Q3 2024 Kinaxis Inc Earnings Call
Speaker Change: Our return story in the quarter were brought based with positive contributions from all underlying acid categories.
Speaker Change: In closing, I want to reiterate three points. First, our strong results of the squater reflect our stained momentum supported by strong underlying fundamentals and continued progress towards strategic objectives.
Speaker Change: Second, our capital position continues to strengthen, supported by our free cash flow generation, and we are tracking well towards our 2026 outlook target.
Speaker Change: and third, as I've said in recent quarters, while we remain pleased with the progress we've made thus far. Our broader focus remains unchanged, as we continue to execute against our longer-term strategic objectives to maintain a strong balance sheet, improve free cash flow and grow the franchise.
Speaker Change: with that. Let me turn the call back over to Tina. Thank you, Chris. Let me turn the call over to the operator to begin the Q&A.
Speaker Change: Thank you, Tina. We will now open for Q&A. If you wish to ask a question, press star, then the number one on your telephone keypad to raise your hand and join the Q.
Speaker Change: When call upon to ask your question, please remember to unreach your device, and for optimal sound quality, we do ask you not to use a speaker phone, but please speak directly into your receiver or use a wired headset with a microphone. Again, that is Star One to ask a question.
Speaker Change: and your first question comes from the line of syniccumuff from Jeffreez. Please go ahead.
syniccumuff: Thanks for that. Good morning everyone. I wanted to start with a free cash flow. Chris, you give us a couple of comments. I think it's that.
syniccumuff: Above expectations and you took a dividend out of Lindbarr. So can you just maybe give us a sense of where you are kind of year to date in terms of your free cash flow and maybe how you still feel about that twenty twenty-six guy that you gave us previously.
Speaker Change: Yeah, thanks for the question, so first of all, you're right, we feel really good about the year so far and we're tracking well relative to the 2026 targets that we had put out.
Speaker Change: I think if you step back to level set, we had talked about 2023 having a 35% free cash look in version ratio and then in the outlook we gave earlier this year for 2025 we had talked about improving to 45% the 55%.
Speaker Change: and by the way, that's a long side, growth and operating earnings at the same time. One of the things we had said at the time was it won't be linear, but broadly if you thought about 35, 40, 45, 50, the question then is how are we tracking along that?
Speaker Change: You know, I think this year as we've talked about.
Speaker Change: you know we've been generating.
Speaker Change: you know, free cash flow above what we had thought. We also had sales of LSM.
Speaker Change: and at the same time, we're putting the building blocks in place to make sure that we get to that more sustained level of free cash flow.
Speaker Change: and just to reiterate some of the actions we took this year.
Speaker Change: and we took action on expenses in the first half that was broad-based.
Speaker Change: That was the use of some of that free cash flow. We took more targeted actions in the second half.
Speaker Change: But at the same time, we grew our BC from, you know, called the Low 400s to, you know, level that's in excess of our buffer. And, you know, continue to grow this quarter. We also established and capitalized the premier sub.
Speaker Change: So at the end of the day, we're generating free cash flow and slightly above our expectations, and we're also using it to build capital, optimize our operating model and invest for the business.
Speaker Change: As it relates to numbers, you know, you can back into...
Speaker Change: and some broad strokes if you think about the growth in RBC.
Speaker Change: If you think about the debt paydown that we did, we repaid about $100 million this year.
Speaker Change: We've spent all at a 140, 150 million in combination of several and some legal charges.
Speaker Change: and then we obviously are all-interactive pay 300 million of a dividend. So we're not going to give 2024 to 25 guidance, but I would just pre-emphasize that we feel really good about where we are, we feel good about the year, and we've remained well on target to hit the 2026 numbers.
Speaker Change: Okay, that sounds good. And then I guess maybe for Ellen on a newbies, sales were still pretty strong in the third quarter, even with the pullback and race. And so I guess my question is, do you think that there was any kind of pull forward if advisors were expecting that race?
