Kinaxis Annual Report 2014

FY2014 Annual Report · Kinaxis

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2 0 1 4 A N N U A L R E P O R T

On June 10, 2014, Kinaxis successfully completed its
initial public offering and began trading on the TSX
under the symbol KXS.

Kinaxis provides cloud-based subscription software
that enables global enterprises to improve their ability
to analyze the effect of changes in supply and demand
on Operations, and effectively act in response.

Kinaxis’ product, RapidResponse, can be applied to a broad range of supply chain func-
tions, delivering superior cross-functional collaboration, fast customer response times,
and accurate insight into the operational and financial impact of decisions.

Companies deploy RapidResponse via a set of configurable supply chain applications,
which allow for faster implementation, broader adoption and expanding deployments
over time. Ultimately, Kinaxis customers are able to derive deep value quickly.

Our client list reaches across multiple market verticals and is
approaching 100 large enterprise customers

HIGH TECH AND
ELECTRONICS

AEROSPACE AND
DEFENSE

INDUSTRIAL

LIFE SCIENCES AND
PHARMACEUTICALS

AUTOMOTIVE
(EMERGING)

Avaya

Celestica

Honeywell

First Solar

Genzyme

Ford

Lockheed Martin

Schneider Electric

Masimo

Volvo Trucks NA

Cisco Systems

Raytheon

Toshiba Europe

Nihon Kohden

TE Connectivity

Nikon

Qualcomm

Sikorsky Aircraft

Roland DG

Multiple growth opportunities to increase market penetration

LAND & EXPAND

NEW VERTICAL MARKETS

EXPAND DIRECT SALES

Increase deployment foot-
print within existing customers
through added applications,
users and/or sites

Won first automotive brand
owner client in 2014

Expanded sales team by one third
in past 36 months

NEW APPLICATIONS

EXPAND CHANNEL PARTNERS

ACQUISITIONS

Develop new applications that
target additional business func-
tions and user communities

Add and expand relationships
with strategic partners, managed
service providers and resellers

Opportunistic and selective

Our business model provides visibility, stability & growth

VISIBILITY

STABILITY

SUSTAINABILITY

GROWTH

>80%

forward twelve-month
revenue

>100%

net revenue dollar
retention

2-5

year contracts

~40%

of subscription revenue
growth from existing
customers

We have a strong track record of revenue growth…

REVENUE
US Dollars (Millions)

SUBSCRIPTION REVENUE
US Dollars (Millions)

ADJUSTED EBITDA1
US Dollars (Millions)

23%
CAGR

70.1

60.8

46.7

38.0

51.1

24%
CAGR

33.1

40.0

26.6

16.1

23%

15.0

25%

12.4

9.6

33%

21%

2011

2012

2013

2014

2011

2012

2013

2014

2011

2012

2013

2014

and annual adjusted EBITDA margin in excess of 20%

1 Adjusted EBITDA is a non-IFRS measure, for reconciliation of Adjusted EBITDA to profit before income taxes, please see “Management’s Discussion & Analysis”

Dear Shareholders,

This past year the true power of our operating model was revealed as we
delivered solid operational results and executed on our growth initiatives.
Specifically, our overall revenues grew 15% to $70.1 million. More importantly,
our annual subscription revenue has grown by 28% to $51.1 million. This resulted
in a solid adjusted annual EBITDA of $16.1 million or 23% of revenue. This
ongoing performance demonstrates the strength of our software as a service
operating model, and our ability to continue to drive growth in our business.

Our financial position also remains very strong,
due in part to our very successful initial public
offering that we completed this past June. At year-
end, Kinaxis had no debt and cash and equivalents
totaled $56.7 million.

In terms of the business, we are focused on
maintaining our growth trajectory and expect to
see continued expansion as we execute on our
multi-pronged growth strategy. Our primary growth
vectors continue to be creating new RapidResponse
applications, expanding our partner network, and
entering new vertical markets.

Supply chains often represent the core operational
elements of a company. Our SaaS offerings enable
companies to operate more efficient supply chains.
We provide our customers with the ability to
rapidly respond to changes in their businesses. Our
RapidResponse applications enable companies to
detect changes in their global supply chains, and
perform real time “what if” analysis to make the
proper course corrections. As our tag line says we
help companies “know sooner” and “act faster”.

We have skillfully invested in RapidResponse,
adding features and functionality that have made our
proprietary software offerings more attractive to a
growing list of global organizations. These companies
operate highly volatile or complex supply chains in
very dynamic market conditions.

Through the support of a growing list of Partners,
we can leverage their established relationships to
efficiently gain access to an even broader group of
potential customers. We are forming relationships
with multiple categories of partners such as System
Integrators, Strategic Consultants, and Managed
Service Providers.

We are optimistic about 2015 due to our unique
technology, world-class customer base, strong balance
sheet, and SaaS business model. We are confident
we can continue to grow annual subscription revenue
in excess of 25%—while simultaneously achieving
Adjusted EBITDA in excess of 20% of total revenue.
This rare combination makes Kinaxis a “best in class”
SaaS vendor.

On behalf of the entire Kinaxis team, I want to thank
you for your ongoing support of Kinaxis. We look
forward to updating you on our progress throughout
the year.

Sincerely,

Doug Colbeth
President, Chief Executive Officer and
Chairman of the Board

KINAXIS ANNUAL REPORT 2014

TABLE OF CONTENTS

Management’s Discussion & Analysis

Consolidated Financial Statements

Independent Auditor’s Report

Consolidated Statements of Financial Position

Consolidated Statements of Comprehensive
Income

Consolidated Statements of Changes in
Shareholder’s Equity

Consolidated Statements of Cash Flows

Notes to Consolidated Financial Statements

KINAXIS ANNUAL REPORT 2014

KINAXIS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS

FOR THE YEAR ENDED DECEMBER 31, 2014

DATED: February 24, 2015

KINAXIS ANNUAL REPORT 2014

Management's Discussion and Analysis

Unless the context requires otherwise, all references in this management’s discussion and analysis (the
“MD&A”) to “Kinaxis”, “we”, “us”, “our” and the “Company” refer to Kinaxis Inc. and its subsidiaries as
constituted on December 31, 2014. This MD&A has been prepared with an effective date of February 24, 2015.

This MD&A for the years ended December 31, 2014 and 2013 should be read in conjunction with our annual
consolidated financial statements as at and for the year ended December 31, 2014. The financial information
presented in this MD&A is derived from our annual consolidated financial statements prepared in accordance with
International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board
(“IASB”). This MD&A contains forward-looking statements that involve risks, uncertainties and assumptions,
including statements regarding anticipated developments in future financial periods and our future plans and
objectives. There can be no assurance that such information will prove to be accurate, and readers are cautioned
not to place undue reliance on such forward-looking statements. See “Forward-Looking Statements”.

This MD&A includes trade-marks, such as “Kinaxis”, and “RapidResponse”, which are protected under
applicable intellectual property laws and are the property of Kinaxis. Solely for convenience, our trade-marks and
trade names referred to in this MD&A may appear without the ® or ™ symbol, but such references are not intended
to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trade-
marks and trade names. All other trade-marks used in this MD&A are the property of their respective owners.

All references to $ or dollar amounts in this MD&A are to U.S. currency unless otherwise indicated.

Additional information relating to Kinaxis Inc. can be found on SEDAR at www.sedar.com.

Non-IFRS Measures

This MD&A makes reference to certain non-IFRS measures such as “Adjusted profit”, “Adjusted diluted
earnings per share” and “Adjusted EBITDA”. These non-IFRS measures are not recognized, defined or standardized
measures under IFRS. Our definition of Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share
will likely differ from that used by other companies and therefore comparability may be limited.

Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share should not be considered a
substitute for or in isolation from measures prepared in accordance with IFRS. These non-IFRS measures should be
read in conjunction with our annual consolidated financial statements as at and for the year ended December 31,
2014. Readers should not put undue reliance on non-IFRS measures and should instead view them in conjunction
with the most comparable IFRS financial measures. See the reconciliations to these IFRS measures in the “Results of
Operations” section of this MD&A.

Forward-Looking Statements

This MD&A contains forward-looking statements that relate to our current expectations and views of future
events. In some cases, these forward-looking statements can be identified by words or phrases such as “may”,
“will”, “expect”, “anticipate”, “aim”, “estimate”, “intend”, “plan”, “seek”, “believe”, “potential”, “continue”, “is/are
likely to” or the negative of these terms, or other similar expressions intended to identify forward-looking
statements. Forward-looking statements are intended to assist readers in understanding managements’ expectations
as of the date of this MD&A and may not be suitable for other purposes. We have based these forward-looking
statements on our current expectations and projections about future events and financial trends that we believe may
affect our financial condition, results of operations, business strategy and financial needs. These forward-looking
statements include, among other things, statements relating to:

•

our expectations regarding our revenue, expenses and operations;

our anticipated cash needs;

our ability to protect, maintain and enforce our intellectual property rights;

third-party claims of infringement or violation of, or other conflicts with, intellectual property rights by us;

our plans for and timing of expansion of our solutions and services;

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

•

our future growth plans;

the acceptance by our customers and the marketplace of new technologies and solutions;

our ability to attract new customers and develop and maintain existing customers;

our ability to attract and retain personnel;

our expectations with respect to advancement in our technologies;

our competitive position and our expectations regarding competition;

regulatory developments and the regulatory environments in which we operate; and

anticipated trends and challenges in our business and the markets in which we operate.

Forward-looking statements are based on certain assumptions and analysis made by us in light of our experience and
perception of historical trends, current conditions and expected future developments and other factors we believe are
appropriate. Although we believe that the assumptions underlying these statements are reasonable, they may prove
to be incorrect. Forward-looking statements are also subject to risks and uncertainties. In light of these risks,
uncertainties and assumptions, readers should not place undue reliance on forward-looking statements. Whether
actual results, performance or achievements will conform to our expectations and predictions is subject to a number
of known and unknown risks, uncertainties, assumptions and other factors which include:

•

risks related to managing our growth

our dependence on customer retention and renewals

our long sales cycles

our reliance on recurring revenue

fluctuations in quarterly operating results

exchange rate fluctuations

risks related to expanding our marketing and sales

risks related to our ability to maintain the compatibility of our solutions with third-party applications

risks related to our ability to adapt to rapid technological change

risks related to our ability to meet our contractual commitments

risks related to global economic conditions

risks related to the security of customer information

risks related to the protection of our intellectual property

risks related to the complexity of our solutions

competition in our industry and markets

our reliance on key personnel

risks related to our ability to continue to develop our direct sales force

our reliance on third-party service providers

the possibility of product defects

risks related to international expansion

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

Although the forward-looking statements contained in this MD&A are based upon what our management
believes are reasonable assumptions, these risks, uncertainties, assumptions and other factors could cause our actual
results, performance, achievements and experience to differ materially from our expectations, future results,
performances or achievements expressed or implied by the forward-looking statements.

