Press Release

Kinaxis Inc. Reports Third Quarter 2018 Results

Reports 19% growth in subscription revenue and Adjusted EBITDA(2) of 31% of revenue(1)

OTTAWA, Nov. 8, 2018 /CNW/ - Kinaxis® (TSX: KXS), provider of RapidResponse®, the recognized leader in digital supply chain management for concurrent planning, today reported results for its fiscal third quarter ended September 30, 2018. Kinaxis has adopted IFRS 15 and 16(1) (or "the Standards") with an initial date of application of January 1, 2018. The information for Q3 2018 has been presented both before and after adoption of the Standards, while the information presented for 2017 has not been restated.

Prior to the effect of the Standards, Q3 2018 total revenue was up 18% to $39.6 million, subscription services revenue grew by 19% to $30.7 million, Adjusted EBITDA(2) was up 14% to $12.3 million (31% of revenue), and profit declined to $5.2 million from $6.0 million, all compared to Q3 2017. Giving effect to the Standards, Q3 2018 total revenue was $36.6 million, total subscription revenue was $27.7 million, Adjusted EBITDA(2) was $9.5 million (26% of revenue) and profit was $2.7 million. All amounts are in U.S. dollars. All figures are prepared in accordance with International Financial Reporting Standards (IFRS), unless otherwise indicated.

"We continued to execute on key strategic initiatives this past quarter including the expansion of our global sales and operations, particularly in Europe. Our overall pipeline continues to grow and strengthen.  The current quarter and 2018 full-year subscription revenue growth is slightly lower than expectation due to a number of late stage deals slipping outside of Q3. We are very confident in closing these opportunities, and more importantly, remain confident in achieving our goal of accelerated growth in 2019," said John Sicard, Chief Executive Officer of Kinaxis. "Our continuing success is built on the unique concurrent planning capabilities of our RapidResponse platform. Validating this differentiation, Gartner has once again recognized Kinaxis as a leader in their Magic Quadrant for Supply Chain Planning System of Record, positioning us as the leader with respect to completeness of vision. Ventana Research provided further validation by honoring Kinaxis as a Digital Innovation Award winner in the Operations and Supply Chain category for our use of machine learning techniques to create the Kinaxis Self-Healing Supply Chain solution. I am more excited than ever about our position in the market and our opportunity to help companies transform their supply chain performance."

 

Q3 2018 Highlights





Under IFRS 15/16(1)

Prior to IFRS 15/16(1)

$ USD millions, except as otherwise indicated

Q3 2018

Q3 2018

Q3 2017

Change

Total Revenue

36.6

39.6

33.5

18%

Subscription services

27.2

30.7

25.8

19%

Subscription term licenses

0.5

-

-

-

Total subscription revenue

27.7

30.7

25.8

19%

Gross profit

24.6

27.6

23.8

16%


(67%)

(70%)

(71%)


Profit

2.7

5.2

6.0

(13%)


($0.10/diluted share)

($0.19/diluted share)

($0.23/diluted share)


Adjusted EBITDA(2)

9.5

12.3

10.8

14%


(26%)

(31%)

(32%)


Cash from operating activities

2.0

2.0

3.3

(40%)



(1)

Kinaxis has adopted IFRS 15, using the cumulative effect method, and IFRS 16, using the modified retrospective approach, and an initial date of application of January 1, 2018. Accordingly, the information presented for 2017 has not been restated. The impact of the adoption of IFRS 15 relates primarily to accounting for Kinaxis' revenue from on-premise, fixed term subscription arrangements and capitalization of contract acquisition costs. IFRS 16 specifies how to recognize, measure, present and disclose leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities for all major leases. See the Kinaxis financial statements and MD&A for the three and nine months ended September 30, 2018 for further information.

(2)

"Adjusted EBITDA" is a non-IFRS measure and is not a recognized, defined or a standardized measure under IFRS. This measure as well as other non-IFRS financial measures reported by Kinaxis are defined in the "Non-IFRS Measures" section of this news release.