Speaker Change: You know, Mike B. Lower in 25, you know, try to sell the annuities now. And somewhat relatedly, if you can just give some comments on where the growth is coming from, is it that a new money entering the industry or is it, you know, exchanges like we've seen in the past, just any color on those two things would be helpful. Thanks.
Speaker Change: for sure. So, um...
Speaker Change: and I'm going to ask you a question.
Speaker Change: We feel first of all really good about
Speaker Change: the broad-based overall annuity sales that we are seeing. And we also very much believe that we've got a unique holistic capability in that we are really strong in all three product categories that are of interest to customers and also to advisors.
Speaker Change: Overall with rates being higher, coupled with the fact that
Speaker Change: We've got demographics now where we just have more individuals that are approaching retirement and our ability to be able to provide both accumulation and income solutions in the annuity business.
Speaker Change: are definitely important customer value proposition.
Speaker Change: So while it's true that we saw a blip of rates coming down in the third quarter
Speaker Change: We see that back up again now and we know that generally speaking even as we look into 2025 that we also from just an interesting environment perspective that we continue to see the interest rates that are certainly at higher levels than they were previously coupled with the demographics.
Speaker Change: We expect to see continued strong demand, additionally what we have seen in the last couple of years is...
Speaker Change: More advisors in the overall shops that we have been in for some significant period of time Be focused on annuities as a solution for the overall customers. And again, we think that that's going to continue as we move forward.
Speaker Change: and what we've also seen by the way, so you need is that.
Speaker Change: We recognize that very much advisors are seeing that inewities are overall providing a solution.
Speaker Change: and with having multiple chassis and multiple product segments, we're able to do that. So we feel good about the levels. We believe that we will continue to be focused on profitable growth over top line growth. That is really what's most important for us because at the end of the day, we're looking to continue as Chris mentioned to accelerate and to increase our free cash flow. And we're going to be less concerned with the overall absolute volume in our new edy business and in all of our businesses.
Speaker Change: Okay, that's helpful. Thanks for the color.
Speaker Change: Your next question comes from the line of a least green stand from Wells Fargo, please go ahead.
Speaker Change: Hi, thanks. Good morning. My first question was to some of the assumption review in regards to your life business, recognized like there was a modest favorable impact. I know a couple years ago, right when Lincoln took a charge, there was an industry study that kind of drove that passion.
Speaker Change: and I believe that that study was updated this year. So it's hoping you can just kind of walk us through your assumptions and, you know, why you feel confident and didn't feel like you needed to change anything significantly this year.
Speaker Change: So at least what I would say is a couple things. One, you're right, we had a positive $8 million impact for operating and comfort. The company that was largely in the life block. We had a small $1 million benefit in a newty and then a small $1 million negative in group. But the $8 million in life.
Speaker Change: and just remind you, I mean this is an end to end process.
Speaker Change: across, you know, for the company really over 100 billion in gap reserves we look at industry studies, we look at our experience.
Speaker Change: It's a very, very rigorous.
Speaker Change: Process. And so, you know what I would say is at the end of the day, you know, this is another year, under the management team, you know, from the past two years we've...
Speaker Change: You know, had a extensive level of analysis over the past couple years to your point we took a...
Speaker Change: a charge of size a couple years ago. And this year, obviously, we look at the assumptions the same way that we do every year. And it's when we feel good about where we are. Do you have a specific question I would say that importantly?
Speaker Change: from the SUL perspective. Both policyholder behavior and mortality functions are continuing to now be in line with our experience and expectations.
Speaker Change: So, you know, there's always going to be some noise in any individual assumption. We look at policy order behavior, we look at expenses, we look at yields.
Speaker Change: We look at ranch barns, we look at mortality, but even on an individual basis, the individual items weren't nearly as significant as they've been in their space. So we feel good about the assumption review. Obviously, this is a very rigorous process as we've talked about.
Speaker Change: and so we're pleased with the outcome, sir.