The forward-looking statements made in this MD&A relate only to events or information as of the date on
which the statements are made in this MD&A and are expressly qualified in their entirety by this cautionary
statement. Except as required by law, we do not assume any obligation to update or revise any forward-looking
statements, whether as a result of new information, future event or otherwise, after the date on which the statements
are made or to reflect the occurrence of unanticipated events.

Readers should read this MD&A with the understanding that our actual future results may be materially

different from what we expect.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

Overview

We are a leading provider of cloud-based subscription software that enables our customers to improve and
accelerate analysis and decision-making across their supply chain operations. Our RapidResponse product provides
supply chain planning and analytics capabilities that create the foundation for managing multiple, interconnected
supply chain management processes, including demand planning, supply planning, inventory management, order
fulfillment and capacity planning. Our professional services team supports deployment of RapidResponse in new
customers and assists existing customers in fully leveraging the benefits of the product.

Our target market is large enterprises that have significant unresolved supply chain challenges. We believe this
market is growing as a result of a number of factors, including increased complexity and globalization of supply
chains, outsourcing, a diversity of data sources and systems, and competitive pressures on our customers.

We have established a strong track record of cash flow generation and revenue and earnings growth. Our
subscription and total annual revenues have grown respectively at a compound annual growth rate (CAGR) of 24%
and 23% for the three years ending December 31, 2014. This growth is driven both by contracts with new customers
and expansion of our solution and service engagements within our existing customer base.

Our customers are generally large national or multinational enterprises with complex supply chain
requirements. We target multiple industry verticals including high technology and electronics manufacturing,
aerospace and defense, industrial products, life sciences and pharmaceuticals, consumer packaged goods, and most
recently, the automotive sector.

We sell our product using a subscription-based model. Our agreements with customers are typically two to five
years in length. Our subscription fee generally depends on the size of our customer, the number of applications
deployed, the number of users and the number of manufacturing, distribution and inventory sites our product is
required to model. Average annual contract value fluctuates from period to period depending on the size of new
customers and the extent to which we are successful in expanding adoption of our products by existing customers.

For the year ended December 31, 2014, our ten largest customers accounted for approximately 37% of our total

revenues with no one customer accounting for greater than 10% of total revenues.

Increasing revenues through new customer wins is one of our highest organizational priorities. Our sales cycle
can be lengthy, as we generally target very large organizations with significant internal processes for adoption of
new systems. We currently pursue a revenue growth model that includes both direct sales through our internal sales
force, as well as indirect sales through channels including resellers and other partners.

Due to the growth in the market and increasing need for solutions, competition in the industry from new
entrants and larger incumbent vendors will increase. In addition to this increased competitive pressure, changes in
the global economy may have an impact on the timing and ability of these enterprises to make buying decisions
which can have an impact on our performance.

Since our initial public offering in June, we continue to drive growth in our business through new customer
acquisition and expansion of existing customers through our land and expand philosophy. Historically,
approximately 40% of subscription revenue growth comes from our existing customer base and our net revenue
retention is greater than 100 percent. We continue to invest in developing our partner capabilities and in our
technology. In November of 2014, we released version 2014.4 of RapidResponse reflecting our ongoing investment
in our product’s scale and capabilities to support the needs of our expanding customer base.

We are headquartered in Ottawa, Ontario. We have subsidiaries located in the United States, the Netherlands
and Hong Kong and a subsidiary and satellite office in Tokyo, Japan. We continue to expand our operations
internationally. In the year ended December 31, 2014, 89% of our revenues derived from North America and our
remaining revenues derived from outside North America, principally from Japan and Europe.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

Key Performance Indicators

The key performance indicators that we use to manage our business and evaluate our financial results and
operating performance are: total revenue, total new customers, incremental subscription revenue and bookings, net
revenue retention, secured subscription backlog, operating expenses, Adjusted profit, Adjusted EBITDA (as defined
below), Adjusted diluted earnings per share and cash flow from operations. Some of these measures are non-IFRS
measures. See “Non-IFRS Measures” above. Management reconciles non-IFRS measures to IFRS measures where a
comparable IFRS measure exists. See “Reconciliation of Non-IFRS Measures” below. We evaluate our performance
by comparing our actual results to budgets, forecasts and prior period results.

Net revenue retention

Our subscription customers generally enter into two to five year agreements, paid annually in advance, for use
of our solution. In certain circumstances, customers will prepay subscription fees for the term of the agreement for
various reasons such as accommodating their own budget cycles. Subscription agreements are subject to price
increases upon renewal reflecting both inflationary increases and the additional value provided by our solutions. In
addition to the expected increase in subscription revenue from price increases over time, existing customers may
subscribe for additional applications, users or sites during the terms of their agreements.

Our subscription model results in a high proportion of recurring revenue, which we define as subscription
revenue plus maintenance & support revenue (see “Significant Factors Affecting Results of Operations – Revenue”).
The power of the subscription model is only fully realized when a vendor has high retention rates. High customer
retention rates generate a long customer lifetime and a very high lifetime value of the customer. Our net revenue
retention rates are over 100%, which includes sales of additional applications, users and sites to existing customers.

The recurring nature of our revenue provides high visibility into future performance, and upfront payments
result in cash flow generation in advance of revenue recognition. Typically, more than 80% of our annual
subscription revenue is recognized from customers that are in place at the beginning of the year (excluding the effect
of renewals) and this continues to be our target model going forward. However, this also means that agreements
with new customers or agreements with existing customers purchasing additional applications, users or sites in a
quarter may not contribute significantly to revenue in the current quarter. As an example, a new customer who
enters into an agreement on the last day of a quarter will typically have no impact on the revenue recognized in that
quarter.

Significant Factors Affecting Results of Operations

Our results of operations are influenced by a variety of factors, including:

Revenue

Our revenue consists of subscription fees, professional service fees and maintenance and support fees.
Subscription revenue is comprised of fixed term fees for licensed on-premise use of RapidResponse or fees for
provision as software as a service (“SaaS”) in a hosted/cloud environment.

Subscription revenue includes maintenance and support for the solution for the term of the contract as well as

hosting services when provided under a SaaS arrangement.

Professional services revenue is comprised of fees charged to assist organizations to implement and integrate
our solution and train their staff to use and deploy our solution. Professional service engagements are contracted on
a time and materials basis including billable travel expenses and are billed and recognized as revenue as the service
is delivered.

Maintenance & support revenue relates to fees for maintenance and support for certain legacy customers who
licensed our software on a perpetual basis prior to our conversion to a SaaS model in 2005. Over time, this revenue
stream is expected to decline as more customers eventually convert to our more comprehensive, subscription based
service or customers choose to let their support contracts lapse.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

Cost of revenue

Cost of revenue consists of personnel, travel and other overhead costs related to implementation teams
supporting initial deployments, training services and subsequent stand-alone engagements for additional services.
Cost of revenue also includes personnel and overhead costs associated with our customer support team, the cost of
our data centre facilities where we physically host our on-demand solution and network connectivity costs for the
provisioning of hosting services under SaaS arrangements.

Sales and marketing expenses

Sales and marketing expenses consist primarily of personnel and related costs for our sales and marketing
teams, including salaries and benefits, commissions earned by sales personnel and trade show and promotional
marketing costs.

We plan to continue to invest in sales and marketing by expanding our domestic and international selling and
marketing activities, building brand awareness and sponsoring additional marketing events. We expect that in the
future, sales and marketing expenses will continue to increase.

Research and development expenses

Research and development expenses consist primarily of personnel and related costs for the teams responsible
for the ongoing research, development and product management of RapidResponse. These expenses are recorded net
of any applicable scientific research and experimental development investment tax credits (“investment tax
credits”) earned for expenses incurred in Canada against eligible projects. When we were a Canadian controlled
private corporation, a portion of these tax credits were refundable. As a public company, federal tax investment tax
credits are no longer refundable. We only record non-refundable tax credits to the extent there is reasonable
assurance we will be able to use the investment tax credits to reduce current or future tax liabilities. As the Company
has an established history of profits, we do expect to realize the benefit of these tax credits in the near term. Further,
we anticipate that spending on R&D will also be higher in absolute dollars as we expand our research and
development and product management teams.

General and administrative expenses

General and administrative expenses consist primarily of personnel and related costs associated with
administrative functions of the business including finance, human resources and internal IT support, as well as legal,
accounting and other professional fees. We expect that, in the future, general and administrative expenses will
increase in absolute dollars as we invest in our infrastructure and we incur additional employee-related costs and
professional fees related to the growth of our business and international expansion, including associated public
company costs.

Foreign exchange

Our presentation and functional currency with the exception of our subsidiaries in Japan (Japanese Yen) and the
Netherlands (Euro) is U.S. dollars. We derive most of our revenue in U.S. dollars. Our head office and a significant
portion of our employees are located in Ottawa, Canada, and as such a significant amount of our expenses are
incurred in Canadian dollars.

Loss due to change in fair value of redeemable preferred shares

We have recorded significant losses related to changes in the fair value of the redeemable preferred share
liability. Immediately prior to the completion of our initial public offering, all of our redeemable preferred shares
were converted on a one-to-one basis to Common Shares and the liability was reduced to $Nil with a corresponding
increase in share capital. In addition, the accumulated deficit of $41 million generated by the losses related to the
changes in the fair value of the redeemable preferred shares that were converted to Common Shares was reclassified
from deficit to share capital. In future periods, there will be no further impact on our results of operations from the
redeemable preferred shares.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Results of Operations

Management's Discussion and Analysis

The following table sets forth a summary of our results of operations for the three months ended December 31,

Management's Discussion and Analysis

2014 and 2013 along with the years ended December 31, 2014, 2013 and 2012:
Results of Operations

Results of Operations

2014 and 2013 along with the years ended December 31, 2014, 2013 and 2012:

Years ended
Three months ended
The following table sets forth a summary of our results of operations for the three months ended December 31,
December 31
December 31
The following table sets forth a summary of our results of operations for the three months ended December 31,
2013
Years ended
December 31
2013

2014
(In thousands of U.S. dollars, except earnings (loss) per share)

2013
2014
Three months ended
December 31
Three months ended
December 31

2014 and 2013 along with the years ended December 31, 2014, 2013 and 2012:

2012

Operating expenses............................................................

Loss due to change in fair value of redeemable
preferred shares .................................................................
Foreign exchange (loss) gain .............................................
Net finance income (expense) ...........................................

