Kinaxis Inc. Reports Third Quarter 2018 Results

Reports 19% growth in subscription revenue and Adjusted EBITDA⁽²⁾ of 31% of revenue⁽¹⁾

OTTAWA, Nov. 8, 2018 /CNW/ - Kinaxis® (TSX: KXS), provider of RapidResponse®, the recognized leader in digital supply chain management for concurrent planning, today reported results for its fiscal third quarter ended September 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 Q3 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, Q3 2018 total revenue was up 18% to $39.6 million, subscription services revenue grew by 19% to $30.7 million, Adjusted EBITDA⁽²⁾ was up 14% to $12.3 million (31% of revenue), and profit declined to $5.2 million from $6.0 million, all compared to Q3 2017. Giving effect to the Standards, Q3 2018 total revenue was $36.6 million, total subscription revenue was $27.7 million, Adjusted EBITDA⁽²⁾ was $9.5 million (26% of revenue) and profit was $2.7 million. 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 execute on key strategic initiatives this past quarter including the expansion of our global sales and operations, particularly in Europe. Our overall pipeline continues to grow and strengthen.  The current quarter and 2018 full-year subscription revenue growth is slightly lower than expectation due to a number of late stage deals slipping outside of Q3. We are very confident in closing these opportunities, and more importantly, remain confident in achieving our goal of accelerated growth in 2019," said John Sicard, Chief Executive Officer of Kinaxis. "Our continuing success is built on the unique concurrent planning capabilities of our RapidResponse platform. Validating this differentiation, Gartner has once again recognized Kinaxis as a leader in their Magic Quadrant for Supply Chain Planning System of Record, positioning us as the leader with respect to completeness of vision. Ventana Research provided further validation by honoring Kinaxis as a Digital Innovation Award winner in the Operations and Supply Chain category for our use of machine learning techniques to create the Kinaxis Self-Healing Supply Chain solution. I am more excited than ever about our position in the market and our opportunity to help companies transform their supply chain performance."

Q3 2018 Highlights
	Under IFRS 15/16^(1)	Prior to IFRS 15/16^(1)
$ USD millions, except as otherwise indicated	Q3 2018	Q3 2018	Q3 2017	Change
Total Revenue	36.6	39.6	33.5	18%
Subscription services	27.2	30.7	25.8	19%
Subscription term licenses	0.5	-	-	-
Total subscription revenue	27.7	30.7	25.8	19%
Gross profit	24.6	27.6	23.8	16%
	(67%)	(70%)	(71%)
Profit	2.7	5.2	6.0	(13%)
	($0.10/diluted share)	($0.19/diluted share)	($0.23/diluted share)
Adjusted EBITDA^(2)	9.5	12.3	10.8	14%
	(26%)	(31%)	(32%)
Cash from operating activities	2.0	2.0	3.3	(40%)

(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 nine months ended September 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 Q3 2018 vs Q3 2017 Financial Highlights

As noted in our financial statements and management's discussion and analysis (MD&A) for the three and nine months ended September 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 third quarter of 2018 subscription services revenue grew by 19% to $30.7 million, due to contracts secured with new customers, as well as expansion of existing customer subscriptions. Total revenue grew 18%, to $39.6 million. After applying the Standards, subscription services revenue was $27.2 million, subscription term license revenue was $0.5 million (for total subscription revenue of $27.7 million), and total revenue was $36.6 million.

Prior to the effect of the Standards, in the third quarter of 2018 gross profit grew 16% to $27.6 million and gross profit margin was 70% compared to 71%. 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 as well as global expansion. Prior to the effect of the Standards, Profit for the third quarter of 2018 was $5.2 million ($0.19 per diluted share), compared to $6.0 million ($0.23 per diluted share). The decrease in profit reflects an increase in operating expenses incurred to support our global expansion and ongoing product innovation, net of increases in revenue and gross profit. After applying the Standards, gross profit was $24.6 million, or 67% of revenue, and profit was $2.7 million ($0.10 per diluted share).

Prior to the effect of the Standards, Adjusted EBITDA⁽²⁾ for the third quarter of 2018 grew 14%, to $12.3 million, or 31% of revenue, which reflects the growth in revenue and gross profit in the period. After applying the Standards, Adjusted EBITDA⁽²⁾ was $9.5 million, or 26% of revenue.

