Kinaxis leading a supply chain ‘renaissance’ – but can the Ottawa company reignite investor interest?

John Sicard bursts past a rock ‘n’ roll band onto a stage at a Miami resort, dressed in jeans and a black T-shirt bearing a slogan that reads, “Tame complexity. Master uncertainty.”

It’s mid-June, the second day of Kinaxis Inc.’s KXS-T annual conference, and the chief executive officer of the Ottawa-based company is in evangelist mode for his keynote. It’s not easy to make supply chain software, which Kinaxis sells, seem exciting. Mr. Sicard takes a different tack, describing it as essential for human existence.

“We are responsible for the operating system of the planet, of society, of humanity,” he tells 750 analysts and investors, partners and supply chain specialists with his blue-chip clients, including Volvo AB, Exxon Mobil Corp. and Pfizer Inc. “What all of you do really matters.”

With recent strains because of the pandemic, geopolitical tensions, piracy and pressures to cut greenhouse-gas emissions, the way to improve the flow of goods is by orchestrating the myriad systems companies use to manage their supply chains, he says. Supply chain orchestration software just happens to be what he sells, now enhanced by artificial intelligence. “We’re living through what I describe as a veritable renaissance of supply chain,” Mr. Sicard declares.

Kinaxis is ripe for a renaissance of its own. Its stock, which hit $220 a share in 2021, has stalled, trading at a discount to other enterprise software companies over the past year. It closed Friday at $157.76 on the Toronto Stock Exchange.

Top-line growth has been a concern. First-quarter revenue of US$119.4-million increased by a relatively soft 18 per cent year-over-year, while annualized recurring revenue expanded by 15 per cent, to US$327-million, down from 18 per cent in December and 24 per cent at the end of 2022. In May, Kinaxis announced its first staff reduction since going public in 2014, cutting 6 per cent.

With interest rates high and economic uncertainty prevailing, muted spending by large enterprises has hit software vendors. Kinaxis also “hasn’t necessarily invested in growth as they should have,” National Bank Financial analyst Richard Tse said. “I think they left money on the table.”

But analysts have returned from Miami more optimistic than before after talking to Kinaxis clients and consultancies that sell and implement its software. Those partners are universally positive, increasingly recommending Kinaxis, and “I fully expect growth to reaccelerate to 20 per cent plus,” BMO Capital Markets analyst Thanos Moschopoulos said. “Their competitive position seems to be the strongest it’s ever been” since the IPO. RBC Dominion Securities analyst Paul Treiber said in a note: “The event affirms our positive investment thesis on Kinaxis and helps refute recent concerns.”

Kinaxis says its slower growth is owing to new customers – its client count doubled in the past three years to more than 300 – ramping up spending on its software more slowly over several years, reflecting the cautious environment. But once they sign, clients rarely switch out.

“How Kinaxis holistically sees customer requirements and connects the dots is extremely valuable, and drastically increases speed and agility,” said Rogerio Branco, chief supply officer with industrial supplier Eaton Corp. PLC. After Eaton started using Kinaxis to manage its aerospace business supply chain last year, its on-time delivery rate soared to 95 per cent from the low 70s. Now, Eaton is implementing Kinaxis company-wide – but it will take a few years to fully implement. The amount Eaton pays in the fifth year of the deal will be five times the level in Year 1, Mr. Branco said.

“When people look negatively on us, I just don’t understand,” Mr. Sicard said in an interview. Kinaxis will reinvest savings from its recent job reduction into marketing and sales, deepening ties with consulting partners and hastening product development. “We have to make sure we don’t become our own worst enemies” by overworrying about short-term factors. “This is an incredible Canadian success story. Could it be better? Of course. I want to put some accelerant on the fire.”

Kinaxis was founded in 1984 by three ex-Mitel engineers to help companies make timely business decisions. Its technology originally cut the time for clients to run what-if simulations to 14 minutes from 36 hours on giant computers. That later dropped to seconds as its software allowed customers to play with hypothetical situations such as estimating how long it would take to deliver an unexpected order without altering their systems of record. But sustained success was elusive for years, marked by a litany of false starts, name changes and restructurings.

The company shifted in 2005 to providing its products over the internet on a subscription basis rather than collecting one-time fees upfront, making it an early convert to how software is now sold. Kinaxis hit its stride in the early 2010s as revenues grew by more than 20 per cent annually, and it was named one of the world’s best providers of supply chain management software by Gartner in 2014, a ranking it has held since. Mr. Sicard, a 30-year company veteran who was previously chief product officer, became CEO in 2016.

But while Kinaxis had a solid reputation and loyal customers, general market awareness has been a long, gradual build; new deals typically take more than a year to land and implementations last months. Revenue grew sevenfold over the past decade, reaching US$427-million in 2023, and the company was steadily profitable except in the pandemic year of 2021.

Kinaxis has long been overshadowed by crosstown star Shopify Inc., now the third-most valuable public company in Canada and flagbearer for the country’s tech sector. “I want 100 more Shopifys in Canada,” federal Innovation, Science and Industry Minister François-Philippe Champagne said last week. A more realistic aim might be to create 10 more companies like Kinaxis: a mission-critical software company with global customers, a valuation in the billions (Kinaxis sports a market capitalization of $4.5-billion) and room to run. Canada has several of those.

“I used to say Kinaxis was at Chapter 1, Book 1, Page 1,” Mr. Sicard said. “Maybe we’re at Page 2.”