Statement of Operations
2014
Revenue............................................................................. $ 18,820
2014
5,433
Cost of revenue..................................................................
13,387
Gross profit........................................................................
Statement of Operations
Statement of Operations
Revenue............................................................................. $ 18,820
10,763
Operating expenses............................................................
Revenue............................................................................. $ 18,820
5,433
Cost of revenue..................................................................
Cost of revenue..................................................................
5,433
2,624
13,387
Gross profit........................................................................
13,387
Gross profit........................................................................
Loss due to change in fair value of redeemable
10,763
10,763
Operating expenses............................................................
̶
preferred shares .................................................................
2,624
2,624
(465)
Foreign exchange (loss) gain .............................................
17
Net finance income (expense) ...........................................
Loss due to change in fair value of redeemable
̶
̶
preferred shares .................................................................
2,176
Profit (Loss) before income taxes......................................
(465)
(465)
Foreign exchange (loss) gain .............................................
17
1,592
Income tax expense ...........................................................
17
Net finance income (expense) ...........................................
2,176
Profit (Loss) before income taxes......................................
Profit (Loss)....................................................................... $ 584
2,176
Profit (Loss) before income taxes......................................
1,592
Income tax expense ...........................................................
Adjusted profit(1)................................................................ $ 1,429
1,592
Income tax expense ...........................................................
Profit (Loss)....................................................................... $ 584
Adjusted EBITDA(1).......................................................... $ 3,803
Adjusted profit(1)................................................................ $ 1,429
Profit (Loss)....................................................................... $ 584
Basic earnings (loss) per share .......................................... $ 0.02
Adjusted EBITDA(1).......................................................... $ 3,803
Adjusted profit(1)................................................................ $ 1,429
Diluted earnings (loss) per share ....................................... $ 0.02
Basic earnings (loss) per share .......................................... $ 0.02
Adjusted EBITDA(1).......................................................... $ 3,803
Diluted earnings (loss) per share ....................................... $ 0.02
Adjusted diluted earnings per share(1)................................ $ 0.06
Basic earnings (loss) per share .......................................... $ 0.02
Adjusted diluted earnings per share(1)................................ $ 0.06
Diluted earnings (loss) per share ....................................... $ 0.02
Adjusted diluted earnings per share(1)................................ $ 0.06

2012

8,036

2012

12,270

13,175

70,054
20,745
49,309
37,039

$ 46,671
13,156
33,515
25,479

$ 60,816
18,016
42,800
29,625

2014
70,054
2014
(In thousands of U.S. dollars, except earnings (loss) per share)
20,745
(In thousands of U.S. dollars, except earnings (loss) per share)
49,309
70,054
37,039
20,745
12,270
49,309
37,039
(6,760)
12,270
(599)
(490)
(6,760)
4,421
(599)
4,642
(490)
$ (221)
4,421
4,642
$ 9,197
4,642
16,079
$
$ (221)
$ (0.01)
$ 9,197
$ (0.01)
$
16,079
$ 0.41
$ (0.01)
$ (0.01)
$ 0.41

Years ended
December 31
$ 60,816
$ 46,671
2013
18,016
13,156
42,800
33,515
$ 60,816
$ 46,671
29,625
25,479
18,016
13,156
13,175
8,036
42,800
33,515
29,625
25,479
(17,884)
(1,172)
13,175
8,036
(168)
215
31
46
(17,884)
(1,172)
(4,846)
7,125
(168)
215
4,874
2,181
31
46
(4,846)
$
(9,720)
4,944
(4,846)
7,125
4,874
$ 9,167
$ 7,014
4,874
2,181
$
(9,720)
$ 15,012
$ 9,611
$ 9,167
(9,720)
$
4,944
$
(0.59)
$
0.30
$
$ 15,012
$ 9,611
$ 9,167
$ 7,014
$
(0.59)
$
0.19
0.30
(0.59)
$
$
$ 15,012
$ 9,611
0.19
(0.59)
$
$
0.34
$
0.27
$
(0.59)
$
0.30
$
0.27
$
0.34
$
(0.59)
$
0.19
$
0.34
$
0.27
$

2013
$ 16,319
2013
4,603
11,716
$ 16,319
7,802
$ 16,319
4,603
4,603
3,914
11,716
11,716
7,802
7,802
(2,665)
3,914
3,914
(8)
(13)
(2,665)
(2,665)
1,228
(8)
(8)
(13)
2,068
(13)
(840)
1,228
$ 2,170
2,068
(840)
$
$ 4,477
$ 2,170
$
(840)
(0.05)
$
$ 4,477
$ 2,170
(0.05)
$
(0.05)
$
$ 4,477
(0.05)
$
0.09
$
(0.05)
$
0.09
$
$
(0.05)
0.09
$

$
16,079
$ (0.01)
$ (0.01)
$ 0.41

(17,884)
(168)
31

(6,760)
(599)
(490)

(1,172)
215
46

7,125
$
2,181

$ (221)

$ 7,014

$ 9,197

4,944

1,228

4,421

2,068

As at December
As at December
31, 2014
31, 2014

As at December
As at December
31, 2013
31, 2013

As at December
31, 2012

(In thousands of U.S. dollars)
(In thousands of U.S. dollars)
As at December
Total assets ........................................................................... $ 91,209
Total assets ........................................................................... $ 91,209
31, 2014
37,518
Deferred revenue ..................................................................
37,518
Deferred revenue ..................................................................
̶
Redeemable preferred shares................................................
Redeemable preferred shares................................................
̶
109
Other non-current liabilities..................................................
109
Other non-current liabilities..................................................
Total assets ........................................................................... $ 91,209
37,518
Deferred revenue ..................................................................
Redeemable preferred shares................................................
̶
109
Other non-current liabilities..................................................

As at December
$ 72,490
41,472
$
31, 2013
20,316
24,700
(In thousands of U.S. dollars)
64,720
54,135
218
20,988
41,472
24,700
54,135
reconciliation of these measures to the closest IFRS measure, see “Reconciliation of Non-IFRS Measures” below.
20,988

(1) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a
(1) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a

As at December
$ 72,490
31, 2012
20,316
64,720
218
$ 72,490
20,316
64,720
218

41,472
24,700
54,135
20,988

Note:

reconciliation of these measures to the closest IFRS measure, see “Reconciliation of Non-IFRS Measures” below.

Non-IFRS Measurements

Adjusted profit and Adjusted diluted earnings per share

reconciliation of these measures to the closest IFRS measure, see “Reconciliation of Non-IFRS Measures” below.

Note:
Non-IFRS Measurements
(1) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a
Adjusted profit and Adjusted diluted earnings per share
Non-IFRS Measurements

Adjusted profit represents profit adjusted to exclude the impact of our formerly outstanding redeemable
preferred shares and our equity compensation plans. Adjusted diluted earnings per share represents diluted earnings
Adjusted profit represents profit adjusted to exclude the impact of our formerly outstanding redeemable
(loss) per share using Adjusted profit. We use Adjusted profit and Adjusted diluted earnings per share to measure
our performance as these measures align our results and improve comparability against our peers.
preferred shares and our equity compensation plans. Adjusted diluted earnings per share represents diluted earnings
Adjusted profit and Adjusted diluted earnings per share
(loss) per share using Adjusted profit. We use Adjusted profit and Adjusted diluted earnings per share to measure
Adjusted profit represents profit adjusted to exclude the impact of our formerly outstanding redeemable
our performance as these measures align our results and improve comparability against our peers.
preferred shares and our equity compensation plans. Adjusted diluted earnings per share represents diluted earnings
(loss) per share using Adjusted profit. We use Adjusted profit and Adjusted diluted earnings per share to measure
our performance as these measures align our results and improve comparability against our peers.
8

KINAXIS ANNUAL REPORT 2014

Adjusted EBITDA

Adjusted EBITDA represents profit adjusted to exclude the impact of our formerly outstanding redeemable

preferred shares, our equity compensation plans , income tax expense, depreciation, foreign exchange loss (gain) and

net financing (income) expense. We use Adjusted EBITDA to provide readers 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 working capital requirements.

We have reconciled Adjusted profit and Adjusted EBITDA to the most comparable IFRS financial measure as

follows:

Profit (Loss)....................................................................... $ 584

(840)

$ (221)

(9,720)

4,944

Loss due to change in fair value of redeemable

preferred shares..................................................................

Share-based compensation.................................................

Income tax expense ...........................................................

1,592

Depreciation ......................................................................

Foreign exchange loss (gain) .............................................

Net finance (income) expense............................................

Three months ended

December 31,

Years ended

December 31

2014

2013

2014

2013

2012

(In thousands of U.S. dollars)

845

334

465

(17)

2,374

2,665

345

3,010

2,068

218

2,307

6,760

2,658

9,418

4,642

1,151

599

490

6,882

17,884

1,003

18,887

4,874

834

168

(31)

5,845

1,172

898

2,070

2,181

677

(215)

(46)

2,597

Adjusted profit................................................................... $ 1,429

$ 2,170

9,197

$ 9,167

$ 7,014

Adjusted EBITDA ............................................................. $ 3,803

$ 4,447

$ 16,079

$ 15,012

$ 9,611

Revenue

The following table displays the breakdown of our revenue according to revenue type:

Three months ended

December 31,

2014

2013

2013 to

2014

Years ended

December 31

2014

2013

2013 to

2014

(In thousands of U.S. dollars, except percentages)

Subscription............................ $ 13,852

$ 51,119

Professional services ..............

Maintenance and support .......

Total revenue ................................

4,694

274

18,820

10,926

5,071

322

16,319

27%

(7%)

(15%)

15%

17,755

1,180

70,054

40,039

19,173

1,604

60,816

28%

(7%)

(26%)

15%

Total revenue for the fourth quarter of 2014 was $18.8 million or an increase of 15% compared to the same

period in 2013. For fiscal year 2014, total revenue was $70.1 million compared to $60.8 million for 2013,

representing an increase of 15%.

