Kinaxis Inc. Reports Second Quarter 2018 Results

Reports 24% growth in subscription revenue, and Adjusted EBITDA⁽²⁾ of 27% of revenue ⁽¹⁾

OTTAWA, Aug. 2, 2018 /CNW/ -  Kinaxis^® (TSX: KXS), provider of RapidResponse®, the leading cloud-based supply chain management solution based on concurrent planning, today reported results for its fiscal second quarter ended June 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 Q2 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, Q2 2018 total revenue was up 22% to $40.0 million, subscription services revenue grew by 24% to $30.1 million, Adjusted EBITDA⁽²⁾ was up 12% to $10.7 million (27% of revenue), and profit declined to $4.4 million from $5.6 million, all compared to Q2 2017. Giving effect to the Standards, Q2 2018 total revenue was $39.0 million, total subscription revenue was $29.1 million, Adjusted EBITDA⁽²⁾ was $11.2 million (29% of revenue) and profit was $4.3 million. All amounts are in U.S. dollars. All figures are prepared in accordance with International Financial Reporting Standards (IFRS), unless otherwise indicated.

"Q2 represented another strong quarter for Kinaxis—both the top and bottom line. We had record revenue from Europe, which reaffirms our decision to invest significant sales and operations resources in the region. We see even greater opportunity ahead as the expanded European team continues to engage with prospective accounts across all market verticals, but particularly Consumer Packaged Goods, Automotive, and Life Sciences," said John Sicard, Chief Executive Officer of Kinaxis. "During the quarter we launched our Self-Healing Supply Chain application applying advanced machine learning algorithms to detect key supply chain design gaps and automatically take corrective action before they impact performance. We also announced a number of new customers across regions and verticals, including top-tier brands such as Volvo, Ipsen and Extreme Networks, and provided some insight into the success we have been having at our existing customer, BASF. There is no greater testament to the proven transformative value of our unique concurrent planning technique than its ability to serve leaders in such different industries, all from the same cloud-based platform."

Q2 2018 Highlights

		Under IFRS 15/16^(1)	Prior to IFRS 15/16^(1)
$ USD millions, except as otherwise indicated		Q2 2018	Q2 2018	Q2 2017	Change
Total Revenue		39.0	40.0	32.9	22%
	Subscription services	26.5	30.1	24.2	24%
	Subscription term licenses	2.5	-	-	-
	Total subscription revenue	29.1	30.1	24.2	24%
Gross profit		26.5 (68%)	27.5 (69%)	22.9 (70%)	20%
Profit		4.3 ($0.16/diluted share)	4.4 ($0.17/diluted share)	5.6 ($0.21/diluted share)	(22%)
Adjusted EBITDA^(2)		11.2 (29%)	10.7 (27%)	9.6 (29%)	12%
Cash from operating activities		9.3	9.3	7.5	23%
(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 six months ended Jun 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 Q2 2018 vs Q2 2017 Financial Highlights

As noted in our financial statements and management's discussion and analysis (MD&A) for the three and six months ended June 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 second quarter of 2018 subscription services revenue grew by 24% to $30.1 million, due to contracts secured with new customers, as well as expansion of existing customer subscriptions. Total revenue grew 22%, to $40.0 million. After applying the Standards, subscription services revenue was $26.5 million, subscription term license revenue was $2.5 million (for total subscription revenue of $29.1 million), and total revenue was $39.0 million.

Prior to the effect of the Standards, in the second quarter of 2018 gross profit grew 20% to $27.5 million and gross profit margin was 69% compared to 70%. 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, and global expansion. Prior to the effect of the Standards, Profit for the second quarter of 2018 was $4.4 million ($0.17 per diluted share), compared to $5.6 million ($0.21 per diluted share). The decrease in profit reflects an increase in operating expenses made to support our global expansion and ongoing product innovation, net of increases in revenue and gross profit. After applying the Standards, gross profit was $26.5 million, or 68% of revenue, and profit was $4.3 million ($0.16 per diluted share).

Prior to the effect of the Standards, Adjusted EBITDA⁽²⁾ for the second quarter of 2018 grew 12%, to $10.7 million, or 27% of revenue, which reflects the growth in revenue and gross profit in the period. After applying the Standards, Adjusted EBITDA⁽²⁾ was $11.2 million, or 29% of revenue.

