Halogen Announces Fourth Quarter and Full Year 2013 Results

• Highlights include record recurring, total and international revenue
• Record number of new customer wins; customer count increased to nearly 2,000

OTTAWA, Feb. 20, 2014 /CNW/ - Halogen Software Inc. ("Halogen" or the "Company") (TSX: HGN), a leading provider of cloud based talent management solutions, today announced its financial results for the three and twelve months ended December 31, 2013. All figures are stated in United States dollars unless otherwise noted.

Fourth Quarter 2013 Financial Highlights

• Recurring revenue increased 28% from Q4 2012 to a record $11.2 million, representing 89% of total revenue in the quarter.
• Total revenue increased 24% from Q4 2012 to a record $12.6 million.
• Revenue generated in international markets outside Canada and the United States increased a record 99% over Q4 2012.
• Adjusted EBITDA¹ was $(0.6) million in Q4 2013 compared to $(1.2) million in Q4 2012; Adjusted EBITDA per share¹ was $(0.03) per share in Q4 2013, compared to $(0.10) per share in Q4 2012.
• Total cash, cash equivalents and investments was $55.9 million at December 31, 2013 compared to $8.9 million at December 31, 2012.

Full Year 2013 Financial and Operating Highlights

• Recurring revenue increased 29% from 2012 to a record $42.1 million, representing 88% of total revenue in the year.
• Total revenue increased 26% from 2012 to a record $48.0 million.
• Revenue generated in international markets outside Canada and the United States increased 71% over 2012.
• Adjusted EBITDA¹ was $(2.5) million in fiscal 2013 versus $(3.5) million in fiscal 2012; Adjusted EBITDA per share¹ was $(0.14) per share in fiscal 2013, versus $(0.29) per share in fiscal 2012.

¹ Adjusted EBITDA is a non-IFRS measure defined by the Company as earnings before interest income or expense, other income, depreciation and amortization, share-based compensation, foreign exchange gains or losses and loss related to change in fair value of redeemable preferred shares. Adjusted EBITDA per share is calculated by dividing the Adjusted EBITDA by the weighted average number of shares outstanding in each period. Adjusted EBITDA and Adjusted EBITDA per share do not have a uniform definition. Our definition will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Thus, our non-IFRS measure of Adjusted EBITDA and Adjusted EBITDA per share should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with IFRS. There are inherent limitations with non-IFRS measures; we compensate for these limitations by reconciling Adjusted EBITDA to the most comparable IFRS financial measure. Management encourages investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view our non-IFRS financial measures in conjunction with the most comparable IFRS financial measures.

"Fiscal 2013 was a transformational year for our business," said Paul Loucks, Halogen's CEO. "We completed our highly successful IPO in May to strengthen our balance sheet and provide us with the resources to fund our growth plans. Throughout the year, we made good progress on a number of operational initiatives. We expanded our product offering with new modules and partnerships, and we continued our push into international markets with the expansion of our office in Australia. We grew recurring revenue as a share of total revenue. We had a record year in recurring and total revenue and record new customer wins. Q4 continued the new customer acquisition strength with record new customers selecting Halogen. Looking ahead to fiscal 2014, we are expecting continued strong organic growth. We are focused on investing in both domestic and international markets in order to grow our customer base and market share in the mid-market for Talent Management solutions."

Financial Review

Halogen's recurring revenue in the fourth quarter of 2013 was $11.2 million, a 28% increase over Q4 2012. Total revenue increased 24% over Q4 2012, driven by increases in recurring revenue and professional services revenue. In the fourth quarter of 2013, approximately 79% of revenue was generated from customers located in the United States (82% in Q4 2012), 11% in Canada (12% in Q4 2012) and 10% in international markets (6% in Q4 2012).

Gross margin was $9.6 million, or 76% of total revenue, in the fourth quarter of 2013, compared to $7.4 million, or 73% of total revenue, in Q4 2012.

Net loss was $2.1 million in the fourth quarter of 2013 versus a loss of $6.4 million in Q4 2012. The decreased loss was primarily due to a $4.6 million loss related to change in the fair value of the Company's redeemable preferred shares in Q4 2012 versus $nil in the fourth quarter of 2013. With the conversion of the preferred shares to common shares in the second quarter of 2013 the Company no longer incurs this expense.