Subscription Revenue

Subscription revenue for the three months ended December 31, 2014 was $13.9 million, up from $11.0 million

for the same period in 2013, for an increase of 27% or $2.9 million. For fiscal year 2014, subscription revenue was

$51.1 million or 28% higher than fiscal year 2013. The increase in subscription revenue is due to revenue from

MANAGEMENT’S DISCUSSION & ANALYSISAdjusted EBITDA
Adjusted EBITDA

Management's Discussion and Analysis

Management's Discussion and Analysis
Management's Discussion and Analysis

Adjusted EBITDA

Adjusted EBITDA represents profit adjusted to exclude the impact of our formerly outstanding redeemable
Adjusted EBITDA represents profit adjusted to exclude the impact of our formerly outstanding redeemable
preferred shares, our equity compensation plans , income tax expense, depreciation, foreign exchange loss (gain) and
preferred shares, our equity compensation plans , income tax expense, depreciation, foreign exchange loss (gain) and
net financing (income) expense. We use Adjusted EBITDA to provide readers with a supplemental measure of our
net financing (income) expense. We use Adjusted EBITDA to provide readers with a supplemental measure of our
Adjusted EBITDA represents profit adjusted to exclude the impact of our formerly outstanding redeemable
operating performance and thus highlight trends in our core business that may not otherwise be apparent when
operating performance and thus highlight trends in our core business that may not otherwise be apparent when
preferred shares, our equity compensation plans , income tax expense, depreciation, foreign exchange loss (gain) and
relying solely on IFRS financial measures.
relying solely on IFRS financial measures.
net financing (income) expense. We use Adjusted EBITDA to provide readers 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
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
the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance
We believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in
comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital
comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital
the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance
expenditure and working capital requirements.
expenditure and working capital requirements.
comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital
expenditure and working capital requirements.

We have reconciled Adjusted profit and Adjusted EBITDA to the most comparable IFRS financial measure as
We have reconciled Adjusted profit and Adjusted EBITDA to the most comparable IFRS financial measure as
We have reconciled Adjusted profit and Adjusted EBITDA to the most comparable IFRS financial measure as

follows:
follows:

follows:

Three months ended
Three months ended
December 31,
Three months ended
December 31,
December 31,

2014
2014

2014

2013
2013
2013

Years ended
Years ended
December 31
December 31
2013
2013

Years ended
December 31
2013

2014
2014
2014
(In thousands of U.S. dollars)
(In thousands of U.S. dollars)
(In thousands of U.S. dollars)
$
$ (221)
$
$ (221)
(9,720)

$ (221)

(9,720)
(9,720)
$

2012
2012

2012

$
$
4,944

4,944
4,944

$
$
$

(840)
(840)
(840)

Profit (Loss)....................................................................... $ 584

Loss due to change in fair value of redeemable
preferred shares..................................................................
Share-based compensation.................................................

Profit (Loss)....................................................................... $ 584
Profit (Loss)....................................................................... $ 584
Loss due to change in fair value of redeemable
Loss due to change in fair value of redeemable
preferred shares..................................................................
preferred shares..................................................................
Share-based compensation.................................................
Share-based compensation.................................................

̶
̶
̶
845
845
845
845
845
Adjusted profit................................................................... $ 1,429
Adjusted profit................................................................... $ 1,429
Adjusted profit................................................................... $ 1,429
1,592
Income tax expense ...........................................................
1,592
Income tax expense ...........................................................
1,592
Income tax expense ...........................................................
334
Depreciation ......................................................................
334
Depreciation ......................................................................
465
Foreign exchange loss (gain) .............................................
334
Depreciation ......................................................................
465
Foreign exchange loss (gain) .............................................
(17)
Net finance (income) expense............................................
465
Foreign exchange loss (gain) .............................................
(17)
Net finance (income) expense............................................
(17)
Net finance (income) expense............................................
2,374
2,374
Adjusted EBITDA ............................................................. $ 3,803
2,374
Adjusted EBITDA ............................................................. $ 3,803
Adjusted EBITDA ............................................................. $ 3,803

845

Revenue

2,665
2,665
2,665
345
345
345
3,010
3,010
3,010
$ 2,170
$ 2,170
$ 2,170
2,068
2,068
2,068
218
218
8
218
8
13
8
13
13
2,307
2,307
$ 4,447
2,307
$ 4,447
$ 4,447

$
$

9,418

6,760
2,658

6,760
6,760
2,658
2,658
9,418
9,418
9,197
9,197
9,197
4,642
4,642
4,642
1,151
1,151
599
1,151
599
490
599
490
490
6,882
6,882
$ 16,079
$ 16,079

6,882

$ 16,079

$ 9,167
4,874
834
168
(31)

2,070

18,887

17,884
1,003

17,884
17,884
1,003
1,003
18,887
18,887
$ 9,167
$ 9,167
4,874
4,874
834
834
168
168
(31)
(31)
5,845
5,845
$ 15,012
$ 15,012

1,172
898

1,172
1,172
898
898
2,070
2,070
$ 7,014
$ 7,014
$ 7,014
2,181
2,181
2,181
677
677
(215)
677
(215)
(46)
(215)
(46)
(46)
2,597
2,597
$ 9,611
$ 9,611

$ 9,611

5,845

2,597

$ 15,012

Revenue
Revenue

The following table displays the breakdown of our revenue according to revenue type:

The following table displays the breakdown of our revenue according to revenue type:
The following table displays the breakdown of our revenue according to revenue type:
Years ended
Three months ended
December 31
December 31,

2014

2013
Three months ended
Three months ended
December 31,
December 31,

(In thousands of U.S. dollars, except percentages)

2014

Revenue

2014
2014

Revenue
Revenue

Subscription............................ $ 13,852
4,694
Professional services ..............
274
Maintenance and support .......
18,820
Total revenue ................................
Subscription............................ $ 13,852
Subscription............................ $ 13,852
4,694
Professional services ..............
4,694
Professional services ..............
274
Maintenance and support .......
274
Maintenance and support .......
18,820
Total revenue ................................
18,820
Total revenue ................................

$
$

2013
$
2013

2014
$ 51,119
2014
17,755
1,180
70,054
$ 51,119
$ 51,119

10,926
(In thousands of U.S. dollars, except percentages)
5,071
(In thousands of U.S. dollars, except percentages)
322
16,319
10,926
10,926
5,071
5,071
322
322
16,319
16,319

17,755
17,755
1,180
1,180
70,054
70,054

Total revenue for the fourth quarter of 2014 was $18.8 million or an increase of 15% compared to the same
period in 2013. For fiscal year 2014, total revenue was $70.1 million compared to $60.8 million for 2013,
representing an increase of 15%.

40,039
40,039
19,173
19,173
1,604
1,604
60,816
60,816

28%
(7%)
(26%)
15%

28%
28%
(7%)
(7%)
(26%)
(26%)
15%
15%

2013

Years ended
Years ended
December 31
December 31
40,039
$
19,173
1,604
60,816
$
$

2013
2013

2013 to
2014
%
2013 to
2013 to
2014
2014
%
27%
%
(7%)
(15%)
15%
27%
27%
(7%)
(7%)
(15%)
(15%)
15%
15%

2013 to
2014
%

2013 to
2013 to
2014
2014
%
%

Subscription Revenue

Total revenue for the fourth quarter of 2014 was $18.8 million or an increase of 15% compared to the same
Total revenue for the fourth quarter of 2014 was $18.8 million or an increase of 15% compared to the same
period in 2013. For fiscal year 2014, total revenue was $70.1 million compared to $60.8 million for 2013,
period in 2013. For fiscal year 2014, total revenue was $70.1 million compared to $60.8 million for 2013,
Subscription revenue for the three months ended December 31, 2014 was $13.9 million, up from $11.0 million
representing an increase of 15%.
representing an increase of 15%.
for the same period in 2013, for an increase of 27% or $2.9 million. For fiscal year 2014, subscription revenue was
$51.1 million or 28% higher than fiscal year 2013. The increase in subscription revenue is due to revenue from

Subscription Revenue
Subscription Revenue

Subscription revenue for the three months ended December 31, 2014 was $13.9 million, up from $11.0 million
Subscription revenue for the three months ended December 31, 2014 was $13.9 million, up from $11.0 million
for the same period in 2013, for an increase of 27% or $2.9 million. For fiscal year 2014, subscription revenue was
for the same period in 2013, for an increase of 27% or $2.9 million. For fiscal year 2014, subscription revenue was
9
$51.1 million or 28% higher than fiscal year 2013. The increase in subscription revenue is due to revenue from
$51.1 million or 28% higher than fiscal year 2013. The increase in subscription revenue is due to revenue from

9
9

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

contracts secured with new customers during the fourth quarter of 2013 and during fiscal year 2014, and expansion
of existing customer subscriptions.

Professional services revenue

Professional services revenue for the fourth quarter of 2014 decreased $0.4 million or 7% to $4.7 million from
$5.1 million for the same period in 2013. For fiscal year 2014, professional service revenue was $17.8 million
compared to $19.2 million for the same period in 2013, representing a decrease of $1.4 million or 7%. The decrease
in services revenue is due to a decline in revenue related to a significant engagement with an existing customer that
ended in December 2013. This decrease was partially offset by an increase in services provided for deployment of
new customers acquired during the second half of 2013 and throughout fiscal year 2014.

Maintenance & support revenue

Maintenance & support revenue was $0.3 million for the fourth quarter of 2014, down 15% compared to the
same period in 2013 and $1.2 million for fiscal year 2014 compared to $1.6 million for 2013, a decrease of $0.4
million or 26%. This expected decrease in revenue is due to support contracts with legacy customers with perpetual
licenses that have lapsed and the migration of perpetual licenses held by a specific customer to a subscription model
in the latter half of fiscal 2013.

Gross Profit

Three months ended
December 31,

2014

2013

2013 to
2014
%

Years ended
December 31

2014

2013

(In thousands of U.S. dollars, except percentages)

Cost of revenue ............................. $ 5,433
13,387
Gross profit ...................................

$ 4,603
11,716

18%
14%

$ 20,745
49,309

$ 18,016
42,800

Gross profit %...............................

71%

72%

70%

2013 to
2014
%

15%
15%

Cost of revenue for the fourth quarter of 2014 increased $0.8 million, or 18%, to $5.4 million from $4.6 million
for the same period in 2013. For fiscal year 2014, cost of revenue increased $2.7 million or 15% to $20.7 million
from $18.0 million for the same period in 2013. The increase in costs was primarily attributable to increased
headcount and related compensation costs initiated in the second half of 2013 to support active engagements and
future growth of professional services activity, an increase in use of third-party service providers to support new
deployments, and increased travel costs and billable expenses related to currently active projects. An increase in
costs associated with the expansion of data centre capacity to support new customer engagements was also incurred.
Gross profit for the three months and year ended December 31, 2014 was $13.4 million and $49.3 million compared
to $11.7 million and $42.8 million for the same periods in 2013. Gross profit as a percentage of revenue decreased to
71% in the fourth quarter ended December 31, 2014 from 72% in the fourth quarter ended December 31, 2013 and
remained at 70% in the years ended December 31, 2014 and 2013. The percentage decrease in the fourth quarter of
2014 was due to the growth in total revenue in the period compared to the fourth quarter of 2013 while the growth in
cost of revenue was higher in the fourth quarter of 2014 driven by a higher level of investment in additional services
headcount compared to the same period in 2013.