 

Analysis of Q3 2018 vs Q3 2017 Financial Highlights

As noted in our financial statements and management's discussion and analysis (MD&A) for the three and nine months ended September 30, 2018, Kinaxis adopted the Standards on January 1, 2018.  We have not restated the 2017 comparative information but have also presented the 2018 results prior to giving effect to the Standards, to create a basis for this comparative analysis.  

Prior to the effect of the Standards, in the third quarter of 2018 subscription services revenue grew by 19% to $30.7 million, due to contracts secured with new customers, as well as expansion of existing customer subscriptions. Total revenue grew 18%, to $39.6 million. After applying the Standards, subscription services revenue was $27.2 million, subscription term license revenue was $0.5 million (for total subscription revenue of $27.7 million), and total revenue was $36.6 million.

Prior to the effect of the Standards, in the third quarter of 2018 gross profit grew 16% to $27.6 million and gross profit margin was 70% compared to 71%. The slightly lower gross profit margin reflects increases in headcount and related compensation costs and higher depreciation costs associated with the expansion of data center capacity, including new data centers in Europe and Japan, to support new and ongoing customer engagements as well as global expansion. Prior to the effect of the Standards, Profit for the third quarter of 2018 was $5.2 million ($0.19 per diluted share), compared to $6.0 million ($0.23 per diluted share). The decrease in profit reflects an increase in operating expenses incurred to support our global expansion and ongoing product innovation, net of increases in revenue and gross profit. After applying the Standards, gross profit was $24.6 million, or 67% of revenue, and profit was $2.7 million ($0.10 per diluted share).

Prior to the effect of the Standards, Adjusted EBITDA(2) for the third quarter of 2018 grew 14%, to $12.3 million, or 31% of revenue, which reflects the growth in revenue and gross profit in the period. After applying the Standards, Adjusted EBITDA(2) was $9.5 million, or 26% of revenue.

Cash generated by operating activities was $2.0 million for the third quarter of 2018, down from $3.3 million.  Cash and cash equivalents were $176.1 million at September 30, 2018, compared to $158.4 million at December 31, 2017.

Financial Guidance

Kinaxis is updating the guidance it previously provided for certain key financial targets, both prior to and after adoption of the Standards.  The following are the updated financial targets for FY 2018:

 

$ USD millions, except as otherwise indicated

Under IFRS 15/16
FY 2018

Prior to IFRS 15/16
FY 2018

Total revenue

$152-153

$155-157

Subscription services revenue

$107-108

21-22% growth

Subscription term licenses

$9-10

-

Adjusted EBITDA margin

25-28% of revenue

25-27% of revenue

 

"We have adjusted revenue guidance slightly to reflect the delays in closing certain new business, while reaffirming our strong EBITDA guidance. Next quarter, we expect to provide guidance for 2019 that reflects accelerating revenue growth," said Richard Monkman, Chief Financial Officer.

This guidance is provided to enhance visibility into Kinaxis' expectations for financial targets for the periods indicated. Please refer to the section regarding forward-looking statements which forms an integral part of this release.

This press release, along with the financial statements and Kinaxis' MD&A for the three and nine months ended September 30, 2018, are available on Kinaxis' website and on SEDAR at www.sedar.com.

Conference Call
Kinaxis will host a conference call tomorrow, November 9, 2018, to discuss these results. John Sicard, Chief Executive Officer, and Richard Monkman, Chief Financial Officer, will host the call starting at 8:30 a.m. Eastern time. A question and answer session will follow management's presentation.

 

Date:

Friday, November 9, 2018

Time:

8:30 a.m. Eastern Time

Webcast:

https://bit.ly/2R1PLdA

Dial-in number:

(647) 427-7450 or (888) 231-8191

Replay:

(416) 849-0833 or (855) 859-2056


Available until 12:00 midnight Eastern Time Friday, November 16, 2018

Reference number:

8752009

 

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization.

