Halogen Announces Third Quarter 2013 Results

• Highlights include record recurring and total revenue
• Company increases revenue guidance for the full year of 2013

OTTAWA, Nov. 7, 2013 /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 nine months ended September 30, 2013. All figures are stated in United States dollars unless otherwise noted.

Third Quarter 2013 Financial Highlights

• Recurring revenue increased 30% from Q3 2012 to a record $10.7 million, representing 87% of total revenue in the quarter.
• Total revenue increased 27% from Q3 2012 to a record $12.3 million.
• Revenue generated in international markets outside Canada and the United States increased 66% over Q3 2012.
• Strong new customer growth across a broad set of verticals and geographies including names such as the Bank of Queensland (AUS), Laird Technologies, Inc. (US), St. Joseph's Health System (US), Promega Corporation (US), Cleveland Indians Baseball Company (US), Bukhatir Group (UAE), BMJ Publishing Group (UK), and Lutheran Schools Association of South Australia (AUS).
• Customer retention continued to be greater than 90%¹ and dollar retention greater than 100%².
• Positive cash flow from operations of $2.2 million.
• Net loss was $(718,000), or $(0.03) per basic and diluted share, compared to net loss of $(1.9) million, or $(0.15) per basic and diluted share, in Q3 2012.
• Adjusted EBITDA³ was $(751,000) in Q3 2013 and $(740,000) in Q3 2012; Adjusted EBITDA per share³ was $(0.03) per share in Q3 2013, versus $(0.06) per share in Q3 2012.
• Total cash, cash equivalents and investments was $58.1 million at September 30, 2013 compared to $8.9 million at December 31, 2012.

"The third quarter was extremely positive for Halogen, both from a financial and operational perspective," said Paul Loucks, Halogen's President and CEO. "The strong growth in our customer base over the past year contributed greatly to us generating record recurring revenue in the quarter. We also had a record number of new customer wins in our international markets, which are an important focus for us. As part of our growth strategy, we are continuing to increase our global presence, including the expansion of our sales office in Australia in the quarter.

"Additionally, at our 8^th annual customer conference in September, we unveiled two new modules that we will be introducing to our suite of talent management software solutions, increasing our total addressable market. These modules will help customers improve leadership and coaching skills among managers and executives, and build and foster a culture of understanding, collaboration and respect throughout their organizations."

________________________________
Non-IFRS Measures:
¹ Calculated as the percentage of customers at the beginning of a 12-month period who remain as customers at the end of the period.
² Calculated by taking the annualized recurring revenue of customers at the beginning of a 12-month period and dividing it into annualized recurring revenue for those same customers at the end of the period.
³ 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.

Financial Review

Halogen's recurring revenue in the third quarter of 2013 was $10.7 million, a 30% increase over Q3 2012. Total revenue increased 27% over Q3 2012, driven by increases in recurring revenue and professional services revenue. In the third quarter of 2013, approximately 81% of revenue was generated from customers located in the United States (82% in Q3 2012), 11% in Canada (13% in Q3 2012) and 8% in international markets (6% in Q3 2012).

Gross margin was $8.9 million, or 72% of total revenue, in the third quarter of 2013, compared to $6.8 million, or 70% of total revenue, in Q3 2012.

The Company's operating loss was $783,000 in the third quarter of 2013, a 14% decrease from Q3 2012. The decrease was primarily due to the increase in foreign exchange gains recorded in the quarter as compared to a year ago.

Net loss was $718,000 in the third quarter of 2013 versus a loss of $1.9 million in Q3 2012. The decreased loss was primarily due to a $1.0 million loss related to a change in the fair value of the Company's redeemable preferred shares in Q3 2012 versus $nil in the third 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 September 30,		Nine months ended September 30,
($000's except per share amounts)	2013	2012	2013	2012
Net income (loss)	(718)	(1,881)	(10,754)	(13,227)
Interest (income) expense and other, (net)	(65)	(27)	(138)	(75)
Foreign exchange (gain) loss	(691)	(384)	613	(431)
Income tax expense	-	5	39	5
Depreciation and amortization	592	504	1,652	1,483
Share-based compensation	131	46	280	137
Loss related to change in fair market value of redeemable preferred shares	-	997	6,434	9,760
Adjusted EBITDA	(751)	(740)	(1,874)	(2,348)
Adjusted EBITDA per share	$(0.03)	$(0.06)	$(0.11)	$(0.19)

Cash and investments increased from $8.9 million at December 31 2012 to $58.1 million at September 30, 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 $24.1 million at September 30, 2013 compared to $20.5 million a year earlier. This 18% increase is primarily attributed to new business generated during the last 12 months from new and existing customers.  When normalized for the amount of prepayments by customers in advance of their renewal date, the year-over-year increase in deferred revenue would have been 20%.

Fourth Quarter and Full Year 2013 Financial Guidance

For fiscal 2013, the Company is expecting:

• Recurring revenue in the range of $41.8 to $42.0 million, compared to its previously announced expected range of $41.5 to $41.9 million
• Total revenue in the range of $47.6 to $47.8 million, compared to its previously announced expected range of $47.0 to $47.4 million

For the fourth quarter of 2013, the Company is therefore expecting:

• Recurring revenue in the range of $11.0 to $11.2 million
• Total revenue in the range of $12.2 to $12.4 million

2013 Third Quarter Financial Statements and Management's Discussion and Analysis

Halogen's Management's Discussion and Analysis and Condensed Consolidated Interim Financial Statements for the three and nine months ended September 30, 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 second quarter results today (Thursday, November 7, 2013) 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: 79705814) ten minutes prior to the scheduled start of the call. A replay of the conference call will be available until 12:00 midnight (ET) Saturday, December 7, 2013 by calling 416-849-0833  or 1-855-859-2056, (Conference ID: 79705814). The conference call will be webcast live at http://bit.ly/GJkKH3.