Selling and Marketing Expenses

Three months ended
December 31,

2014

2013

2013 to
2014
%

Years ended
December 31

2014

2013

2013 to
2014
%

(In thousands of U.S. dollars, except percentages)

Selling and marketing ................... $ 5,275

$ 3,543

49%

$ 15,296

$ 15,071

As a percentage of revenue ...........

28%

22%

25%

Selling and marketing expenses for the fourth quarter of 2014 increased $1.8 million, or 49%, to $5.3 million
from $3.5 million in the fourth quarter of 2013. For the year ended December 31, 2014, selling and marketing
expenses increased $0.2 million or 1% to $15.3 million from same period in 2013. The increase in sales and

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

marketing expenses for the fourth quarter of 2014 was due to higher commission expenses incurred in the fourth
quarter of 2014 compared to the same period in 2013. Late in the fourth quarter of 2014, we closed a multi-year
subscription agreement that provided for a single payment of the initial term subscription fee of approximately $20.0
million. While this fee was invoiced and received in the first quarter of 2015, the commissions related to this
agreement were expensed in the fourth quarter of 2014. Sales and marketing expenses for fiscal year 2014 were
comparable to the prior year, as increased sales compensation and commission expenses relating to customer
contracts closed in 2014 were mostly offset by lower marketing headcount and related compensation costs due to a
functional realignment of product marketing resources to product management under research and development in
the fourth quarter of 2013. As a percentage of revenue, selling and marketing expenses increased 6% to 28% in the
fourth quarter of 2014 and decreased 3% to 22% for the year ended December 31, 2014. The increase in the fourth
quarter of 2014 compared to the fourth quarter of 2013 is due to the higher commission expenses incurred in the
fourth quarter of 2014. The decrease in fiscal year 2014 compared to fiscal year 2013 is due to the functional
realignment of product marketing resources in the fourth quarter of 2013. Due to the timing of marketing programs
and events and the closing of customer contracts, selling and marketing expenses will vary from quarter to quarter.

Research and Development Expenses

Three months ended
December 31,

2014

2013

2013 to
2014
%

Years ended
December 31

2014

2013

2013 to
2014
%

(In thousands of U.S. dollars, except percentages)

$ 3,940
(578)
3,362

$ 2,974
(527)
2,447

32%
10%
37%

$ 15,422
(1,993)
13,429

10,417
(2,246)
8,171

48%
(11%)
64%

Research and development -
gross
Less: Investment tax credits..........
Research and development ...........

As a percentage of revenue ...........

Gross.......................................

Net ..........................................

21%

18%

15%

22%

19%

17%

13%

Gross research and development expenses for the fourth quarter of 2014 increased $0.9 million to $3.9 million
or 32% and for the year ended December 31, 2014, increased $4.0 million to $15.4 million or 48%, in each case
compared to the same periods in 2013. The increase in research and development expenses was due to an increase in
compensation and related costs due to an increase in headcount from new hires and the realignment of marketing
resources under product management completed in the fourth quarter of 2013. The investment in headcount was
made to support ongoing programs to develop the RapidResponse product and solution offering for new and existing
customers. Investment tax credits earned on research and development activity in Canada increased 10% in the
fourth quarter to $0.6 million and decreased 11% to $2.0 million for the 2014 year, in each case compared to the
same periods in 2013. The increase in investment tax credits earned in the fourth quarter of 2014 compared to the
fourth quarter of 2013 is due to increased headcount and creditable activity incurred in the second half of 2014. The
decrease for fiscal year 2014 is due to a decrease in the effective rates for earning credits and the ineligibility of
capital purchases for tax credits for 2014 as well as the loss of refundable credits at a higher rate upon the closing of
our initial public offering and becoming a public company. As a percentage of revenues, gross research and
development expenses were 21% for the fourth quarter and 22% for the fiscal year 2014 compared to 18% and 17%
for the same periods in 2013, reflecting an additional investment in product development. Net research and
development as a percentage of revenue for the fourth quarter and the 2014 year was 18% and 19% compared to
15% and 13% for the same periods in 2013. The percentage increased due to the decrease in the investment tax
credits earned compared to the previous year in addition to higher product development expenses.

General and Administrative Expenses

Three months ended
December 31,

2014

2013

2013 to
2014
%

Years ended
December 31

2014

2013

2013 to
2014
%

(In thousands of U.S. dollars, except percentages)

General and administrative ........... $ 2,126

1,812

17%

$ 8,314

6,383

30%

As a percentage of revenue ...........

11%

12%

10%

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

For the fourth quarter of 2014, general and administrative expenses increased $0.3 million, or 17%, to $2.1
million from $1.8 million for the same period in 2013. For the year ended December 31, 2014, general and
administrative expenses increased $1.9 million, or 30% to $8.3 million from $6.4 million for the same period in
2013. The increase in general and administrative expenses was due to an increase in headcount and related
compensation costs and share-based payments expense as well as accounting, audit and legal fees related to the
conversion to IFRS, review of quarterly results, tax planning and corporate governance support. As a percentage of
revenue, general and administrative expenses were 11% for both the fourth quarter of 2014 and 2013 and 12% for
the year ended December 31, 2014, compared to 10% for the same period in 2013 due to the increase in
compensation costs and accounting, audit and legal fees noted above.

Other Income and Expense

The following table provides a breakdown of other income and expense by type:

Three months ended
December 31,

2014

2013

2013 to
2014
%

Years ended
December 31

2014

2013

2013 to
2014
%

(In thousands of U.S. dollars, except percentages)

Other income (expense)

Loss due to change in fair
value of redeemable
preferred shares ...................... $ ̶
Foreign exchange (loss)
gain.........................................
Net finance income
(expense) ................................
Total other expense.......................

17
(448)

(465)

$ (2,665)

(100%)

$ (6,760)

$ (17,884)

(62%)

(8)

(13)
(2,686)

̶ (1)

̶ (1)
(83%)

(599)

(490)
(7,849)

(168)

31
(18,021)

257%

̶ (1)
(56%)

Note:

(1) The percentage change has been excluded as it is not meaningful.

For the three months ended December 31, 2014, total other expense was $0.4 million compared to $2.7 million
for the fourth quarter of 2013, and fiscal year 2014 was $7.8 million compared to $18.0 million for fiscal year 2013.
The decrease in the fourth quarter was due to the non-cash fair value adjustment recorded in the fourth quarter of
2013 for the redeemable preferred shares which were converted to Common Shares at the time of our initial public
offering in the second quarter of 2014. For fiscal year 2014, other expenses decreased due to a lower fair value
adjustment for the redeemable preferred shares compared to the adjustments incurred in fiscal year 2013, offset
partially by an increase in interest expense incurred in the first half of 2014 on the term loan and foreign exchange
losses on monetary assets held in foreign currencies revalued against a strengthening US dollar in the second half of
2014.

Income Taxes

Income tax expense

Three months ended
December 31,

2014

2013

2013 to
2014
%

Years ended
December 31

2014

2013

2013 to
2014
%

(In thousands of U.S. dollars, except percentages)

Current ................................... $ 193
1,399
Deferred .................................
1,592
Total income tax expense .............

$ 8,338
(6,270)
2,068

(98%)
̶ (1)
(23 %)

$ 819
3,823
4,642

$ 8,857
(3,983)
4,874

(91%)
̶ (1)
(5%)

Note:

(1) The percentage change has been excluded as it is not meaningful.

For the three months and year ended December 31, 2014, income tax expense of $1.6 million and $4.6 million
was recognized compared to $2.1 million and $4.9 million for the same periods in 2013. The decrease in income tax

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

expense for the fourth quarter of 2014 compared to the fourth quarter of 2013 is due to lower profit before income
taxes in the fourth quarter of 2014 excluding the impact of the non-deductible loss on the redeemable preferred
shares. Income tax expense for fiscal year 2014 was comparable to fiscal year 2013 as the profit before tax was also
comparable excluding the impact of the loss on the redeemable preferred shares and considering the increase in non-
deductible shared-based compensation in fiscal 2014 compared to fiscal 2013.

Profit (Loss)

Three months ended
December 31,

2014

2013

2013 to
2014
%

Years ended
December 31

2014

2013

2013 to
2014
%

(In thousands of U.S. dollars, except percentages)

Profit (Loss).................................. $ 584
Adjusted profit(2)...........................
Adjusted EBITDA(2) .....................
Basic earnings (loss) per share......

1,429

3,803

0.02

Diluted earnings (loss) per share...

0.02

(840)

2,170

4,477

(0.05)

̶ (1)
(34 %)

(15%)

$ (221)

$ (9,720)

(98 %)

9,197

16,079

(0.01)

9,167

15,012

(0.59)

(1%)

Adjusted diluted earnings per
share(2)...........................................

Note:

0.06

0.09

0.41

0.34

(1) The percentage change has been excluded as it is not meaningful.
(2) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a

reconciliation of these measures to the closest IFRS measure, see “Reconciliation of Non-IFRS Measures” above.

Profit for the three months ended December 31, 2014 increased $1.4 million to $0.6 million or $0.02 per basic
share and diluted share, from a loss of $0.8 million or $0.05 per basic and diluted share for the same period in 2013.
For fiscal year 2014 the loss decreased to $0.2 million or $0.01 per basic and diluted share from $9.7 million or
$0.59 per basic and diluted share. The increase in profit was primarily driven by a lower fair value adjustment on the
redeemable preferred shares which were converted to Common Shares at the time of our initial public offering in
June 2014. The increase was partially offset by lower operating profits, higher foreign exchange losses and interest
expenses in 2014. Adjusted EBITDA for the fourth quarter of 2014 was $3.8 million, a decrease of $0.7 million
from $4.5 million from the corresponding period in 2013. For the year ended December 31 2014, Adjusted EBITDA
increased $1.1 million to $16.1 million, compared to $15.0 million in the corresponding period in 2013. The
decrease in Adjusted EBITDA in the three months ended December 31, 2014 is due to an increase in sales and
marketing and research and development expenses in the fourth quarter of 2014 compared to the same period in
2013. The increase in Adjusted EBITDA in fiscal year 2014 is due to the growth in revenue compared to the prior
year net of the increase in operating expenses.

Key Balance Sheet Items

As at December
31, 2014

As at December
31, 2013

(In thousands of U.S. dollars)

Total assets............................................................................... $
Total liabilities .........................................................................

91,209
44,572

$ 41,472

115,052

An analysis of the key balance sheet items driving the change in total assets and liabilities is as follows:

Trade and other receivables

Trade and other receivables......................................................

