Halogen Announces Third Quarter 2014 Results

• Company delivers record recurring, total and international revenue

OTTAWA, Nov. 6, 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 months ended September 30, 2014. All figures are stated in United States dollars unless otherwise noted.

Third Quarter 2014 Highlights

• 20% increase in recurring revenue from Q3 2013 to a record $12.8 million, representing 89% of total revenue in the quarter.
• 71% increase in revenue generated in international markets outside Canada and the United States over Q3 2013.
• Greater than 100%¹ dollar retention rate and customer retention approximately 90%².
• Strong new customer growth across a broad set of verticals and geographies, including Baha Mar (Bahamas), NewDay and M&G Real Estate (UK), Digistics (South Africa), International Water Management Institute (Sri Lanka), City of Ottawa (Canada), Douglas College, Maury Regional Hospital, New York Community Bancorp, and VTech Communications (U.S.). This growth continues to represent a broad diversified customer base whereby no customer represents more than 2% of revenue.
• Continued to receive corporate recognition as an employer of choice, for product excellence and for sustaining the highest levels of customer satisfaction.
• Halogen was rated the top performing talent management vendor in the latest KLAS Human Capital Management report.
• The Halogen 1:1 Exchange™ module was awarded a top product of the year award by HR Executive Magazine in September, and presented at the HR Technology Conference
• Halogen was recognized with the 2014 HR Initiative of the Year by the Best Ottawa Business awards for its innovative leadership development programs.
• Subsequent to quarter end, IDC named Halogen a leader in its End-to-End Talent Management MarketScape.

"In the third quarter we delivered record total and recurring revenue, including a 71% increase in our international revenue as our expansion efforts continue to generate strong early results," said Paul Loucks, Halogen's CEO. "In addition to ongoing enhancements to our product suite, we are introducing and emphasizing new services and high-value content, which will help our customers build world-class workforces while supporting our objectives of increased dollar and customer retention. We continue to make key investments in sales and marketing, software development, and in our on-demand hosting environment, which are central to our plans to grow revenue and market share in the underpenetrated mid-market for talent management solutions."

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Non-IFRS Measures:

¹ 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.

² Calculated as the percentage of customers at the beginning of a 12-month period who remain as customers at the end of the period.

Financial Review
Halogen's recurring revenue in the third quarter of 2014 was $12.8 million, a 20% increase over Q3 2013. Total revenue increased 17% over Q3 2013 to $14.4 million, driven by the increase in the Company's customer base, along with the sale of additional seats and modules to existing customers. In the third quarter of 2014, approximately 79% of revenue was generated from customers located in the United States (81% in Q3 2013), 10% in Canada (11% in Q3 2013) and 11% in international markets (8% in Q3 2013).

Gross margin was $9.9 million, or 69% of total revenue, in the third quarter of 2014, compared to $8.9 million, or 72% of total revenue, in Q3 2013. Included in our gross margin are the costs associated with our annual customer conference.

Adjusted EBITDA³ was ($2.6) million in the third quarter of 2014, compared with ($0.8) million in Q3 2013. The lower Adjusted EBITDA is mainly due to higher headcount costs as the Company continues to make significant growth investments, particularly in sales and marketing, both domestically and internationally.

Net loss was $5.0 million in the third quarter of 2014 as compared to a loss of $0.7 million in Q3 2013.

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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.

Adjusted EBITDA reconciliation						3 months ended Sept. 30,										9 months ended Sept. 30,
($000's except per share amounts)						2014				2013						2014			2013
Net income (loss)						$		(4,986)		$			(718)			$	(10,513)		$	(10,754)
Interest (income) expense and other, net								(49)					(65)				(186)			(138)
Foreign exchange (gain) loss								1,407					(691)				1,608			613
Income tax expense								33					-				77			39
Depreciation and amortization								791					592				2,355			1,652
Share-based compensation								205					131				561			280
Loss related to change in fair market value of redeemable preferred shares								-					-				-			6,434
Adjusted EBITDA						$		(2,599)		$			(751)			$	(6,098)		$	(1,874)
Adjusted EBITDA per share						$		(0.12)		$			(0.03)			$	(0.28)		$	(0.11)

Cash and investments was $46.8 million at September 30, 2014 compared to $55.9 million at December 31, 2013. Deferred revenue was $28.5 million at quarter-end compared to $24.0 million a year earlier.

Fourth Quarter and Full Year 2014 Financial Guidance

For the fourth quarter of 2014, the Company is expecting:

• Recurring revenue in the range of $13.4 to $13.6 million
• Total revenue in the range of $14.7 to $14.9 million

For the full year 2014, the Company is expecting:

• Recurring revenue in the range of $50.6 to $50.8 million
• Total revenue in the range of $56.3 to $56.5 million

2014 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 months ended September 30, 2014 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 2014 third quarter results today (Thursday, November 6, 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: 30838258) 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, November 13, 2014 by calling 416-849-0833 or 1-855-859-2056). The conference call will be webcast live at http://bit.ly/YMVpEs.