About Kinaxis Inc.
As the recognized leader in digital supply chain management for concurrent planning, Kinaxis is helping organizations around the world revolutionize their supply chain planning. Kinaxis RapidResponse, our cloud-based supply chain management software, connects your data, processes and people into a single harmonious environment. With a consolidated view of the entire supply chain, you can plan expected performance, monitor progress and respond to disconnects when reality hits. RapidResponse lets you know sooner and act faster, leading to reduced decision latency, and improved operational and financial performance. We can prove it. From implementation to expansion, we're here to help our customers with every step of their supply chain journey.

Non-IFRS Measures
This news release contains non-IFRS measures, specifically, Adjusted profit, Adjusted diluted earnings per share and Adjusted EBITDA. We use Adjusted profit and Adjusted diluted earnings per share, which remove the impact of our redeemable preferred shares and share based compensation plans, to measure our performance as these measurements better align the reporting of our results and improve comparability against our peers. We use Adjusted EBITDA to provide investors with a supplemental measure of our operating performance and thus highlight trends in our core business that may not otherwise be apparent when relying solely on IFRS financial measures.  We believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in the evaluation of issuers.  Management also uses non-IFRS measures in order to facilitate operating performance comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital expenditure and work capital requirements. Adjusted profit, Adjusted diluted earnings per share and Adjusted EBITDA are not recognized, defined or standardized measures under IFRS. Our definition of Adjusted profit, Adjusted diluted earnings per share and Adjusted EBITDA will likely differ from that used by other companies (including our peers) and therefore comparability may be limited. Non-IFRS measures should not be considered a substitute for or in isolation from measures prepared in accordance with IFRS. Investors are encouraged to review our financial statements and disclosures in their entirety and are cautioned not to put undue reliance on non-IFRS measures and view them in conjunction with the most comparable IFRS financial measures. Kinaxis has reconciled Adjusted profit and Adjusted EBITDA to the most comparable IFRS financial measure as follows:

 


Three months ended September 30,


Nine months ended September 30,



Pre-IFRS 15/16



Pre-IFRS 15/16


2018

2018

2017


2018

2018

2017


(In thousands of U.S. dollars)









Profit

$

2,665

$

5,233

$

6,032


$

11,483

$

12,868

$

14,898

Share-based compensation

2,959

2,959

2,299


8,644

8,644

7,412

Adjusted profit

$

5,624

$

8,192

$

8,331


$

20,127

$

21,512

$

22,310

Income tax expense

1,333

2,765

1,817


6,272

6,760

4,791

Depreciation

2,649

1,809

911


7,199

4,834

2,517

Foreign exchange loss

177

41

30


203

390

53

Net finance income

(264)

(506)

(276)


(602)

(1,313)

(753)


3,895

4,109

2,482


13,072

10,671

6,608

Adjusted EBITDA

$

9,519

$

12,301

$

10,813


$

33,199

$

32,183

$

28,918

Adjusted EBITDA as a percentage of revenue

26%

31%

32%


30%

28%

29%

 

Forward-Looking Statements
Certain statements in this release constitute forward-looking statements within the meaning of applicable securities laws.  Forward-looking statements include statements as to our expectations for growth of annual total revenue, annual subscription services and term license revenue, and our expectations for Adjusted EBITDA achievement, in each case looking forward for the balance of our fiscal year ending December 31, 2018, as well as statements as to Kinaxis' growth opportunities and the potential benefits of, and markets and demand for, Kinaxis' products and services. These statements are subject to certain assumptions, risks and uncertainties, including our view of the relative position of Kinaxis' products and services compared to competitive offerings in the industry.

In particular, our guidance for 2018 annual total revenue, annual subscription services and term license revenue and annual Adjusted EBITDA, is subject to certain assumptions, including:

  • our ability to win business from new customers and expand business from existing customers;
  • the timing of new customer wins and expansion decisions by our existing customers;
  • maintaining our current customer retention levels; and
  • with respect to Adjusted EBITDA, our ability to contain expense levels while expanding our business.   