$ 17,023

$ 12,449

As at December
31, 2014

As at December
31, 2013

(In thousands of U.S. dollars)

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

Trade and other receivables were $17.0 million at December 31, 2014, an increase of $4.6 million compared to
$12.4 million at December 31, 2013. The change in trade and other receivables was due to timing of billings and
collections on receivables which can have a significant impact on the balance at any point in time due to the annual
subscription billing cycle. The aging of trade receivables is generally current and we have no history of bad debts.

Investment tax credits

As at December
31, 2014

As at December
31, 2013

(In thousands of U.S. dollars)

Investment tax credits receivable .............................................
Long-term investment tax credits recoverable .........................

$ 1,974

3,091

$ 1,330
2,108

Investment tax credits receivable are the estimated refunds we anticipate receiving as a result of research and
development that is considered qualified for investment tax credits. As of the closing of our initial public offering,
we no longer are eligible for federal refundable investment tax credits. We remain eligible for non-refundable
investment tax credits which will be earned at a lower rate resulting in higher research and development expenses
going forward.

Investment tax credits receivable of $2.0 million at December 31, 2014 were $0.7 million higher compared to
$1.3 million at December 31, 2013 as the refund related to the 2013 tax year remains outstanding in addition to
refundable investment tax credits filed for 2014 for the period prior to our initial public offering. Long-term
investment tax credits recoverable are the non-refundable portion of investment tax credits earned. The balance
increased $1.0 million to $3.1 million at December 31, 2014 from $2.1 million at December 31, 2013 due to
estimated non-refundable credits earned during fiscal year 2014.

Deferred revenue

As at December
31, 2014

As at December
31, 2013

(In thousands of U.S. dollars)

Current ..................................................................................... $ 35,740
1,778
Non-current..............................................................................
37,518

$ 24,700

̶
24,700

Deferred revenue at December 31, 2014 was $37.6 million, an increase of $12.9 million compared to $24.7
million at December 31, 2013. We generally bill our customers annually in advance for subscriptions resulting in the
amount billed initially recorded as deferred revenue and drawn down to revenue over the term. The increase in
deferred revenue reflects the increase in subscription revenue from the addition of new customer contracts and
expansion of existing customers and the timing of annual billings. Deferred revenue relating to subscription term
periods beyond one year totaled $1.8 million at December 31, 2014.

Redeemable preferred shares

As at December
31, 2014

As at December
31, 2013

(In thousands of U.S. dollars)

Redeemable preferred shares ................................................... $ ̶

$ 54,135

Prior to our initial public offering, we had redeemable preferred shares outstanding that had been designated as
financial liabilities and recorded at fair value through profit or loss in accordance with IFRS. The liability increased
$6.8 million in 2014 compared to December 31, 2013 due to the change in the fair value of the redeemable preferred
shares. Immediately before completion of our initial public offering, all of our outstanding redeemable preferred
shares were converted into Common Shares on a one-for-one basis. The accumulated deficit generated by the non-
cash fair value adjustments amounting to $41.0 million related to these converted preferred shares was reclassified
from deficit to share capital. Upon completion of our initial public offering we no longer have issued or authorized
redeemable preferred shares and we will no longer incur the related changes in fair value recorded in profit and loss.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISSummary of Quarterly Results

Management's Discussion and Analysis
The following table summarizes selected results for the eight most recent completed quarters to December 31, 2014.

Management's Discussion and Analysis

Summary of Quarterly Results

The following table summarizes selected results for the eight most recent completed quarters to December 31, 2014.
The following table summarizes selected results for the eight most recent completed quarters to December 31, 2014.

30, 2014

30, 2013

September
30, 2014

September
30, 2013

December
31, 2014

June

March
31, 2013

Revenue:

Subscription..................................... $ 13,852
Professional services........................
Maintenance and support .................

Revenue:

Revenue:
Cost of revenue ....................................
Subscription..................................... $ 13,852
Gross profit ..........................................
Professional services........................
Maintenance and support .................
Operating expenses ..............................

Subscription..................................... $ 13,852
Professional services........................
Maintenance and support .................

Cost of revenue ....................................
Gross profit ..........................................

Operating expenses ..............................

Cost of revenue ....................................
Gross profit ..........................................
Loss due to change in fair value of
redeemable preferred shares.................
Operating expenses ..............................
Foreign exchange (loss) gain................
Net finance income (expense) ..............

December
December
4,694
31, 2014
31, 2014
274
18,820
5,433
13,387
4,694
10,763
274
18,820
2,624
5,433
13,387

4,694
274
18,820
5,433
13,387

10,763

$ 13,302
September
September
4,081
30, 2014
30, 2014
298
17,681
4,855
$ 13,302
$ 13,302
4,081
12,826
4,081
298
8,697
298
17,681
4,855
17,681
4,129
4,855
12,826
12,826

8,697

2,624

10,763
-
(465)
2,624
17

4,129
-
8,697
(262)
4,129
3

Loss due to change in fair value of
redeemable preferred shares.................
Foreign exchange (loss) gain................
Net finance income (expense) ..............

Profit (Loss) before income taxes.........
Loss due to change in fair value of
-
redeemable preferred shares.................
Income tax expense..............................
1,592
Foreign exchange (loss) gain................
(465)
Net finance income (expense) ..............
17
Profit (Loss) ......................................... $ 584

Profit (Loss) before income taxes.........

Income tax expense..............................

2,176

-
(465)
17

-
(262)
3

3,870
-
1,358
3,870
(262)
3
$ 2,512
1,358

2,176

1,592

Profit (Loss) ......................................... $ 584

2,176
Profit (Loss) before income taxes.........
Loss due to change in fair value of
-
redeemable preferred shares.................
Income tax expense..............................
1,592
845
Share-based compensation ...................
Profit (Loss) ......................................... $ 584
845

Loss due to change in fair value of
redeemable preferred shares.................

Share-based compensation ...................

-
845

3,870
$ 2,512
-
1,358
794
$ 2,512
794

-
794

845
$
$ 1,429

334

1,592

Depreciation.........................................

Foreign exchange loss (gain)................

Income tax expense..............................

Adjusted profit(1) ..................................

Adjusted profit(1) ..................................
Loss due to change in fair value of
redeemable preferred shares.................
Income tax expense..............................
Share-based compensation ...................
Depreciation.........................................
Foreign exchange loss (gain)................
Adjusted profit(1) ..................................
Net finance (income) expense ..............
Income tax expense..............................

$ 1,429
-
1,592
845
334
845
465
$ 1,429
(17)
1,592
2,374
334
Depreciation.........................................
Adjusted EBITDA(1)............................. $
3,803
Foreign exchange loss (gain)................
465
Basic earnings (loss) per share ............. $ 0.02
(17)
Net finance (income) expense ..............
Diluted earnings (loss) per share .......... $ 0.02
2,374
Adjusted diluted earnings per
share(1)……………………………… $ 0.06

Basic earnings (loss) per share ............. $ 0.02
Diluted earnings (loss) per share .......... $ 0.02

Adjusted EBITDA(1)............................. $

Net finance (income) expense ..............

Adjusted diluted earnings per
Adjusted EBITDA(1)............................. $
3,803
share(1)……………………………… $ 0.06
Note:
Basic earnings (loss) per share ............. $ 0.02
Diluted earnings (loss) per share .......... $ 0.02

Note:

2,374

3,803

465
$
(17)

794

262
(3)

3,306
-
3,306
$
1,358
794
1,358
317
794
317
262
3,306
(3)
1,358
1,934
317
$ 5,240
$ 5,240
262
$ 0.11
$ 0.11
(3)
$ 0.10
$ 0.10
1,934
$ 0.13

1,934

$ 5,240
$ 0.13
$ 0.11

Adjusted diluted earnings per
share(1)……………………………… $ 0.06

$ 12,645
June
June
4,979
30, 2014
30, 2014
306
17,930
5,628
$ 12,645
$ 12,645
4,979
12,302
4,979
306
9,934
306
17,930
5,628
17,930
2,368
5,628
12,302
9,934
12,302
2,368
9,934
(6,581)
81
2,368
(253)
(6,581)
(4,385)
81
(253)
(6,581)
889
(4,385)
81
(253)
$ (5,274)
889
(4,385)
$ (5,274)
6,581
889
631
6,581
$ (5,274)
631
7,212
7,212
1,938
6,581
1,938
$
889
631
889
260
7,212
260
(81)
(81)
1,938
253
253
889
1,321
1,321
260
$ 3,259
$ 3,259
(81)
$ (0.34)
$ (0.34)
253
$ (0.34)
$ (0.34)
1,321
$ 0.09
$ 3,259
$ 0.09
$ (0.34)

Three months ended
March
31, 2014

December
31, 2013

7,802

3,914

2,760

1,228

7,802
(2,665)
(8)
3,914
(13)

(2,665)
1,228
(8)
(13)
(2,665)
2,068
(8)
(13)

Three months ended
Three months ended
$ 11,320
$ 10,926
March
December
December
March
4,001
5,071
31, 2013
31, 2014
31, 2014
31, 2013
302
322
15,623
16,319
4,829
4,603
$ 10,926
$ 11,320
$ 10,926
$ 11,320
5,071
4,001
10,794
11,716
4,001
5,071
322
302
7,645
7,802
302
322
16,319
15,623
4,603
4,829
15,623
16,319
3,149
3,914
4,829
4,603
11,716
10,794
7,645
10,794
11,716
3,149
7,645
(179)
47
3,149
(257)
(179)
2,760
47
(257)
(179)
803
47
(257)
$ 1,957
803
2,760
179
803
388
179
$ 1,957
388
567
567
$ 2,524
179
$ 2,524
803
388
803
240
567
240
(47)
(47)
$ 2,524
257
257
803
1,253
1,253
240
3,777
$
$
3,777
(47)
$ 0.15
$ 0.15
257
$ 0.14
$ 0.14
1,253
$ 0.17
$
3,777
$ 0.17
$ 0.15

2,170
2,665
2,170
2,068
345
218
3,010
8
8
$
2,170
13
13
2,068
2,307
2,307
218
4,477
4,477
8
$ (0.05)
13
$ (0.05)
2,307

$ 0.09
$
4,477
$ 0.09
$ (0.05)

$ (0.05)

$ 1,957

2,068

218

2,068

3,010

March
31, 2013

30, 2013

June

September
30, 2013

$ 10,149
September
4,934
30, 2013
368
15,451
4,556
$ 10,149
$ 10,149
4,934
10,895
4,934
368
6,868
368
15,451
4,556
15,451
4,027
4,556
10,895
10,895

$ 9,853
June
5,404
30, 2013
463
15,720
4,568
$ 9,853
$
$ 9,853
5,404
11,152
5,404
463
7,689
463
15,720
4,568
15,720
3,463
4,568
11,152
11,152