Speaker Change: Thanks, and then my second question, you know, given you were talking earlier right about improved free cash flow conversion relative to you know how you guys had kind of
Speaker Change: Lately, things out earlier and then, obviously, you guys have spoken about in the past about a desire to pay down the press when they come due. So how do we think about just improve free cash, or conversion balance against playing down the press?
Speaker Change: and you did take the Lindvard dividend in the quarter. We put it all together. Do you have any updated thoughts on when we perhaps could see, you know, return to buying back your shares?
Speaker Change: Thanks for the question. I would point you to the outlook that we gave earlier this year and just reiterate that we are tracking well to achieving those targets. You know, to your point, repaying that preferred and bringing down the expensive cost of that security is a priority as is overall delivering. Our leverage ratio came down. I think it was another 50 basis point in the quarter. You know, for the year we've repaid a hundred and nine dollars of debt.
Speaker Change: So, you know, what I would say is as you look out over the next year or two, the priorities are the same. We're going to invest in our business, we're going to deliver, we're going to focus on fully leveraging Elpine, which is the permutus subsidiary as we think about establishing flow agreements for next year. And we'll continue to take targeted action around our expense initiative. So, no update relative to the guidance that we gave earlier this year. But we do feel like we're tracking well relative to the building blocks that we had laid out.
Speaker Change: [inaudible]
Speaker Change: Thank you.
Speaker Change: Before we continue on to the next question, I remind you if you would like to join the Q to please press star one on your telephone keypad if you have any additional questions or any questions at all. Good next question is from the line of Dan Bergman from TD Cohen, please go ahead.
Dan Bergman: Thanks for your morning.
Dan Bergman: With one of your competitors announcing a follow-on-re-interference transaction for guaranteeing you guarantee universal life blocks last quarter. I just wanted to get an update on how you're thinking about your remaining ULSG exposure.
Dan Bergman: and just given the seeming continued interest in these blocks of requires and the updated thoughts on the possibility for a deal and kind of what the key considerations are from your standpoint.
Speaker Change: Thanks for the question Dan, so I would say that we are always looking at what is the right thing to do for Lincoln.
Speaker Change: Obviously, we did a large deal at the end of last year as relates to the legacy life block.
Speaker Change: What I would say is the...
Speaker Change: Outlook Guide and so we've given this night.
Speaker Change: and the G-U-Law blocking particular. Without having to do a deal, but to your point, there's certainly an attractive market from a bitters and folks that have appetite for those liabilities. So we will look at all the different options I would say that our priorities at the moment are as I just laid out, you know, getting the permutative fillet up and running from a flow perspective, continuing to execute an our initiatives to drive profitable growth in our businesses and delivering. But at the end of the day, you know, rest assured, we're always looking at what makes it most sense.
Speaker Change: and I may be just following up on the earlier question on a new D-Sales. Ryle a sales in particular, Uber, strong, falling belongs to their fresh product in the prior quarters. I just wanted to see if you could give any more detail on how that second generation product is being received in the market and how sales have compared to your expectations.
Speaker Change: and just any general update on that market and competitive conditions with that big another large, the new D-Rider entering the Rylea market earlier this month.
Speaker Change: Absolutely.
Speaker Change: So, Rylea and exactly as you know that we had 1.2 billion of sales in the quarter. This is our strongest sales quarter for Rylea in nearly two years first of all.
Speaker Change: As we step back a couple of points to make about Ryle I first of all.
Speaker Change: We have been in the Rylam Market since 2018 so we've got a pretty broad understanding. We've been in the Market for a significant period of time. We've got very strong overall relationships as it relates to distribution in the Rylam space.
Speaker Change: We have continued to see a number of new entrants into this market. There's no question. It's clearly a competitive market, and at the same time, we've seen the overall addressable market grow as the customer value proposition, as I was talking about earlier, just becomes stronger.
Speaker Change: We definitely felt the need to refresh our product and the launch that we did in the middle of last quarter of Lincoln level advantage to point out. Part of what it did is it introduced a number of new features and it's one of the things that we also have done quite a bit of which is to offer unique.
Speaker Change: Product features in the market.