Adjusted EBITDA reconciliation	Three months ended December 31,				Twelve months ended December 31,
($000's except per share amounts)	2013		2012		2013		2012
Net income (loss)	$	(2,066)	$	(6,351)	$	(12,820)	$	(19,578)
Interest (income) expense and other, net	(72)		(25)		(210)		(100)
Foreign exchange (gain) loss	777		51		1,390		(380)
Income tax expense	35		-		74		5
Depreciation and amortization	629		524		2,281		2,007
Share-based compensation	118		52		398		189
Loss related to change in fair market value of redeemable preferred shares	-		4,569		6,434		14,329
Adjusted EBITDA	$	(579)	$	(1,180)	$	(2,453)	$	(3,528)
Adjusted EBITDA per share	$	(0.03)	$	(0.10)	$	(0.14)	$	(0.29)

Cash and investments increased from $8.9 million at December 31, 2012 to $55.9 million at December 31, 2013, primarily due to proceeds from the issuance of 5.1 million common shares as part of the Company's initial public offering.

Deferred revenue was $27.0 million at December 31, 2013 compared to $22.9 million a year earlier. This 18% increase is primarily attributed to new business generated during the last 12 months from new and existing customers.

First Quarter and Full Year 2014 Financial Guidance
For the first quarter of 2014, the Company is expecting:

• Recurring revenue in the range of $11.9 to $12.1 million
• Total revenue in the range of $13.4 to $13.6 million

For the full year 2014, the Company is expecting:

• Recurring revenue in the range of $50.3 to $51.3 million
• Total revenue in the range of $56.8 to $57.8 million

2013 Financial Statements and Management's Discussion and Analysis
Halogen's Management's Discussion and Analysis and Consolidated Financial Statements for the year ended December 31, 2013 will be available on SEDAR (www.sedar.com) and on the Halogen website at http://ir.halogensoftware.com.

Conference Call and Webcast
Halogen will hold a conference call to discuss its fiscal 2013 fourth quarter results today (Thursday, February 20, 2014) at 5:00 p.m. (ET). The call will be hosted by Paul Loucks, President and CEO, and Pete Low, CFO.  To participate in the call, please dial 647-427-7450 or 1-888-231-8191 (Conference ID: 51779217) ten minutes prior to the scheduled start of the call. A replay of the conference call will be available until 12:00 midnight (ET) Thursday, February 27, 2014 by calling 416-849-0833  or 1-855-859-2056, (Conference ID: 51779217). The conference call will be webcast live at http://bit.ly/1jYkEtw.

Forward-looking Statements
Certain statements in this release, including those that express management's expectations or estimates of our future performance, are "forward-looking statements" which reflect the Company's current expectations and projections about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. In some cases, these forward-looking statements can be identified by words or phrases such as "may", "might", "will", "expect", "anticipate", "estimate", "intend", "plan", "indicate", "seek", "believe", "estimates", "predicts" or "likely", or the negative of these terms, or other similar expressions intended to identify forward-looking statements.

The Company has based these forward-looking statements on its current expectations and projections at the time the statements were originally made or at the time the information was originally provided, about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of the experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate, and are subject to risks and uncertainties. Although the Company believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and it cannot assure that actual results will be consistent with these forward-looking statements. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including without limitation, those risks and uncertainties discussed in the Company's Prospectus and other filings on SEDAR.

If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking statements prove incorrect, actual results might vary materially from those expressed or implied by the forward-looking statements contained herein. These factors should be considered carefully and prospective investors should not place undue reliance on these forward-looking statements. Although the forward-looking statements contained herein are based upon what the Company currently believes to be reasonable assumptions, the Company cannot assure prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements. The Company does not intend, and the Company does not assume, any obligation to update or revise these forward-looking statements to reflect new events or circumstances.

About Halogen Software
Halogen Software (TSX: HGN) offers an organically built cloud-based talent management suite that reinforces and drives higher employee performance across all talent programs - whether that is recruiting, performance management, learning and development, succession planning or compensation. With nearly 2,000 customers worldwide, Halogen Software has been recognized as a market leader by major business analysts and has garnered the highest customer satisfaction ratings in the industry. Halogen Software's powerful, yet simple-to-use solutions, which also include industry-vertical editions, are used by organizations that want to build a world-class workforce that is aligned, inspired and focused on delivering exceptional results. For more information, visit: http://www.halogensoftware.com. Subscribe to Halogen Software's Exploring Talent Management blog: http://www.halogensoftware.com/blog/ or follow Halogen Software on Twitter: https://twitter.com/HalogenSoftware.

No securities regulatory authority has either approved or disapproved of the contents of this news release. This press release is for information purposes only and shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.

