Kinaxis Inc. Reports Fourth Quarter and Full Year 2018 Results

Reports 21% growth in annual subscription revenue and annual Adjusted EBITDA⁽²⁾ of 26% of revenue⁽¹⁾

OTTAWA, Febr. 28, 2019 /CNW/ - Kinaxis® (TSX: KXS) , the leader in empowering people to make confident supply chain decisions, today reported results for its fiscal fourth quarter and year ended December 31, 2018. Kinaxis has adopted IFRS 15 and 16¹ (or "the Standards") with an initial date of application of January 1, 2018. The information for Q4 and FY 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 and on a comparative basis, Q4 2018 total revenue increased 15% to $39.5 million; total subscription revenue grew by 18% to $31.8 million; Adjusted EBITDA⁽²⁾ was down 22% to $8.7 million (22% of revenue); and profit declined to $3.0 million from $5.5 million. Giving effect to the Standards, Q4 2018 total revenue was $38.3 million, total subscription revenue was $30.6 million, Adjusted EBITDA⁽²⁾ was $9.0 million (23% of revenue) and profit was $2.9 million. Prior to the impact of the Standards full year 2018 revenue grew 16% to $155.0 million; total subscription revenue grew 21% to $122.0 million; and Adjusted EBITDA⁽²⁾ grew 2% to $40.9 million (26% of revenue). After giving effect to the standards, full year 2018 revenue was $150.7 million, total subscription revenue was $117.8 million and Adjusted EBITDA⁽²⁾ was $41.7 million (28% of revenue). 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 deliver high revenue growth and strong profitability in 2018, reflecting the sustained strength of our business. Throughout the year, we executed on a number of strategic investments including the expansion of our global sales team and key product innovations. These investments helped drive our strong financial performance and will position Kinaxis for continued growth in 2019 and beyond," said John Sicard, Kinaxis CEO. "Our stronger focus in Europe supported a number of recent blue-chip customer wins, including Novartis, Unilever and Dyson. Our partner network continues to expand, as demonstrated by the recent announcement of a partnership with EY. We continued to scale our global workforce and strengthen the management team, most recently adding Anne Robinson as Chief Strategy Officer. Finally, since product innovation remains the key to success at Kinaxis, we continued to add new product capabilities and win industry recognition for our unique product differentiation. We expect to accelerate our investments in product innovation even further in 2019."

Q4 2018 Highlights
	Under IFRS 15/16⁽¹⁾	Prior to IFRS 15/16⁽¹⁾

$ USD millions, except as otherwise indicated	Q4 2018	Q4 2018	Q4 2017	Change
Total Revenue	38.3	39.5	34.4	15%
Subscription services	28.2	31.8	27.0	18%
Subscription term licenses	2.4	-	-	-
Total subscription revenue	30.6	31.8	27.0	18%
Gross profit	25.9	27.0	24.7	9%
	(68%)	(68%)	(72%)
Profit	2.9	3.0	5.5	(46%)
	($0.11/diluted share)	($0.11/diluted share)	($0.21/diluted share)
Adjusted EBITDA⁽²⁾	9.0	8.7	11.2	(22%)
	(23%)	(22%)	(32%)

FY 2018 Highlights
	Under IFRS 15/16⁽¹⁾	Prior to IFRS 15/16⁽¹⁾
$ USD millions, except as otherwise indicated	FY 2018	FY 2018	FY 2017	Change
Total Revenue	150.7	155.0	133.3	16%
Subscription services	107.9	122.0	100.8	21%
Subscription term licenses	9.9	-	-	-
Total subscription revenue	117.8	122.0	100.8	21%
Gross profit	103.7	107.8	93.5	15%
	(69%)	(70%)	(70%)
Profit	14.4	15.8	20.4	(22%)
	($0.54/diluted share)	($0.59/diluted share)	($0.77/diluted share)
Adjusted EBITDA⁽²⁾	41.7	40.9	40.1	2%
	(28%)	(26%)	(30%)

(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 months and year ended December 31, 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 Q4 2018 vs Q4 2017 and FY 2018 vs FY 2017 Financial Highlights

As noted in our financial statements and management's discussion and analysis (MD&A) for the three and twelve months ended December 31, 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 fourth quarter and full year of 2018, subscription services revenue grew by 18% to $31.8 million, and by 21% to $122.0 million, respectively, due to contracts secured with new customers, as well as expansion of existing customer subscriptions. Over the same periods, total revenue grew by 15% to $39.5 million and 16% to $155.0 million, respectively. After applying the Standards, in the fourth quarter and full year of 2018, subscription services revenue was $28.2 million and $107.9 million, respectively, and subscription term license revenue was $2.4 million and $9.9 million, respectively (for total subscription revenue of $30.6 million and $117.8 million, respectively). After applying the Standards, total revenue was $38.3 million in Q4 2018 and $150.7 million in FY 2018.

