users, in real time.
The combination of Kinaxis Rapid Response planning and MPO’s Multi Party Orchestration supply chain execution is aimed at delivering a complete real-time picture of every order—from planned commitment through to its ultimate delivery.
In the five years from 2017 to 2021, Kinaxis’s revenue rose 88.1%, from $133.3 million to $250.7 million. (All figures except share price and market cap in U.S. dollars.) Earnings have varied over the years as the company periodically raised its selling and marketing and research expenses to spur new growth. In 2017, it made $30.1 million, or $1.14 a share; in 2018, $26.0 million, or $0.97 a share; in 2019, $36.7 million, or $1.36 a share; in 2020, $30.9 million, or $1.10 a share; in 2021, $16.0 million, or $0.56 a share.
Inner Circle: Track record of rising revenues looks set to continue for Kinaxis
The MPO acquisition should be a good fit for Kinaxis. Its current RapidResponse software lets customers plan for various supply-chain scenarios. But without MPO, Kinaxis would have only limited ability to help them deal with short-term disruptions, which are increasingly common.
MPO also operates a SaaS network for what it calls “multiparty orchestration.” Essentially, it connects various entities in a supply chain, such as manufacturers, logistics providers and retailers, letting them better execute orders.
Combining MPO with Kinaxis RapidResponse will provide a complete real-time picture of a company’s orders from the planning stages through to delivery. This will let manufacturers and suppliers better align themselves around a single version of what’s needed in the supply chain. MPO has experience with connecting to systems that Kinaxis typically didn’t have experience with, like e-commerce systems and warehouse management systems.
Going forward, due to ongoing global supply-chain disruptions, demand for Kinaxis’s software should rise as more firms look for ways to keep their goods moving.
Meanwhile, the company operates in a very competitive industry. However, it has a steady base of recurring subscription revenue from major customers.
Recommendation in Pat’s Inner Circle: Kinaxis Inc. is a buy.
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