Cash generated by operating activities was $2.0 million for the third quarter of 2018, down from $3.3 million.  Cash and cash equivalents were $176.1 million at September 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:

$ USD millions, except as otherwise indicated	Under IFRS 15/16 FY 2018	Prior to IFRS 15/16 FY 2018
Total revenue	$152-153	$155-157
Subscription services revenue	$107-108	21-22% growth
Subscription term licenses	$9-10	-
Adjusted EBITDA margin	25-28% of revenue	25-27% of revenue

"We have adjusted revenue guidance slightly to reflect the delays in closing certain new business, while reaffirming our strong EBITDA guidance. Next quarter, we expect to provide guidance for 2019 that reflects accelerating revenue growth," 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.

This press release, along with the financial statements and Kinaxis' MD&A for the three and nine months ended September 30, 2018, are available on Kinaxis' website and on SEDAR at www.sedar.com.

Conference Call
Kinaxis will host a conference call tomorrow, November 9, 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, November 9, 2018
Time:	8:30 a.m. Eastern Time
Webcast:	https://bit.ly/2R1PLdA
Dial-in number:	[phone] or [phone]
Replay:	[phone] or [phone]
	Available until 12:00 midnight Eastern Time Friday, November 16, 2018
Reference number:	8752009

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.
As the recognized leader in digital supply chain management for concurrent planning, 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 September 30,							Nine months ended September 30,
			Pre-IFRS 15/16							Pre-IFRS 15/16
	2018		2018		2017			2018		2018		2017
	(In thousands of U.S. dollars)
Profit	$	2,665	$	5,233	$	6,032		$	11,483	$	12,868	$	14,898
Share-based compensation	2,959		2,959		2,299			8,644		8,644		7,412
Adjusted profit	$	5,624	$	8,192	$	8,331		$	20,127	$	21,512	$	22,310
Income tax expense	1,333		2,765		1,817			6,272		6,760		4,791
Depreciation	2,649		1,809		911			7,199		4,834		2,517
Foreign exchange loss	177		41		30			203		390		53
Net finance income	(264)		(506)		(276)			(602)		(1,313)		(753)
	3,895		4,109		2,482			13,072		10,671		6,608
Adjusted EBITDA	$	9,519	$	12,301	$	10,813		$	33,199	$	32,183	$	28,918
Adjusted EBITDA as a percentage of revenue	26%		31%		32%			30%		28%		29%

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 September 30, 2018 and December 31, 2017
(Expressed in thousands of U.S. dollars)
(Unaudited)
	September 30, 2018		December 31, 2017*
Assets
Current assets:
Cash and cash equivalents	$	176,084	$	158,398
Trade and other receivables	36,953		31,783
Investment tax credits recoverable	-		911
Prepaid expenses	7,200		4,196
	220,237		195,288
Non-current assets:
Property and equipment	23,532		17,350
Right-of-use assets	12,581		-
Contract acquisition costs	13,069		-
Unbilled receivables	259		-
Deferred tax assets	15		55
	$	269,693	$	212,693
Liabilities and Shareholders' Equity
Current liabilities:
Trade payables and accrued liabilities	$	17,418	$	11,176
Deferred revenue	51,077		67,040
Lease obligations	3,215		-
	71,710		78,216
Non-current liabilities:
Deferred revenue	1,991		7,745
Lease obligations	9,490		-
Deferred tax liabilities	8,325		1,944
	19,806		9,689
Shareholders' equity:
Share capital	122,489		108,253
Contributed surplus	23,344		19,294
Accumulated other comprehensive loss	(497)		(284)
Retained earnings (deficit)	32,841		(2,475)
	178,177		124,788
	$	269,693	$	212,693

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Condensed Consolidated Interim Statements of Comprehensive Income
For the three and nine months ended September 30, 2018 and 2017
(Expressed in thousands of U.S. dollars, except share and per share data)
(Unaudited)
	For the three months ended September 30,				For the nine months ended September 30,
	2018		2017*		2018		2017*
Revenue	$	36,585	$	33,486	$	112,428	$	98,894
Cost of revenue	12,014		9,681		34,642		30,043
Gross profit	24,571		23,805		77,786		68,851
Operating expenses:
Selling and marketing	8,487		7,100		24,770		21,398
Research and development	6,415		5,986		20,521		18,083
General and administrative	5,758		3,116		15,139		10,381
	20,660		16,202		60,430		49,862
	3,911		7,603		17,356		18,989
Other income (expense):
Foreign exchange loss	(177)		(30)		(203)		(53)
Net finance income	264		276		602		753
	87		246		399		700
Profit before income taxes	3,998		7,849		17,755		19,689
Income tax expense	1,333		1,817		6,272		4,791
Profit	2,665		6,032		11,483		14,898
Other comprehensive income (loss)
Items that are or may be reclassified subsequently to profit or loss:
Foreign currency translation differences - foreign operations	(170)		2		(213)		131
Total comprehensive income	$	2,495	$	6,034	$	11,270	$	15,029
Basic earnings per share	$	0.10	$	0.24	$	0.45	$	0.59
Weighted average number of basic Common Shares		25,974,858		25,417,766		25,747,532		25,265,637
Diluted earnings per share	$	0.10	$	0.23	$	0.43	$	0.56
Weighted average number of diluted Common Shares		26,894,970		26,507,279		26,786,436		26,440,167