Prior to the effect of the Standards, in the fourth quarter and full year of 2018, respectively, gross profit grew 9% to $27.0 million (gross margin: 72% to 68%) and grew 15% to $107.8 million (gross margin: consistent at 70%). The lower gross margin in Q4 2018 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 Japan, to support new and ongoing customer engagements as well as global expansion. After applying the Standards, gross profit was $25.9 million (gross margin: 68%) in the fourth quarter, and $103.7 million (gross margin: 69%) for the full year of 2018.

Prior to the effect of the Standards, profit for the fourth quarter was $3.0 million ($0.11 per diluted share), compared to $5.5 million ($0.21 per diluted share) in Q4 2017. For the full year of 2018, profit was $15.8 million ($0.59 per diluted share), compared to $20.4 million ($0.77 per diluted share) in 2017. The decrease in profit in both periods reflects an increase in operating expenses incurred to support expansion of our global operations and ongoing product innovation, net of increases in revenue and gross profit. After applying the Standards, profit for the fourth quarter and full year of 2018 was $2.9 million ($0.11 per diluted share) and $14.4 million ($0.54 per diluted share), respectively.

Prior to the effect of the Standards, Adjusted EBITDA⁽²⁾ for the fourth quarter and full year of 2018 declined 22%, to $8.7 million (22% of revenue), and grew 2% to $40.9 million (26% of revenue), respectively. The decrease in Q4 2018 Adjusted EBITDA was due to an increase in operating expenses net of an increase in revenue and gross profit. The increase in Adjusted EBITDA for the full year was due to an increase in revenue and gross profit. After applying the Standards, for the fourth quarter and full year of 2018 Adjusted EBITDA⁽²⁾ was $9.0 million (23% of revenue) and $41.7 million (28% of revenue), respectively.

Cash generated by operating activities for the fourth quarter and full year of 2018, respectively, was $6.7 million, compared to $12.5 million, and $27.9 million, compared to $33.6 million. The decrease for the three months and year was due to an increase in trade and other receivables. Cash and cash equivalents and short-term investments were $181.5 million at December 31, 2018, compared to $158.5 million at December 31, 2017.

Financial Guidance

In order to better show revenue growth related to the company's core SaaS business, in 2019 Kinaxis will be presenting SaaS (or cloud-based) revenue separately while combining the maintenance and support revenue related to Subscription term licenses (currently reported as part of "Subscription services", together with SaaS revenue) with the maintenance and support related to its legacy perpetual licenses. On this basis, the company provides the following guidance for 2019.

	2018 Actual	2019 Guidance
Total revenue	150.7	$183-188
SaaS	97.2⁽³⁾	22-24% growth
Subscription term licenses	9.9	$20-22
Maintenance and support, Subscription term licenses	10.7⁽³⁾
Maintenance and support, legacy perpetual licenses	1.1
Total Maintenance and support	11.8
Professional services	31.9
Adjusted EBITDA margin	28%	23-25%

(3)	FY 2018 Subscription services revenue of $107.9 million is composed of $97.2 million in SaaS revenue plus $10.7 million in Maintenance and support related to Subscription term licenses.

"We are pleased to provide guidance for fiscal 2019 that reflects accelerating revenue growth and continued strong profitability. Key 2019 investments will include the accelerated growth of our engineering team to further drive product innovation, together with the continued expansion of our global sales, marketing and support teams," 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. The nature of the company's long-term contracts provides visibility into future, contracted revenue. The following table presents revenue, based on the Standards, expected to be recognized in the future related to performance obligations that are unsatisfied (or partially unsatisfied) at December 31, 2018.

	2019	2020	2021 and thereafter	Total
SaaS	100.4	62.1	59.8	222.3
Subscription term license support	8.4	3.2	2.2	13.8
Subscription term license	0.2	-	-	0.2
Maintenance and support	0.9	0.2	0.1	1.2
Total	109.9	65.5	62.1	237.5

This press release, along with the financial statements and Kinaxis' MD&A for the three and twelve months ended December 31, 2018, are available on Kinaxis' website and on SEDAR at www.sedar.com.