6,868

7,689

4,027

3,463

6,868
(5,683)
103
4,027
16

(1,537)

(5,683)
103
16

(5,972)
(74)
15

7,689
(5,972)
(74)
3,463
15

(2,568)

(5,683)
1,244
103
16
$ (840) $ (2,781)

(1,537)

1,244

(2,568)

(5,972)
964
(74)
15
$ (3,532)
964

$ (3,532)

$ (2,567)

1,228
$ (840) $ (2,781)
2,665
2,068
345

(1,537)
5,683
1,244
204
$ (840) $ (2,781)
5,887

2,665
345
3,010

5,683
204

(2,568)
5,972
964
217
$ (3,532)
6,189

5,972
217

3,564
237

3,801
$
1,234

598

200

189
$
(13)

974

2,208

5,887
$
3,106

209

1,244

(103)
$
(16)

3,106
5,683
$
1,244
204
209
5,887
(103)
3,106
(16)
1,244
1,334
209
$
$ 4,440
(103)
$ (0.16)
(16)
$ (0.16)
1,334

1,334

964

207

74
(15)

6,189
$
2,657

2,657
5,972
$
964
217
207
6,189
74
$
2,657
(15)
964
1,230
207
$
3,887
3,887
$
74
$ (0.21)
(15)
$ (0.21)
1,230

1,230

$ 4,440

$ (0.16)

$ (0.21)

$ (0.15)

$ (0.16)

$ (0.21)

$ (0.15)

9,111
3,764
451
13,326
4,289
9,037

7,266

1,771

(3,564)
(189)
13

(1,969)

598

9,111
March
3,764
31, 2013
451
13,326
4,289
9,111
9,037
3,764
7,266
451
13,326
1,771
4,289
9,037

7,266
(3,564)
(189)
1,771
13

(1,969)

(3,564)
598
(189)
13
$ (2,567)

(1,969)
3,564
598
237
$ (2,567)
3,801

1,234
3,564
598
237
200
3,801
189
1,234
(13)
598
974
200
2,208
189
$ (0.15)
(13)
$ (0.15)
974

$ 0.05

$ 0.11

$ 4,440
$ 0.11
$ (0.16)

$ 0.10
$
3,887
$ 0.10
$ (0.21)

$ 0.05

$
2,208
$ 0.05
$ (0.15)

(1) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a

$ 0.10

$ (0.34)

$ 0.14

$ (0.05)

$ (0.16)

$ (0.21)

$ (0.15)

reconciliation of these measures to the closest IFRS measure, see “Reconciliation of Non-IFRS Measures” above.

$ 0.13

$ 0.09

$ 0.17

$ 0.11

(1) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a
reconciliation of these measures to the closest IFRS measure, see “Reconciliation of Non-IFRS Measures” above.
Subscription revenue has increased steadily over the quarters due to acquisition of new customers and
$ 0.09
$ 0.10
expansion of existing customers. Quarterly professional services revenue decreased from 2013 to 2014 due to a
Note:
Subscription revenue has increased steadily over the quarters due to acquisition of new customers and
decline in revenue related to a significant engagement with an existing customer that ended in December 2013.
expansion of existing customers. Quarterly professional services revenue decreased from 2013 to 2014 due to a
Professional services revenue varies quarter to quarter due to the size, timing and scheduling of customer
(1) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a
engagements. Maintenance and support revenue has declined over the quarters due to support contracts with legacy
decline in revenue related to a significant engagement with an existing customer that ended in December 2013.
reconciliation of these measures to the closest IFRS measure, see “Reconciliation of Non-IFRS Measures” above.
customers with perpetual licenses that have lapsed and the migration of a specific customer to a subscription model
Professional services revenue varies quarter to quarter due to the size, timing and scheduling of customer
in the latter half of 2013. Cost of revenue has increased as we invest in capacity to support the current and future
Subscription revenue has increased steadily over the quarters due to acquisition of new customers and
engagements. Maintenance and support revenue has declined over the quarters due to support contracts with legacy
growth in our business with gross margin of approximately 70% of revenue. Operating expenses have increased as
expansion of existing customers. Quarterly professional services revenue decreased from 2013 to 2014 due to a
customers with perpetual licenses that have lapsed and the migration of a specific customer to a subscription model
we invest in sales and marketing and product development. In addition to increased investment, our quarterly
decline in revenue related to a significant engagement with an existing customer that ended in December 2013.
in the latter half of 2013. Cost of revenue has increased as we invest in capacity to support the current and future
operating expenses are impacted by timing of sales commissions and marketing events. We have also experienced
Professional services revenue varies quarter to quarter due to the size, timing and scheduling of customer
growth in our business with gross margin of approximately 70% of revenue. Operating expenses have increased as
engagements. Maintenance and support revenue has declined over the quarters due to support contracts with legacy
we invest in sales and marketing and product development. In addition to increased investment, our quarterly
15
customers with perpetual licenses that have lapsed and the migration of a specific customer to a subscription model
operating expenses are impacted by timing of sales commissions and marketing events. We have also experienced
in the latter half of 2013. Cost of revenue has increased as we invest in capacity to support the current and future
growth in our business with gross margin of approximately 70% of revenue. Operating expenses have increased as
15
we invest in sales and marketing and product development. In addition to increased investment, our quarterly
operating expenses are impacted by timing of sales commissions and marketing events. We have also experienced

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

an increase in general and administrative expenses to support our initial public offering in the second quarter of
2014 and to support ongoing compliance and governance requirements. Our quarterly profit has been impacted
significantly by the fair value adjustment on the redeemable preferred shares prior to our initial public offering.
Upon completion of the initial public offering in June 2014, we converted the redeemable preferred shares into
Common Shares and profit will no longer be impacted by this expense.

Liquidity and Capital Resources

Our primary source of cash flow is sales of subscriptions for our software and sales of services. Our approach to
managing liquidity is to ensure, to the extent possible, that we always have sufficient liquidity to meet our liabilities
as they come due. We do so by continuously monitoring cash flow and actual operating expenses compared to
budget.

As at December
31, 2014

As at December
31, 2013

(In thousands of U.S. dollars)

Cash and cash equivalents........................................................ $ 56,725

$ 13,804

Cash and cash equivalents increased $42.9 million to $56.7 million at December 31, 2014, from $13.8 million at
December 31, 2013. The increase is primarily due to the proceeds from our initial public offering which closed in
the second quarter of 2014, net of repayment of our term loan as well as cash from operations for fiscal year 2014.
We expect cash to increase significantly during the first quarter of 2015 due to the receipt of prepayment of a multi-
year subscription of approximately $20.0 million as well as other new subscription arrangements.

In addition to the cash balances, we have a Cdn.$5.0 million revolving demand facility available to be drawn to
meet ongoing working capital requirements. Our principal cash requirements are for working capital and capital
expenditures. Excluding deferred revenue, working capital at September 30, 2014 was $70.8 million. Given the
ongoing cash generated from operations and our existing cash and credit facilities, we believe there is sufficient
liquidity to meet our current and planned financial obligations.

The following table provides a summary of cash inflows and outflows by activity:

Cash Inflows and (Outflow) by activity
Operating activities .............................................................................
Investing activities ..............................................................................
Financing activities .............................................................................
Effects of exchange rates ....................................................................

Years ended December 31
2013
2014
(In thousands of U.S. dollars)

$ 16,250 $ 19,629
(1,397)
(52,622)
(607)

(3,487)
30,595
(437)

Net cash inflows (outflows) ................................................................

42,921

(34,997)

Cash provided by (used in) operating activities

Cash generated by operating activities was $16.3 million in 2014 compared to $19.6 million in 2013. The
decrease in cash provided by operating activities of $3.3 million was due primarily to the Part VI.1 tax of $4.0
million paid in the first quarter of 2014 and interest paid on the term loan of $0.5 million during the first two
quarters of 2014.

Cash provided by (used in) investing activities

Cash used in investing activities is driven by purchases of property and equipment primarily related to computer
equipment for use in our hosting facilities and to support research and development requirements. For the year
ended December 31, 2014, cash used in purchase of property and equipment was $3.5 million, an increase of $2.1
million from $1.4 million in 2013. We expect to continue to invest in additional property and equipment to support
the growth in our customer base and to take advantage of new and advanced technology.

Cash provided by (used in) financing activities

Cash provided by financing activities for the year ended December 31, 2014 was $30.6 million comprised of: $1.2
million of proceeds from shares issued for cash and upon exercise of options before and after the completion of our

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

initial public offering, $54.3 million of proceeds from our initial public offering net of share issuance costs incurred,
and $5.0 million drawn on the term debt facility to fund the Part VI.1 tax liability resulting from the shares
repurchased in the fourth quarter of 2013, less repayment of the term debt facility in full for $30 million. The cash
used by financing activities in the same period in 2013 was $52.6 million comprised of: $79.1 million in cash
consideration provided for the repurchase of Class A Preferred Shares, Common Shares and Non-Voting Common
Shares in the fourth quarter of 2013 net of $25.0 million in term debt drawn to finance a portion of the repurchase,
$0.5 million of proceeds from shares issued upon exercise of options and subscriptions received under the share
purchase plan (which was discontinued in connection with our initial public offering) and $1.0 million of proceeds
from the repayment of receivable for share sale.

Revolving Credit Facility and Term Loan

On December 18, 2013, we entered into certain credit facilities with the Royal Bank of Canada (“RBC”). The
credit facilities are comprised of a Cdn.$5.0 million revolving demand credit facility (the “Revolving Facility”) and
a $30.0 million non-revolving term loan (the “Term Loan”) maturing on June 30, 2017.

As of December 31, 2014, no amounts had been drawn against the Revolving Facility. Prior to our initial public
offering, $30.0 million had been drawn under the Term Loan. On June 18, 2014, the balance of the Term Loan was
repaid using proceeds of our initial public offering. Upon full repayment the Term Loan facility was terminated.

The interest rate on the remaining Revolving Facility is RBC U.S. prime plus 1% per annum for U.S. dollar
denominated amounts and RBC U.S. base rate plus 1% per annum for Canadian dollar denominated amounts. In the
event our aggregate borrowings under the Revolving Facility exceed Cdn. $0.5 million a borrowing limit applies
that is based principally on our accounts receivable.

Use of Proceeds

On June 10, 2014, pursuant to our initial public offering, we issued 5,000,000 Common Shares for proceeds,
before deducting fees and expenses, of approximately Cdn. $65.0 million. After deducting fees and expenses, we
realized net proceeds of $55.7 million (approximately Cdn. $61.3 million).