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 over 1,750 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 nine month periods ended September 30, 2013 and 2012 (in United States dollars, tabular amounts in thousands, except share and per share data) (Unaudited)
		Three Months Ended September 30,				Nine Months Ended September 30,
			2013		2012		2013		2012
Revenue
	Recurring	$	10,689	$	8,235	$	30,831	$	23,851
	Professional services		1,508		1,262		3,990		3,355
	License		143		239		554		606
			12,340		9,736		35,375		27,812
Cost of revenue
	Recurring		2,098		1,735		6,078		5,306
	Professional services		1,377		1,150		2,973		2,591
	License		5		4		18		11
			3,480		2,889		9,069		7,908
Gross margin			8,860		6,847		26,306		19,904
Expenses
	Sales and marketing		5,394		4,491		16,285		13,375
	Research and development		2,732		1,981		7,469		5,636
	General and administrative		2,208		1,665		6,358		4,861
	Foreign exchange (gain) loss		(691)		(384)		613		(431)
			9,643		7,753		30,725		23,441
Operating income (loss)			(783)		(906)		(4,419)		(3,537)
Loss related to change in fair value of
	redeemable preferred shares		—		(997)		(6,434)		(9,760)
Interest and other income			67		31		144		92
Interest expense			(2)		(4)		(6)		(17)
Income (loss) before income taxes			(718)		(1,876)		(10,715)		(13,222)
Income tax expense (recovery)			—		5		39		5
NET INCOME (LOSS) AND
	COMPREHENSIVE INCOME (LOSS)	$	(718)	$	(1,881)	$	(10,754)	$	(13,227)
Basic and diluted earnings (loss) per share		$	(0.03)	$	(0.15)	$	(0.64)	$	(1.09)
Weighted average number of basic and diluted
	common shares outstanding		21,608,138		12,160,801		16,860,524		12,131,441

HALOGEN SOFTWARE INC. Condensed Consolidated Statements of Financial Position As at September 30, 2013 and December 31, 2012 (in United States dollars, tabular amounts in thousands) (Unaudited)
		September 30, 2013		December 31, 2012
ASSETS
Current assets
	Cash and cash equivalents	$	39,021	$	3,683
	Short-term investments		19,118		5,210
	Trade and other receivables (net)		7,053		6,961
	Investment tax credits receivable		524		1,206
	Prepaid expenses		1,891		1,198
			67,607		18,258
Non-current assets
	Property and equipment		3,786		3,091
	Intangible assets		1,853		1,403
		$	73,246	$	22,752
LIABILITIES
Current liabilities
	Trade payables and accrued liabilities	$	5,569	$	4,360
	Derivative liabilities		148		8
	Deferred revenue		24,050		22,931
	Deferred leasehold inducement		149		180
	Current portion of long-term debt		101		173
			30,017		27,652
Non-current liabilities
	Deferred leasehold inducement		449		231
	Redeemable preferred shares		—		40,996
	Long-term debt		—		56
			30,466		68,935
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital			69,445		2,301
Share compensation reserve			677		418
Retained earnings (deficit)			(27,342)		(48,902)
			42,780		(46,183)
		$	73,246	$	22,752

HALOGEN SOFTWARE INC. Condensed Consolidated Statements of Cash Flows Three and nine month periods ended September 30, 2013 and 2012 (in United States dollars, tabular amounts in thousands) (Unaudited)
			Three Months Ended September 30,				Nine Months Ended September 30,
				2013		2012		2013		2012
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income (loss)			$	(718)	$	(1,881)	$	(10,754)	$	(13,227)
Items not affecting cash:
	Depreciation and amortization			592		504		1,652		1,483
	Loss related to change in fair value of redeemable
		preferred shares		—		997		6,434		9,760
	Share-based compensation			131		46		280		137
	Unrealized foreign exchange (gain) loss			(892)		(207)		571		(15)
	Deferred leasehold inducement			281		50		188		(33)
Net changes in non-cash working capital items				2,809		566		2,235		2,417
				2,203		75		606		522
INVESTING ACTIVITIES
Purchase of property and equipment				(1,363)		(554)		(1,857)		(1,252)
Purchase of intangible assets				(766)		(246)		(939)		(489)
Maturity of investments				600		706		3,807		2,214
Purchase of investments				(3,078)		(494)		(17,630)		(2,679)
				(4,607)		(588)		(16,619)		(2,206)
FINANCING ACTIVITIES
Issuance of share capital				13		—		56,942		20
Issuance costs of share capital				(803)		—		(4,935)		—
Repayment of long-term debt				(40)		(57)		(128)		(404)
				(830)		(57)		51,879		(384)
Effect of exchange rate changes on cash and cash equivalents				79		2		(528)		6
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				(3,155)		(568)		35,338		(2,062)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD				42,176		2,587		3,683		4,081
CASH AND CASH EQUIVALENTS,
	END OF PERIOD		$	39,021	$	2,019	$	39,021	$	2,019
Cash and cash equivalents consist of:
		Cash	$	3,877	$	1,355
		Cash equivalents		35,144		664
		Total	$	39,021	$	2,019

 

SOURCE: Halogen Software

Tim Foran
T: 1-416-815-0700 ext. 251
Toll Free: 1-800-385-5451 ext. 251
E: [email protected]