Conference Call
Kinaxis will host a conference call tomorrow, March 1, 2019, 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, March 1, 2019
Time:	8:30 a.m. Eastern Time
Webcast:	https://bit.ly/2RNQTGD
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, March 8, 2019
Reference number:	9191697

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.

Eliminating volatility in your supply chain is impossible, but managing it is not. Trusted by top brands, Kinaxis®gives people the confidence to know they are making the best supply chain planning decisions to maximize business performance. We solve complex business problems in easy-to-understand ways by combining human and machine intelligence to plan for any future, monitor risks and opportunities and respond at the pace of change. With the support of our community of supply chain experts and using our unique concurrent planning technique and single integrated planning platform, customers can realize higher revenue, lower costs and fewer risks. For more Kinaxis news, follow us on LinkedIn, Twitter or Facebook.

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 December 31,					Year ended December 31,
				Pre-IFRS 15/16					Pre-IFRS 15/16
	2018		2018		2017		2018		2018		2017		2016
	(In thousands of USD)

Profit	$	2,925	$	2,978	$	5,485	$	14,408	$	15,846	$	20,383	$	10,745
Share-based compensation		2,924		2,924		2,334		11,568		11,568		9,746		8,140
Adjusted profit	$	5,849	$	5,902	$	7,819	$	25,976	$	27,414	$	30,129	$	18,885
Income tax expense		1,796		2,028		2,584		8,068		8,788		7,375		7,258
Depreciation		2,571		1,894		1,101		9,272		6,728		3,618		2,494
Foreign exchange loss (gain)		(22)		117		31		181		507		84		198
Net finance income		(1,208)		(1,270)		(378)		(1,810)		(2,583)		(1,131)		(307)
		3,137		2,769		3,338		15,711		13,440		9,946		9,643
Adjusted EBITDA	$	8,986	$	8,671	$	11,157	$	41,687	$	40,854	$	40,075	$	28,528
Adjusted EBITDA as a percentage of revenue		23%		22%		32%		28%		26%		30%		25%

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 SaaS and Subscription term licenses revenue, and our expectations for Adjusted EBITDA margin achievement, in each case looking forward for our fiscal year ending December 31, 2019, 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 2019 annual total revenue, annual SaaS and Subscription term licenses revenue and annual Adjusted EBITDA margin, 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, 2019, 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.
Consolidated Statements of Financial Position

As at December 31, 2018 and December 31, 2017
(Expressed in thousands of USD)

	2018	2017*

Assets

Current assets:
Cash and cash equivalents	126,144	103,392
Short-term investments	55,404	55,138
Trade and other receivables	64,330	31,651
Investment tax credits recoverable	-	911
Prepaid expenses	5,815	4,196
	251,693	195,288

Non-current assets:
Property and equipment	22,785	17,350
Right-of-use assets	8,873	-
Contract acquisition costs	13,902	-
Unbilled receivables	457	-
Deferred tax assets	49	55

	297,759	212,693

Liabilities and Shareholders' Equity

Current liabilities:
Trade payables and accrued liabilities	21,623	11,176
Deferred revenue	78,496	67,040
Lease obligations	2,572	-
	102,691	78,216
Non-current liabilities:
Deferred revenue	-	7,745
Lease obligations	6,311	-
Deferred tax liabilities	4,075	1,944
	10,386	9,689

Shareholders' equity:
Share capital	124,951	108,253
Contributed surplus	24,284	19,294
Accumulated other comprehensive loss	(319)	(284)
Retained earnings (Deficit)	35,766	(2,475)
	184,682	124,788

	297,759	212,693

The Company adopted IFRS 15 and 16 as described in Note 4 to the Consolidated Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Consolidated Statements of Comprehensive Income

For the three months and years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share data)
	For the three months ended December 31,		For the year ended December 31,
	2018	2017*	2018	2017*

Revenue	38,299	34,423	150,727	133,317

Cost of revenue	12,390	9,737	47,032	39,780

Gross profit	25,909	24,686	103,695	93,537

Operating expenses:
Selling and marketing	10,285	7,882	35,055	29,280
Research and development	7,105	5,608	27,626	23,691
General and administrative	5,028	3,474	20,167	13,855
	22,418	16,964	82,848	66,826

