Market Movers: Kneat.com

Specialized enterprise software company Kneat.com Inc. (TSXV: KSI) was off $0.08 yesterday on 77k shares of volume to close at $2.50, taking a bit of a rest after hitting a 52 week high Wednesday like it was the coping on a vert ramp. KSI is up +29% since the release of its September quarterlies on November 26, and up +47% since the end of that reporting period. Wednesday’s +$0.18 rally caught our attention because it put KSI among the TSX Venture’s leaders in dollar weighted volume, so we took a closer look at the business behind one of the Venture’s strongest equities.

The $1.5 million that kneat.com took in in the quarter ending in September produced a 62% gross margin. The comprehensive bottom line loss for the quarter was $1.3 million. All of the major expense categories are growing at a rate far below the rate that the company is growing its revenue, indicating a sustainable scalability.

KSI’s tight cap table jumps right off the page. There are 60 million shares outstanding, only 3 million options outstanding and 462k warrants priced at $1.00. Between the clean structure and the juicy scalable margin, the similarities to VersaPay (TSXV: VPY) are striking.

We first wrote about VPY in the Market Movers column on December 3, and most recently when the company cut a deal to be taken private by private equity firm Great Hill Partners December 10. The market’s appetite for this type of venture stage business is clear and unsurprising. It’s likely that the parade of appealing narratives being acted out atop rotten cap tables made of trap doors in particle board will resume soon enough, and those types of venture stocks will continue to have their moments, but this trend towards aggressive quality is most welcome.

kneat.com features quotes of nice things that clients have to say about their software.

Kneat.com makes software that handles doc management and process verification for pharma, biotech and medical device manufacturers. Cannabis investors might be familiar with the concept of GMP certification of facilities from cannabis industry press releases touting a company’s notional ability to supply a notional export market. To maintain GMP certification, facilities must verify that the individual stages of the process they’re undertaking are being done to spec, and maintain records of those verifications. It makes the verification process and its audit easier, quicker and less time consuming.

There is a certain beauty in the simplicity of this enterprise. It does one thing (develops software for a specific application), along with all the things associated with that thing (installation, maintenance, training). By all accounts, it does it well. The pharmaceutical manufacturing business did US$92 billion in 2017 in the United States alone, so the market for that one thing is enormous.

KSI is careful with their money. They raised $12 million earlier this year in two private placements at a very attractive all in cost of capital that averaged 11%, and had a $6.9 million cash balance at the end of September.

Kneat.com Inc last traded at $2.50 on the TSX Venture.


Information for this briefing was found via Sedar and Kneat.com Inc. The author has no securities or affiliations related to these organizations. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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