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Condensed Consolidated Interim Statements of Changes in Shareholders' Equity
For the nine months ended September 30, 2018 and 2017
(Expressed in thousands of U.S. dollars)
(Unaudited)
					Accumulated
					other		Retained
	Share		Contributed		comprehensive		earnings
	capital		surplus		income (loss)		(deficit)		Total equity*
Balance, December 31, 2016	$	97,164	$	13,924	$	(519)	$	(22,858)	$	87,711
Profit	-		-		-		14,898		14,898
Other comprehensive income	-		-		131		-		131
Total comprehensive income	-		-		131		14,898		15,029
Share options exercised	9,056		(2,624)		-		-		6,432
Share based payments	-		7,412		-		-		7,412
Total shareholder transactions	9,056		4,788		-		-		13,844
Balance, September 30, 2017	$	106,220	$	18,712	$	(388)	$	(7,960)	$	116,584
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	-		-		-		11,483		11,483
Other comprehensive loss	-		-		(213)		-		(213)
Total comprehensive income (loss)	-		-		(213)		11,483		11,270
Share options exercised	13,384		(3,742)		-		-		9,642
Deferred share units exercised	852		(852)		-		-		-
Share based payments	-		8,644		-		-		8,644
Total shareholder transactions	14,236		4,050		-		-		18,286
Balance, September 30, 2018	$	122,489	$	23,344	$	(497)	$	32,841	$	178,177

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

Kinaxis Inc.
Condensed Consolidated Interim Statements of Cash Flows
For the three and nine months ended September 30, 2018 and 2017
(Expressed in thousands of U.S. dollars)
(Unaudited)
	For the three months ended September 30,				For the nine months ended September 30,
	2018		2017*		2018		2017*
Cash flows from operating activities:
Profit	$	2,665	$	6,032	$	11,483	$	14,898
Items not affecting cash:
Depreciation of property and equipment and right-of-use assets	2,649		911		7,199		2,517
Share-based payments	2,959		2,299		8,644		7,412
Amortization of lease inducement	-		-		-		(18)
Investment tax credits recoverable	-		310		911		(532)
Net finance income	(264)		-		(602)		-
Income tax expense	1,333		1,817		6,272		4,791
Change in operating assets and liabilities	(6,519)		(7,436)		(9,126)		(4,270)
Interest received	506		-		1,313		-
Interest paid	(242)		-		(711)		-
Income taxes paid	(1,125)		(662)		(3,624)		(3,749)
	1,962		3,271		21,759		21,049
Cash flows used investing activities:
Purchase of property and equipment	(1,762)		(2,660)		(11,112)		(4,304)
Cash flows from financing activities:
Payment of lease obligations	(724)		-		(2,006)		-
Common shares issued on exercise of stock options	2,503		510		9,642		6,432
	1,779		510		7,636		6,432
Increase in cash and cash equivalents	1,979		1,121		18,283		23,177
Cash and cash equivalents, beginning of period	174,577		150,425		158,398		127,910
Effects of exchange rates on cash and cash equivalents	(472)		(111)		(597)		348
Cash and cash equivalents, end of period	$	176,084	$	151,435	$	176,084	$	151,435

* The Company adopted IFRS 15 and 16 as described in Note 3 to the Condensed Consolidated Interim Financial Statements, which are available on sedar.com. Under this adoption, the comparative information is not restated.

SOURCE Kinaxis Inc.

Investor Relations, Rick Wadsworth | Kinaxis, Tel: [phone], [email protected]; Media Relations, Danielle McNeil Taylor | Kinaxis, Tel: [phone], [email protected]

Related Links

www.kinaxis.com