	3,491	7,722	20,847	26,711
Other income (expense):
Foreign exchange loss	22	(31)	(181)	(84)
Net finance income	1,208	378	1,810	1,131
	1,230	347	1,629	1,047

Profit before income taxes	4,721	8,069	22,476	27,758

Income tax expense	1,796	2,584	8,068	7,375

Profit	2,925	5,485	14,408	20,383

Other comprehensive income (loss)
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations	178	(131)	(35)	235

Total comprehensive income	3,103	5,354	14,373	20,618

Basic earnings per share	0.11	0.22	0.56	0.81

Weighted average number of basic Common Shares	26,037,096	25,457,874	25,820,518	25,314,091

Diluted earnings per share	0.11	0.21	0.54	0.77

Weighted average number of diluted Common Shares	26,812,260	26,502,885	26,824,435	26,479,621

The Company adopted IFRS 15 and 16 as described in Note 4 to the Consolidated Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Consolidated Statements of Changes in Shareholders' Equity

For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD)

	Share capital	Contributed surplus	Accumulated other comprehensive loss	Deficit	Total equity*




Balance, December 31, 2016	97,164	13,924	(519)	(22,858)	87,711

Profit	-	-	-	20,383	20,383
Other comprehensive income	-	-	235	-	235
Total comprehensive income	-	-	235	20,383	20,618

Share options exercised	9,437	(2,724)	-	-	6,713
Restricted share units vested	1,652	(1,652)	-	-	-
Share based payments	-	9,746	-	-	9,746
Total shareholder transactions	11,089	5,370	-	-	16,459

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	-	-	-	14,408	14,408
Other comprehensive income	-	-	(35)	-	(35)
Total comprehensive income (loss)	-	-	(35)	14,408	14,373

Share options exercised	14,012	(3,892)	-	-	10,120
Restricted share units vested	1,834	(1,834)	-	-	-
Deferred share units exercised	852	(852)	-	-	-
Share based payments	-	11,568	-	-	11,568
Total shareholder transactions	16,698	4,990	-	-	21,688

Balance, December 31, 2018	124,951	24,284	(319)	35,766	184,682

The Company adopted IFRS 15 and 16 as described in Note 4 to the Consolidated Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Consolidated Statements of Cash Flows

For the three months and years ended December 31, 2018 and 2017
(Expressed in thousands of USD)

	For the three months ended December 31,		For the year ended December 31,
	2018	2017*	2018	2017*

Cash flows from operating activities:

Profit	2,925	5,485	14,408	20,383
Items not affecting cash:
Depreciation of property and equipment	2,571	1,101	9,272	3,618
Share-based payments	2,924	2,334	11,568	9,746
Amortization of lease inducement	-	-	-	(18)
Investment tax credits recoverable	-	376	911	(156)
Net finance income	(1,208)	(378)	(1,810)	(1,131)
Income tax expense	1,796	2,584	8,068	7,375
Change in operating assets and liabilities	(4,089)	1,509	(13,215)	(2,629)
Interest received	1,100	378	2,413	999
Interest paid	(62)	-	(773)	-
Income taxes paid	697	(875)	(2,927)	(4,624)
	6,654	12,514	27,915	33,563

Cash flows used investing activities:
Purchase of property and equipment	(1,198)	(5,845)	(12,310)	(10,149)
Purchase of short-term investments	(27,597)	(20,000)	(112,684)	(80,006)
Redemption of short-term investments	42,539	20,000	112,588	25,000
	13,744	(5,845)	(12,406)	(65,155)

Cash flows from financing activities:
Payment of lease obligations	(582)	-	(2,160)	-
Common shares issued on exercise of stock options	478	281	10,120	6,713
	(104)	281	7,960	6,713

Increase in cash and cash equivalents	20,294	6,950	23,469	(24,879)

Cash and cash equivalents, beginning of period	106,040	96,429	103,392	127,910

Effects of exchange rates on cash and cash equivalents	(190)	13	(717)	361

Cash and cash equivalents, end of period	126,144	103,392	126,144	103,392

The Company adopted IFRS 15 and 16 as described in Note 4 to the Consolidated Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

SOURCE Kinaxis Inc.

News Release

Kinaxis Inc. Reports Fourth Quarter and Full Year 2018 Results