HALOGEN SOFTWARE INC. Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) Three and twelve month periods ended December 31, 2013 and 2012 (in United States dollars, tabular amounts in thousands, except share and per share data) (Unaudited)
		Three Months Ended December 31,							Twelve Months Ended December 31,
		2013				2012				2013				2012
Revenue
	Recurring	$	11,236		$	8,810			$	42,067			$	32,661
	Professional services	1,255				1,162				5,245				4,517
	License	118				219				672				825
		12,609				10,191				47,984				38,008
Cost of revenue
	Recurring	2,264				1,893				8,342				7,199
	Professional services	750				813				3,723				3,404
	License	5				8				23				19
		3,019				2,714				12,088				10,622
Gross margin		9,590				7,477				35,896				27,381
Expenses
	Sales and marketing	5,963				5,140				22,248				18,515
	Research and development	2,486				2,123				9,955				7,759
	General and administrative	2,467				1,970				8,825				6,831
	Foreign exchange (gain) loss	777				51				1,390				(380)
		11,693				9,284				42,418				32,725
Operating income (loss)		(2,103)				(1,807)				(6,522)				(5,344)
Loss related to change in fair value of      redeemable preferred shares		—				(4,569)				(6,434)				(14,329)
Interest income (expense)		72				25				210				100
Income (loss) before income taxes		(2,031)				(6,351)				(12,746)				(19,573)
Income tax expense (recovery)		35				—				74				5
NET INCOME (LOSS) AND      COMPREHENSIVE INCOME (LOSS)		$	(2,066)		$	(6,351)			$	(12,820)			$	(19,578)
Basic and diluted earnings (loss) per share		$	(0.10)		$	(0.52)			$	(0.71)			$	(1.61)
Weighted average number of basic and diluted      common shares outstanding		21,636,960				12,188,283				18,064,447				12,145,730

HALOGEN SOFTWARE INC. Condensed Consolidated Statements of Financial Position As at December 31, 2013 and 2012 (in United States dollars, tabular amounts in thousands) (Unaudited)
		December 31, 2013		December 31, 2012
ASSETS
Current assets
	Cash and cash equivalents	$	37,405				$	3,683
	Short-term investments	18,509						5,210
	Trade receivables (net)	9,408						6,961
	Investment tax credits receivable	127						1,206
	Prepaid expenses	1,834						1,198
		67,283						18,258
Non-current assets
	Property and equipment	5,783						3,091
	Intangible assets	1,847						1,403
		$	74,913				$	22,752
LIABILITIES
Current liabilities
	Trade payables and accrued liabilities	$	6,345				$	4,360
	Derivative liabilities	16						8
	Deferred revenue	27,031						22,931
	Deferred leasehold inducement	158						180
	Current portion of long-term debt	52						173
		33,602						27,652
Non-current liabilities
	Deferred leasehold inducement	429						231
	Redeemable preferred shares	—						40,996
	Long-term debt	—						56
		34,031						68,935
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital		69,512						2,301
Share compensation reserve		778						418
Retained earnings (deficit)		(29,408)						(48,902)
		40,882						(46,183)
		$	74,913				$	22,752

HALOGEN SOFTWARE INC. Condensed Consolidated Statements of Cash Flows Three and twelve month periods ended December 31, 2013 and 2012 (in United States dollars, tabular amounts in thousands) (Unaudited)
		Three Months Ended December 31,						Twelve Months Ended December 31,
		2013		2012				2013				2012
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income (loss)		$	(2,066)			$	(6,352)		$		(12,820)			$	(19,578)
Items not affecting cash:
	Depreciation and amortization	629					524				2,281				2,007
	Loss related to change in fair value of redeemable    preferred shares	—					4,569				6,434				14,329
	Share-based compensation	118					52				398				189
	Unrealized foreign exchange (gain) loss	512					(19)				1,084				(34)
	Deferred leasehold inducement	(11)					(46)				176				(79)
Net changes in non-cash working capital items		1,848					2,079				4,084				4,495
		1,031					807				1,637				1,329
INVESTING ACTIVITIES
Purchase of property and equipment		(2,440)					(407)				(4,297)				(1,853)
Purchase of intangible assets		(181)					(610)				(1,120)				(905)
Maturity of investments		5,794					4,173				9,600				6,387
Purchase of investments		(5,814)					(2,254)				(23,444)				(4,933)
		(2,641)					902				(19,261)				(1,304)
FINANCING ACTIVITIES
Issuance of share capital		50					9				56,992				29
Issuance costs of share capital		—					—				(4,935)				—
Repayment of long-term debt		(40)					(56)				(168)				(460)
		(10)					(47)				51,889				(431)
Effect of exchange rate changes on cash and cash     equivalents		(16)					2				(543)				8
INCREASE (DECREASE) IN CASH AND CASH     EQUIVALENTS		(1,616)					1,664				33,722				(398)
CASH AND CASH EQUIVALENTS, BEGINNING OF     PERIOD		39,021					2,019				3,683				4,081
CASH AND CASH EQUIVALENTS,     END OF PERIOD		$	37,405			$	3,683			$	37,405			$	3,683

SOURCE: Halogen Software

Aaron Kabucis, CFA
T: 1-416-815-0700 ext. 230
Toll Free: 1-800-385-5451 ext. 230
E: [email protected]