News Release

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."

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:

"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.

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:

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.

* 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.

* 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.

* 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.

* 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.