Cash generated by operating activities was $9.3 million for the second quarter of 2018, up from $7.5 million.  Cash and cash equivalents were $174.6 million at June 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:

$ in USD millions, except as otherwise indicated			Under IFRS 15/16 FY 2018		Prior to IFRS 15/16 FY 2018
Total revenue			$152-156		$158-163
	Subscription services revenue		$109-111		23-26% growth
		Subscription term licenses	$8-9		-
Adjusted EBITDA margin			25-28% of revenue		24-27% of revenue

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 six months ended June 30, 2018, are available on Kinaxis' website and on SEDAR at www.sedar.com.

Conference Call
Kinaxis will host a conference call tomorrow, August 3, 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, August 3^rd, 2018
Time:	8:30 a.m. Eastern Time
Webcast:	https://bit.ly/2LeO4XC
Dial-in Number:	[phone] or [phone]
Taped Replay:	[phone] or [phone]
	Available until 12:00 midnight Eastern Time Friday August 10, 2018
Reference Number:	4696696

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.
Offering the industry's only concurrent planning solution, 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 June 30,						Six months ended June 30,
			Pre-IFRS 15/16						Pre-IFRS 15/16
	2018		2018		2017		2018		2018		2017
					(In thousands of U.S. dollars)
Profit	$4,265		$4,425		$5,640		$8,818		$7,635		$8,866
Share-based compensation	2,527		2,527		2,397		5,685		5,685		5,113
Adjusted profit	$6,792		$6,952		$8,037		$14,503		$13,320		$13,979
Income tax expense	1,809		2,127		1,043		4,939		3,995		2,974
Depreciation	2,564		1,720		818		4,550		3,025		1,606
Foreign exchange loss	222		371		12		26		349		23
Net finance income	(193)		(446)		(310)		(338)		(807)		(477)
	4,402		3,772		1,563		9,177		6,562		4,126
Adjusted EBITDA	$11,194		$10,724		$9,600		$23,680		$19,882		$18,105
Adjusted EBITDA as a percentage of revenue	29%		27%		29%		31%		26%		28%

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 June 30, 2018 and December 31, 2017 (Expressed in thousands of U.S. dollars) (Unaudited)
			June 30, 2018		December 31, 2017
Assets
Current assets:
	Cash and cash equivalents	$	174,577	$	158,398
	Trade and other receivables		40,133		31,783
	Investment tax credits recoverable		–		911
	Prepaid expenses		5,901		4,196
			220,611		195,288
Non-current assets:
	Property and equipment		23,576		17,350
	Right-of-use assets		13,342		–
	Contract acquisition costs		13,722		–
	Unbilled receivables		492		–
	Deferred tax assets		12		55
		$	271,755	$	212,693
Liabilities and Shareholders' Equity
Current liabilities:
	Trade payables and accrued liabilities	$	15,936	$	11,176
	Deferred revenue		58,635		67,040
	Lease obligations		3,076		–
			77,647		78,216
Non-current liabilities:
	Deferred revenue		3,983		7,745
	Lease obligations		10,144		–
	Deferred tax liabilities		9,761		1,944
			23,888		9,689
Shareholders' equity:
	Share capital		118,688		108,253
	Contributed surplus		21,683		19,294
	Accumulated other comprehensive loss		(327)		(284)
	Retained earnings (deficit)		30,176		(2,475)
			170,220		124,788
		$	271,755	$	212,693
*	The Company adopted IFRS 15 and 16 as described in Note 3. Under this adoption, the comparative information is not restated.