Speaker Change: and that enables us to compete against features not fully against price as well.
Speaker Change: and so we definitely saw some really nice traction encouraging in the quarter and we just look forward to the continuation of that going forward.
Speaker Change: I think to your point around additional competitors entering, we do expect that we're going to continue to see the addressable market grow along with that. So, yes, more competition, but yes, larger market to go get.
Speaker Change: God of the, that's really helpful. Thank you.
Speaker Change: And a final call for any questions or follow up questions, please press star 1 on your telephone keypad now to raise your hand and join the queue. I will pause for a moment for any final questions.
Speaker Change: and the
Speaker Change: There are no further questions at this time I would like to turn the call back over to Tina Madden for closing remarks.
Tina Madden: So thank you for joining us this morning. We're happy to address any follow-up questions you have. Please email us at Investor Relations at LFG.com
Speaker Change: This concludes today's conference call, enjoy the rest of your day, you may now disconnect.
Speaker Change: The
Speaker Change: [inaudible]
Speaker Change: [inaudible]
Speaker Change: The entire board.
Speaker Change: He is focused on adding value to can access.
Speaker Change: We've taken a number of decisive actions over the last six months.
Speaker Change: Which have benefited can access.
Speaker Change: And we'll add value to the company in the near and mid term.
Speaker Change: For the benefit of all shareholders, let me talk about that.
Speaker Change: We continue to review our strategy.
Speaker Change: From the inside out.
Speaker Change: And with the help of expert outside.
Speaker Change: Outside consultants.
Speaker Change: Process is reemphasize that can access us in an extremely strong position.
Speaker Change: And then we have some exciting opportunities.
Speaker Change: <unk> that go to market functions.
Speaker Change: That will enhance that position building on our many strength as a company.
Speaker Change: Working with management, and then leading external management consulting firm.
Speaker Change: We've identified the best opportunities.
Speaker Change: We organize the company to align with them.
Speaker Change: And have moved talent into the highest value rolls.
Speaker Change: We're already benefiting through the development of our growth opportunities and.
Speaker Change: <unk> seen significant improvements in profitability and free cash flow.
Speaker Change: We're steadily driving towards our 25, 5% normalized mid term adjusted EBITDA margin target.
Speaker Change: Effects that I think are in our favor at this days in.
Speaker Change: It spending predictions that Gartner has in terms of that increasing for the largest amount in the century is is a nice little tailwind that we're hoping to benefit from.
Speaker Change: Our pipeline as you mentioned.
Speaker Change: For 2025 at this point in time at the same time last year.
Speaker Change: It's much higher than it was before and the pipeline mix is a very important component of that.
Speaker Change: It's an interesting dynamic when you look at the difference between the conversion metrics on expansion revenue our extension pipeline versus a new logo and everyone realizes that what we've been doing is actually fairly incredible considering the amount of new logos that we've been bringing on compared to the install base that we havent.
Speaker Change: Worthy.
Speaker Change: Move forward as far as as we can at this stage and I'll finally finish all that with we have won.
Speaker Change: I guess not so secret tool that we have right now which is we're really pleased to have mark Morgan on.
Speaker Change: On board in <unk>.
Speaker Change: Had the pleasure of working with them now for less than a week, but I think there'll be a incredible addition brings a lot of.
Speaker Change: Supply chain.
Speaker Change: Understanding of the industry and I think there'll be a great help for accelerating that growth in the future.
Speaker Change: Great.
Speaker Change: Question for Bob Bob.
Speaker Change: You said the board Hasnt closed the door to any path should.
Speaker Change: And so those are the areas that we're seeing.
Speaker Change: Don't see necessarily.
Speaker Change: Occur being of that effect in 2025 or beyond I think that is becoming part of the norm.
Speaker Change: And is becoming part of the selling motion I suspect not only for us but for a lot of software companies that are talking about.
Speaker Change: The potency of AI and the promise of AI.
Speaker Change: The poor spending dollars, it's like okay sounds fantastical prove it.
Speaker Change: So I think those are the drivers Richard.