These and other assumptions, risks and uncertainties may cause Kinaxis' actual results, performance, achievements and developments to differ materially from the results, performance, achievements or developments expressed or implied by forward-looking statements. Material risks and uncertainties relating to our business are described under the headings "Forward-Looking Statements" and "Risks and Uncertainties" in our annual MD&A dated February 28, 2018, under the heading "Risk Factors" in our Annual Information Form dated March 29, 2018, and in our other public documents filed with Canadian securities regulatory authorities, which are available at www.sedar.com. Forward-looking statements are provided to help readers understand management's expectations as at the date of this release and may not be suitable for other purposes. Readers are cautioned not to place undue reliance on forward-looking statements. Kinaxis assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by law.

 

Kinaxis Inc.

Condensed Consolidated Interim Statements of Financial Position


As at September 30, 2018 and December 31, 2017

(Expressed in thousands of U.S. dollars)

(Unaudited)



September 30,
2018

December 31,
2017*




Assets






Current assets:



Cash and cash equivalents

$

176,084

$

158,398

Trade and other receivables 

36,953

31,783

Investment tax credits recoverable

-

911

Prepaid expenses

7,200

4,196


220,237

195,288




Non-current assets:



Property and equipment 

23,532

17,350

Right-of-use assets

12,581

-

Contract acquisition costs

13,069

-

Unbilled receivables

259

-

Deferred tax assets

15

55





$

269,693

$

212,693




Liabilities and Shareholders' Equity






Current liabilities:



Trade payables and accrued liabilities 

$

17,418

$

11,176

Deferred revenue

51,077

67,040

Lease obligations

3,215

-


71,710

78,216

Non-current liabilities:



Deferred revenue

1,991

7,745

Lease obligations

9,490

-

Deferred tax liabilities

8,325

1,944


19,806

9,689




Shareholders' equity:



Share capital 

122,489

108,253

Contributed surplus

23,344

19,294

Accumulated other comprehensive loss

(497)

(284)

Retained earnings (deficit)

32,841

(2,475)


178,177

124,788





$

269,693

$

212,693


 

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

 

Kinaxis Inc.

Condensed Consolidated Interim Statements of Comprehensive Income


For the three and nine months ended September 30, 2018 and 2017

(Expressed in thousands of U.S. dollars, except share and per share data)

(Unaudited)



For the three months
ended September 30,

For the nine months
ended September 30,


2018

2017*

2018

2017*






Revenue 

$

36,585

$

33,486

$

112,428

$

98,894






Cost of revenue

12,014

9,681

34,642

30,043






Gross profit

24,571

23,805

77,786

68,851






Operating expenses:





Selling and marketing

8,487

7,100

24,770

21,398

Research and development 

6,415

5,986

20,521

18,083

General and administrative

5,758

3,116

15,139

10,381


20,660

16,202

60,430

49,862







3,911

7,603

17,356

18,989

Other income (expense):





Foreign exchange loss

(177)

(30)

(203)

(53)

Net finance income 

264

276

602

753


87

246

399

700






Profit before income taxes

3,998

7,849

17,755

19,689






Income tax expense

1,333

1,817

6,272

4,791






Profit 

2,665

6,032

11,483

14,898






Other comprehensive income (loss)










Items that are or may be reclassified subsequently to profit or loss:





Foreign currency translation differences - foreign operations

(170)

2

(213)

131






Total comprehensive income

$

2,495

$

6,034

$

11,270

$

15,029






Basic earnings per share

$

0.10

$

0.24

$

0.45

$

0.59






Weighted average number of basic Common Shares 


25,974,858


25,417,766


25,747,532


25,265,637






Diluted earnings per share

$

0.10

$

0.23

$

0.43

$

0.56






Weighted average number of diluted Common Shares


26,894,970


26,507,279


26,786,436


26,440,167

 

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

 

Kinaxis Inc.