Kinaxis Inc. Condensed Consolidated Interim Statements of Comprehensive Income
For the six months ended June 30, 2018 and 2017 (Expressed in thousands of U.S. dollars, except share and per share data) (Unaudited)
		For the three months				For the six months
		ended June 30,				ended June 30,
			2018		2017		2018		2017
Revenue		$	38,994	$	32,866	$	75,843	$	65,408
Cost of revenue			12,493		9,985		22,628		20,362
Gross profit			26,501		22,881		53,215		45,046
Operating expenses:
	Selling and marketing		8,897		7,367		16,283		14,298
	Research and development		7,357		5,874		14,106		12,097
	General and administrative		4,144		3,255		9,381		7,265
			20,398		16,496		39,770		33,660
			6,103		6,385		13,445		11,386
Other income (expense):
	Foreign exchange loss		(222)		(12)		(26)		(23)
	Net finance income		193		310		338		477
			(29)		298		312		454
Profit before income taxes			6,074		6,683		13,757		11,840
Income tax expense			1,809		1,043		4,939		2,974
Profit			4,265		5,640		8,818		8,866
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations			(443)		(17)		(43)		129
Total comprehensive income		$	3,822	$	5,623	$	8,775	$	8,995
Basic earnings per share		$	0.17	$	0.22	$	0.34	$	0.35
Weighted average number of basic Common Shares			25,720,014		25,331,522		25,631,985		25,188,312
Diluted earnings per share		$	0.16	$	0.21	$	0.33        $		0.34
Weighted average number of diluted Common Shares			26,749,364		26,523,749		26,733,546		26,427,595
* The Company adopted IFRS 15 and 16 as described in Note 3. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
For the six months ended June 30, 2018 and 2017
(Expressed in thousands of U.S. dollars)
(Unaudited)
	Share capital		Contributed surplus		Accumulated other comprehensive income (loss)		Retained earnings (deficit)		Total equity*
Balance, December 31, 2016	$	97,164	$	13,924	$	(519)	$	(22,858)	$	87,711
Profit		–		–		–		8,866		8,866
Other comprehensive income		–		–		129		–		129
Total comprehensive income		–		–		129		8,866		8,995
Share options exercised		8,360		(2,438)		–		–		5,922
Share based payments		–		5,113		–		–		5,113
Total shareholder transactions		8,360		2,675		–		–		11,035
Balance, June 30, 2017	$	105,524	$	16,599	$	(390)	$	(13,992)	$	107,741
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		–		–		–		8,818		8,818
Other comprehensive loss		–		–		(43)		–		(43)
Total comprehensive income (loss)		–		–		(43)		8,818		8,775
Share options exercised		10,036		(2,897)		–		–		7,139
Deferred share units exercised		399		(399)		–		–		–
Share based payments		–		5,685		–		–		5,685
Total shareholder transactions		10,435		2,389		–		–		12,824
Balance, June 30, 2018	$	118,688	$	21,683	$	(327)	$	30,176	$	170,220
* The Company adopted IFRS 15 and 16 as described in Note 3. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Condensed Consolidated Interim Statements of Cash Flows
For the three and six months ended June 30, 2018 and 2017
(Expressed in thousands of U.S. dollars)
(Unaudited)
			For the three months				For the six months
			ended June 30,				ended June 30,
			2018		2017		2018		2017
Cash flows from operating activities:
	Profit		$	4,265	$	5,640	$	8,818	$	8,866
	Items not affecting cash:
		Depreciation of property and equipment and right-of-use assets	2,564		818		4,550		1,606
		Share-based payments	2,527		2,397		5,685		5,113
		Amortization of lease inducement	-		(4)		-		(18)
		Investment tax credits recoverable	-		(1,051)		911		(842)
		Net finance income	(193)		-		(338)		-
		Income tax expense	1,809		1,043		4,939		2,974
		Change in operating assets and liabilities	(848)		(168)		(2,607)		3,166
	Interest received		446		-		807		-
	Interest paid		(321)		-		(469)		-
	Income taxes paid		(998)		(1,156)		(2,499)		(3,087)
			9,251		7,519		19,797		17,778
Cash flows used in investing activities:
	Purchase of property and equipment		(4,529)		(1,327)		(9,350)		(1,644)
Cash flows from financing activities:
	Payment of lease obligations		(534)		-		(1,282)		-
	Common shares issued on exercise of stock options		4,361		1,952		7,139		5,922
			3,827		1,952		5,857		5,922
Increase in cash and cash equivalents			8,549		8,144		16,304		22,056
Cash and cash equivalents, beginning of period			166,631		141,989		158,398		127,910
Effects of exchange rates on cash and cash equivalents			(603)		292		(125)		459
Cash and cash equivalents, end of period			$	174,577	$	150,425	$	174,577	$	150,425
* The Company adopted IFRS 15 and 16 as described in Note 3. Under this adoption, the comparative information is not restated.

SOURCE Kinaxis Inc.

Investor Relations: Rick Wadsworth, Kinaxis, Tel: [phone], [email protected]; Media Relations: Mike McAllister, Kinaxis, Tel: [phone], [email protected]

Related Links

www.kinaxis.com