Speaker Change: I think that they won't subside anytime soon.
Speaker Change: I would add to it.
Speaker Change: That.
Speaker Change: If you look at our performance in some of the metrics that we've evaluated over the last few months.
Speaker Change: We're closing the best brands in the World, We're closing deals with the companies that are.
Speaker Change: Treating supply chain is the strategic.
Speaker Change: Asset.
Speaker Change: Inside their company one of the complexities of the close time is so important and AI is becoming a parameter of choice that there is expanded decision, making ceos getting well the call.
Speaker Change: The CFO are getting more and more.
Speaker Change: Integrated in that decision, making because this is best for your business stuff, but the companies that were closing.
Speaker Change: <unk> carries a tremendous amount of progress promise.
Speaker Change: The notion of artificial intelligence.
Speaker Change: Applied to supply chain is going to drive automation.
Speaker Change: Intelligent automation and I think that when you when you apply that to the overall solutions, that's what's going to ultimately build resilience so thats driving my.
Speaker Change: That's driving my confidence.
Speaker Change: And.
Speaker Change: Certainly.
Adding mark Morgan here into the equation listen I spend and I'll, probably the longest amount of hours with him.
Speaker Change: Fire to the selection he was my first pick.
Speaker Change: And I am thrilled that we were his first pick.
So I think he is going to have a pronounced impact on our on our growth as well.
Speaker Change: Thanks for taking the questions.
Speaker Change: Thanks, Paul.
Speaker Change: Our next question comes from the line of Doug Taylor from Canaccord.
Genuity Your line is open.
Doug Taylor: Yes. Thank you for taking my questions are you going to drill down from some of the bigger picture questions that have.
Been answered so far and talk about.
Speaker Change: The guidance for this year and what are.
You're signaling with that it remains a pretty wide range given how late we are in the year and so I just want to understand the implications for Q4.
Speaker Change: As the midpoint would suggest an uptick in the overall growth profile, while a similar profile to what we've seen over the last couple of quarters would suggest the lower end of the range. So my question is whether the mid or high end of the range is an achievable target.
Speaker Change: Target still for this year and whether theres something you're seeing in the market that supports that.
Speaker Change: Hum.
So the transaction without pre determination of whether it's safe on either side.
What is it due to customer sat what does it what does it do to distribution in downstream. So so that's where our AI technology is that we look forward to our next connections, which would which will be earlier.
Speaker Change: In 2025, and we will be showcasing some some new stuff there.
And Doug maybe I'll, even add onto that.
Because you said revenue and I like revenue.
One of the things that we are in board meetings, obviously, the last couple of days and our chief product Officer.
Let's start talking about the timeline of when we were expecting but we will call phase II and phase III.
Speaker Change: <unk>.
Speaker Change: Jen AI and when it's going to be ready for market.
I think people will realize is coming sooner than they think in fact the targets they have set.
They've already said for phase II. It's ahead of schedule at this stage, which as you can imagine most product.
Timelines are generally pushed back so I'm pretty excited about when I started getting that revenue and we'll see how 2025 looks.
Speaker Change: With some of those opportunities in our forecast.
Speaker Change: Alright, Thank you Blayne and thanks, John for your insights and I'll Echo everyone else's. Congratulations on your upcoming transition to what I guess would be the next phase of your contributions to this organization.
Speaker Change: Thank you so much Doug thank you.
Speaker Change: Right.
Our next question comes from the line of Blackman Brown from Redburn Atlanta.
Speaker Change: Please go ahead.
Speaker Change: <unk>.
Speaker Change: Thanks for the question.
Speaker Change: ICB.
One <unk> year to date.
Speaker Change: Does that perhaps half.
Was that correct driven by one large Bonnie I'll walk multiple attacks and just on the thanks Gail could you provide some color on the additional modules that you ought to be coming up selling into these contracts and how should we think about the ramp up.
Yeah, that's a lot of the contract.
Speaker Change: Bucklin, sorry, it's a little hard to understand you, but Blaine will do his best.