Ottawa-based Kinaxis Inc.’s focus in 2015 will be creating lifetime customers through channel partnerships and forays into new markets, says the company’s chief financial officer, Richard Monkman.
In late November, the supply chain management software company announced a secondary offering of 2.5 million shares, bought by BMO Capital Markets and Canaccord Genuity Corp., at a price of $18.35 per share for gross proceeds of $45.9 million.
“This is the type of company where a lot of people will be competing to buy the shares,” says Robert Young, an analyst at Canaccord Genuity. “There are riskier stocks across all sectors but the money that chases those riskier stocks seems to be moving into technology instead. Companies like Kinaxis are likely to benefit because they are a high-growth small company, and they have profitability.”
This secondary offering follows the company’s IPO in June, when it issued five million common shares at $13 per share, raising a total of $65 million US.
The funds raised were used to pay off $30 million in debt, support future growth and increase the company’s profile.
Founded in 1984, Kinaxis’ flagship RapidResponse software is designed to measure the impacts of change on a company’s supply chains and helps to determine who should respond to any concerns. The software integrates with existing infrastructures for smoother operations.
Monkman says he believes Kinaxis will continue to grow through the expansion of direct sales and channel partnerships. He says the company plans to target additional markets such as life sciences and expand sales efforts in Western Europe and Asia-Pacific.
“We believe that we are well-positioned to serve our market with a product that meets emerging and urgent needs of the supply chain industry,” Monkman says. “By using RapidResponse instead of combining individual disparate products, our customers gain visibility across their supply chains, can respond quickly to changing conditions, and ultimately realize significant operating efficiencies.”
As a result, subscription revenue currently accounts for 75 per cent of all of Kinaxis’ revenue.
“A big metric for these types of companies is churn,” Young says, referring to a measurement for subscriber losses. “You not only want to be growing but you want to hold onto the ones you have.”
Kinaxis reported $13.3 million US in recurring revenue in this year’s third quarter, a 31 per cent increase from the same quarter a year earlier. This includes any predictable and stable revenue that is highly likely to continue into the future.
By going public, Kinaxis reported a profit of $2.5 million US in the third quarter that ended Sept. 30, 2014, compared with a net loss of $2.8 million US in the same quarter of 2013.
The company’s cash at the end of the quarter rose to $55.9 million US, compared with $13.8 million US at last year’s fiscal year-end.
Kinaxis allocates a significant portion of its overall operating costs to research and development, Monkman says. To support the company’s growth plans, the team works with customers to develop new functions based on the needs of individual customers.
“As a result, our broader customer base benefits from our relationship with some of the largest and most successful global enterprises,” Monkman says. “Continually improving RapidResponses’ capabilities helps us expand our revenue with existing customers and win new business.”
The company was one of the earliest companies to adopt the software-as-a-service model in 2006.
“If your business is making cars or airplanes, it means you don’t have to worry about the IT. Just your business,” Young says, adding he believes companies will start using software service companies as a more secure and easier solution once they warm up to the idea of storing core data in the cloud.
RapidResponse’s cloud-based approach makes Kinaxis part of a technology industry that is growing 20 per cent annually, according to CEO Doug Colbeth.
The international supply chain management software industry itself is expected to be worth more than $3.9 billion US by 2017, according to research firm Gartner.
The goal of supply chain management has not changed since its early days, but the difference is in the tools that are used to achieve it, says Rick Cleveland, director of education and accreditation at the Supply Chain Management Association of Canada.
“We’ve always known what information we need to have in order to make the right decisions, but now we can capture it better and faster,” said Cleveland.
Kinaxis currently sells to a variety of markets including the aerospace, automotive, high-tech, industrial and consumer products markets. Some of their its customers included LockHeed Martin, Cisco Systems Inc., and Ford Motor Co.
In November, Kinaxis received Deal of the Year and an Outstanding Company award at the Best Ottawa Business Awards hosted by the Ottawa Business Journal and the Ottawa Chamber of Commerce.
“As an Ottawa headquartered company and a business that has been very successful over the past few years, we are delighted to be a part of the business growth and success of Ottawa,” Kinaxis’s chief product officer John Sicard said in a press release.
The awards can be added to a list of other recognitions Kinaxis has received this year, including a 2014 award for Canada’s Best Small & Medium Employers, the 2014 National Capital Region Top Employer award, 2014 Supply Chain Pros to Know award, and the 2014 100 Great Supply Chain Projects.
Since going public, Kinaxis’s shares have traded from $12.92 to $19.50. It is currently trading at $18.42.