Condensed Consolidated Interim Statements of Changes in Shareholders' Equity


For the nine months ended September 30, 2018 and 2017

(Expressed in thousands of U.S. dollars)

(Unaudited)





Accumulated






other

Retained



Share

Contributed

comprehensive

earnings



capital

surplus

income (loss)

(deficit)

Total equity*







Balance, December 31, 2016

$

97,164

$

13,924

$

(519)

$

(22,858)

$

87,711







Profit

-

-

-

14,898

14,898

Other comprehensive income

-

-

131

-

131

Total comprehensive income

-

-

131

14,898

15,029







Share options exercised

9,056

(2,624)

-

-

6,432

Share based payments

-

7,412

-

-

7,412

Total shareholder transactions

9,056

4,788

-

-

13,844







Balance, September 30, 2017

$

106,220

$

18,712

$

(388)

$

(7,960)

$

116,584







Balance, December 31, 2017

$

108,253

$

19,294

$

(284)

$

(2,475)

$

124,788







Adjustment on initial application of IFRS 15

-

-

-

23,833

23,833

Adjusted balance, January 1, 2018

108,253

19,294

(284)

21,358

148,621







Profit

-

-

-

11,483

11,483

Other comprehensive loss

-

-

(213)

-

(213)

Total comprehensive income (loss)

-

-

(213)

11,483

11,270







Share options exercised

13,384

(3,742)

-

-

9,642

Deferred share units exercised

852

(852)

-

-

-

Share based payments

-

8,644

-

-

8,644

Total shareholder transactions

14,236

4,050

-

-

18,286







Balance, September 30, 2018

$

122,489

$

23,344

$

(497)

$

32,841

$

178,177

 

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

 


Kinaxis Inc.

Condensed Consolidated Interim Statements of Cash Flows


For the three and nine months ended September 30, 2018 and 2017

(Expressed in thousands of U.S. dollars)

(Unaudited)



For the three months
ended September 30,

For the nine months
ended September 30,


2018

2017*

2018

2017*






Cash flows from operating activities:










Profit 

$

2,665

$

6,032

$

11,483

$

14,898

Items not affecting cash:





Depreciation of property and equipment and right-of-use assets

2,649

911

7,199

2,517

Share-based payments

2,959

2,299

8,644

7,412

Amortization of lease inducement

-

-

-

(18)

Investment tax credits recoverable

-

310

911

(532)

Net finance income

(264)

-

(602)

-

Income tax expense

1,333

1,817

6,272

4,791

Change in operating assets and liabilities

(6,519)

(7,436)

(9,126)

(4,270)

Interest received

506

-

1,313

-

Interest paid

(242)

-

(711)

-

Income taxes paid

(1,125)

(662)

(3,624)

(3,749)


1,962

3,271

21,759

21,049






Cash flows used investing activities:










Purchase of property and equipment

(1,762)

(2,660)

(11,112)

(4,304)






Cash flows from financing activities:










Payment of lease obligations

(724)

-

(2,006)

-

Common shares issued on exercise of stock options

2,503

510

9,642

6,432


1,779

510

7,636

6,432






Increase in cash and cash equivalents

1,979

1,121

18,283

23,177






Cash and cash equivalents, beginning of period

174,577

150,425

158,398

127,910






Effects of exchange rates on cash and cash equivalents

(472)

(111)

(597)

348






Cash and cash equivalents, end of period

$

176,084

$

151,435

$

176,084

$

151,435

 

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

 

SOURCE Kinaxis Inc.

 

Investor Relations

Rick Wadsworth | Kinaxis
rwadsworth@kinaxis.com
(613) 907-7613

Media Relations

Danielle McNeil Taylor | Kinaxis
Tel: (343) 998-7284 
dmcneiltaylor@kinaxis.com