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 Annual Information Form 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 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 Interim Statements of Operations and Comprehensive Income (Loss) Three and nine month periods ended September 30, 2014 and 2013 (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,
							2014				2013				2014				2013
Revenue
	Recurring						$	12,791			$	10,689			$	37,179			$	30,831
	Professional services							1,619				1,508				4,330				3,990
	License							-				143				60				554
								14,410				12,340				41,569				35,375
Cost of revenue
	Recurring							3,058				2,098				8,399				6,078
	Professional services							1,456				1,377				3,205				2,973
	License							5				5				14				18
								4,519				3,480				11,618				9,069
Gross margin								9,891				8,860				29,951				26,306
Expenses
	Sales and marketing							7,577				5,394				21,880				16,285
	Research and development							3,162				2,732				9,157				7,469
	General and administrative							2,747				2,208				7,928				6,358
	Foreign exchange (gain) loss							1,407				(691)				1,608				613
								14,893				9,643				40,573				30,725
Operating income (loss)								(5,002)				(783)				(10,622)				(4,419)
Loss related to change in fair value of   redeemable preferred shares								-				-				-				(6,434)
Interest and other income								49				67				186				144
Interest expense								-				(2)				-				(6)
Income (loss) before income taxes								(4,953)				(718)				(10,436)				(10,715)
Income tax expense (recovery)								33				-				77				39
NET INCOME (LOSS) AND   COMPREHENSIVE INCOME (LOSS)							$	(4,986)			$	(718)			$	(10,513)			$	(10,754)
Basic and diluted earnings (loss) per share							$	(0.23)			$	(0.03)			$	(0.48)			$	(0.64)
Weighted average number of basic and   diluted common shares outstanding								21,873,418				21,608,138				21,788,500				16,860,524

HALOGEN SOFTWARE INC. Condensed Consolidated Interim Statements of Financial Position As at September 30, 2014 and December 31, 2013 (in United States dollars, tabular amounts in thousands) (Unaudited)
										September 30, 2014				December 31, 2013
ASSETS
Current assets
	Cash and cash equivalents									$	40,764			$				37,405
	Short-term investments										6,070							18,509
	Trade receivables (net)										8,296							9,408
	Investment tax credits receivable										-							127
	Prepaid expenses										2,341							1,834
											57,471							67,283
Non-current assets
	Property and equipment										7,868							5,783
	Intangible assets										2,186							1,847
	Other long-term assets										280							-
										$	67,805			$				74,913
LIABILITIES
Current liabilities
	Trade payables and accrued liabilities									$	6,868			$				6,345
	Derivative liabilities										586							16
	Deferred revenue										28,533							27,031
	Deferred leasehold inducement										222							158
	Current portion of long-term debt										-							52
											36,209							33,602
Non-current liabilities
	Deferred leasehold inducement										451							429
											36,660							34,031
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital											69,800							69,512
Share compensation reserve											1,266							778
Retained earnings (deficit)											(39,921)							(29,408)
											31,145							40,882
										$	67,805			$				74,913

HALOGEN SOFTWARE INC. Condensed Consolidated Interim Statements of Cash Flows Three and nine month periods ended September 30, 2014 and 2013 (in United States dollars, tabular amounts in thousands) (Unaudited)
							Three Months Ended September 30,													Nine Months Ended September 30,
							2014						2013							2014					2013
CASH PROVIDED BY (USED IN):
OPERATING ACTIVITIES
Net income (loss)							$			(4,986)			$				(718)			$		(10,513)			$		(10,754)
Items not affecting cash:
	Depreciation and amortization									791							592					2,355					1,652
	Loss related to change in fair value of redeemable   preferred shares									-							-					-					6,434
	Share-based compensation									205							131					561					280
	Unrealized foreign exchange (gain) loss									1,259							(892)					1,384					571
	Deferred leasehold inducement									(55)							281					86					188
Net changes in non-cash working capital items										(68)							2,809					2,593					2,235
										(2,854)							2,203					(3,534)					606
INVESTING ACTIVITIES
Purchase of property and equipment										(1,755)							(1,363)					(3,755)					(1,857)
Purchase of intangible assets										(105)							(766)					(899)					(939)
Change in other long-term assets										(67)							-					(280)					-
Maturity of investments										2,337							600					11,852					3,807
Purchase of investments										(48)							(3,078)					(142)					(17,630)
										362							(4,607)					6,776					(16,619)
FINANCING ACTIVITIES
Issuance of share capital										56							13					214					56,942
Issuance costs of share capital										-							(803)					-					(4,935)
Repayment of long-term debt										-							(40)					(53)					(128)
										56							(830)					161					51,879
Effect of exchange rate changes on cash and   cash equivalents										(280)							79					(44)					(528)
INCREASE (DECREASE) IN CASH AND CASH   EQUIVALENTS										(2,716)							(3,155)					3,359					35,338
CASH AND CASH EQUIVALENTS,   BEGINNING OF PERIOD										43,480							42,176					37,405					3,683
CASH AND CASH EQUIVALENTS,   END OF PERIOD							$			40,764			$				39,021			$		40,764			$		39,021

 

 

SOURCE: Halogen Software

Craig Armitage
T: 1-416-815-0700 ext. 278
Toll Free: 1-800-385-5451 ext. 278
E: [email protected]