As previously disclosed we planned to use the proceeds we received from our initial public offering as follows:
approximately $30.0 million (approximately Cdn.$33.0 million) for debt repayment, approximately Cdn.$23.6
million to strengthen our balance sheet, and the balance for working capital and general corporate and administrative
purposes. We may also use a portion of the net proceeds to expand our current business through acquisitions of, or
investments in, other complementary businesses, products or technologies. We may re-allocate the net proceeds
from time to time depending on changes in business conditions prevalent at the time.

The following table sets out a comparison of the intended use of proceeds disclosed in the prospectus dated June
3, 2014 (the “Intended Use of Proceeds”) publicly filed in connection with our initial public offering and actual use
of proceeds from the offering (other than working capital):

Intended Use of
Proceeds

Estimated Amount

Actual Use of
Proceeds

Actual Amount

Variances

Debt repayment

$30.0 million

Debt repayment

$30.0 million

No variance

Strengthen our
balance sheet

Cdn.$23.6 million

Strengthen our
balance sheet

Cdn.$23.6 million

No variance

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

Contractual Obligations

The following table summarizes our contractual obligations as at December 31, 2014, including commitments

relating to leasing contracts:

Less than 1
year

More than 5
1 to
5 years
years
(In thousands of U.S. dollars)

Total amount

Commitments
Operating lease agreements ........................... $ 1,206

$ 5,498

$ 2,658 $ 9,362

Financial Obligations
Trade payables and accrued liabilities ...........

6,945

Total Obligations

$ 8,151

$ 5,498

$ 2,658

$ 16,307

The following table summarizes our contractual obligations as at December 31, 2013, including commitments

relating to leasing contracts:

Less than 1
year

More than 5
1 to
years
5 years
(In thousands of U.S. dollars)

Total amount

Commitments
Operating lease agreements ........................... $ 1,114

$ 2,799

$ ̶

$ 3,913

Financial Obligations
Trade payables and accrued liabilities ...........
Long-term debt..............................................
Redeemable preferred shares.........................

11,062
4,167
̶
15,229

̶
20,833
54,135
74,968

̶
̶
̶
̶

11,062
25,000
54,135
90,197

Total Obligations

$ 16,343

$ 77,767

$ ̶

$ 94,110

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements, other than operating leases (which have been disclosed under
“Liquidity and Capital Resources - Contractual Obligations”), that have, or are likely to have, a current or future
material effect on our consolidated financial position, financial performance, liquidity, capital expenditures or
capital resources.

Transactions with Related Parties

We did not have any transactions during the year ended December 31, 2014 that would be considered to be
between the Company and a related party. During the year ended December 31, 2013 the Company made donations
of $65 in lieu of salary to a charitable organization that is a related party to our CEO, and conducted a share
repurchase program that was executed in the fourth quarter of 2013 in which the CEO and other executive officers
tendered shares and/or vested options.

Financial Instruments and Other Instruments

We recognize financial assets and liabilities when we become party to the contractual provisions of the
instrument. On initial recognition, financial assets and liabilities are measured at fair value plus transaction costs
directly attributable to the financial assets and liabilities, except for financial assets or liabilities at fair value through
profit and loss, whereby the transactions costs are expensed as incurred.

Credit risk

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument fails to meet

its contractual obligations. Our credit risk is primarily attributable to trade and other receivables.

The nature of our subscription based business results in payments being received in advance of the majority of
the services being delivered; as a result, our credit risk exposure is low. As the majority of our revenues are earned

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

over a period of time, the potential impact on our operating results is low as any uncollectible amounts would affect
trade and other receivables and deferred revenue.

Currency risk

A portion of our revenues and operating costs are realized in currencies other than our functional currency, such
as the Canadian dollar, Euros, the Hong Kong dollar and Japanese Yen. As a result, we are exposed to currency risk
on these transactions. Also, additional earnings volatility arises from the translation of monetary assets and liabilities
denominated in foreign currencies at the rate of exchange on each date of the Consolidated Statements of Financial
Position; the impact of which is reported as a foreign exchange gain or loss.

Our objective in managing our currency risk is to minimize exposure to currencies other than our functional

currency. We do so by matching foreign denominated assets with foreign denominated liabilities.

Interest rate risk

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to
changes in market interest rates. We believe that interest rate risk is low for our financial assets as the majority of
investments are made in fixed rate instruments. We do have interest rate risk related to our credit facilities. The rates
on our Revolving Facility are variable to bank prime rate.

Capital management

Our capital is composed of our Common Shares and shareholders’ equity. Our objective in managing our
capital is financial stability and sufficient liquidity to increase shareholder value through organic growth and
investment in sales, marketing and product development. Our senior management team is responsible for managing
the capital through regular review of financial information to ensure sufficient resources are available to meet
operating requirements and investments to support our growth strategy. The Board of Directors is responsible for
overseeing this process. In order to maintain or adjust our capital structure, we could issue new shares, repurchase
shares, approve special dividends or issue debt.

Critical Accounting Policies and Estimates

Revenue

We derive revenue from subscriptions for our product comprised of our hosted software-as-a-service (SaaS)
application and fixed term subscription licenses of our software products (“On-premise licenses”). In addition, we
derive revenue from the provision of professional services including implementation services, technical services and
training and, to a lesser degree, from maintenance and support services provided to customers with legacy perpetual
licenses to our software products. Professional services do not include significant customization to, or development
of, the software.

We commence revenue recognition when all of the following conditions are met:

•

it is probable that the economic benefits of the transaction will flow to the entity;

the amount of revenue can be measured reliably; and

the costs incurred for the transaction and the costs to complete the transaction can be measured reliably.

We provide our SaaS, On-premise licenses and professional services on a stand-alone basis or as part of a
multiple element arrangement. Stand-alone sales occur through renewals of the SaaS or On-premise license and
stand-alone purchases of the same or similar professional services on an ongoing basis by customers. When sold in a
multiple element arrangement, the SaaS or On-premise license and the professional services elements are considered
separate units of accounting as they have stand-alone value to the customer. The total consideration for the
arrangement is allocated to the separate units of accounting based on their relative fair value and the revenue is
recognized for each unit when the requirements for revenue recognition have been met. We determine the fair value
of each unit of accounting based on the selling price when they are sold separately. When the fair value cannot be
determined based on when it was sold, we determine a value that most reasonably reflects the selling price that
might be achieved in a stand-alone transaction. Inputs considered in making this determination include the specific

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

parameters and model used in determining the contract price, contracted renewal rates, the history of pricing,
renewals and stand-alone sales activity of similar customers.

Subscription revenue related to the provision of SaaS or On-premise term licenses is recognized ratably over the
contract term as the service or access to the software is delivered. The contract term begins when the service is made
available or the license is delivered to the customer.

We enter into arrangements for professional services primarily on a time and materials basis. Revenue for
professional services entered into on a time and material basis is recognized as the services are performed. In certain
circumstances, the Company enters into arrangements for professional services on a fixed price basis. Revenue for
fixed price arrangements is recognized by reference to the stage of completion of the contract, taking into
consideration the cost incurred to date in relation to the total expected cost to complete the deliverable. If the
estimated cost to complete a contract results in a loss on the contract, the loss is recognized immediately in profit or
loss.

Maintenance and support services provided to customers with legacy perpetual licenses are sold as a single
element arrangement with one unit of accounting. Revenue for these arrangements is recognized ratably over the
term of the maintenance contract.

Judgment is applied in determining the components of a multiple element revenue arrangement. In allocating
the consideration received among the multiple elements of a revenue arrangement, we must make estimates as to the
fair value of each individual element. The selling price of the element on a stand-alone basis is used to determine the
fair value. Where stand-alone sales do not exist, various inputs are used to determine the fair value. Changes to these
inputs may result in different estimates of fair value for an element and impact the allocation of consideration and
timing of revenue recognition.

Income taxes

Current income tax assets and liabilities for the current and prior periods are measured at the amount expected
to be recovered from, or paid to, the taxation authorities. The tax rates and tax laws used to compute the amount are
those that are enacted or substantively enacted, by the reporting date, in the countries where we operate and generate
taxable income.

Deferred income tax assets and liabilities are recorded for the temporary differences between transactions that
have been included in the financial statements or income tax returns. Deferred income taxes are provided for using
the liability method. Under the liability method, deferred income taxes are recognized for all significant temporary
differences between the tax and financial statement bases of assets and liabilities and for certain carry-forward items.
Deferred income tax assets are recognized only to the extent that, in the opinion of management, it is probable that
the deferred income tax assets will be realized.

The recognition of deferred tax assets requires that we assess future taxable income available to utilize deferred
tax assets related to deductible or taxable temporary differences. We consider the nature and carry-forward period of
deferred tax assets, our recent earnings history and forecast of future earnings in performing this assessment. The
actual deferred tax assets realized may differ from the amount recorded due to factors having a negative impact on
our operating results and lower future taxable income.

Investment tax credits recoverable

The recognition of investment tax credits recoverable requires that we assess future tax payable available to
utilize the investment tax credits. We consider the carry-forward period of the investment tax credits, our recent
earnings history and forecast of future earnings in performing this assessment. We determine the value of effort
expended towards research and development projects that qualify for investment tax credits and calculate the
estimated recoverable to be recognized. The allocation of direct salaries to qualifying projects is derived from time
records and assessment by management. The actual investment tax credits claimed and realized may differ from the
estimate based on the final tax returns and review by tax authorities.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

Fair value of share-based payments

We use the Black-Scholes valuation model to determine the fair value of equity settled stock options. Estimates
are required for inputs to this model including the fair value of the underlying shares, the expected life of the option,
volatility, expected dividend yield and the risk-free interest rate. Variation in actual results for any of these inputs
will result in a different value of the stock option realized from the original estimate.

Adoption of New Accounting Standards

IAS 32: Financial Instruments: Presentation

In December 2011, the International Accounting Standards Board amended International Accounting Standard 32 to
clarify the meaning of when an entity has a current legally enforceable right of set-off. The amendments are
effective for annual periods beginning on or after January 1, 2014 and are required to be applied retrospectively. The
adoption of IAS 32 did not have a material impact on the consolidated financial statements.

IFRIC 21: Levies

In May 2013, the International Accounting Standards Board issued IFRIC 21 which provides guidance on
accounting for levies in accordance with the requirements of International Accounting Standard 37: Provisions,
Contingent Liabilities and Contingent Assets. The interpretation defines a levy as an outflow from an entity imposed
by a government in accordance with legislation. It also notes that levies do not arise from executor contracts of other
contractual arrangements. The interpretation also confirms that an entity recognizes a liability for a levy only when
the triggering event specified in the legislation occurs. This IFRIC is effective for annual reporting periods
beginning on or after January 1, 2014 and is required to be applied retrospectively. The adoption of IFRIC 21 did
not have a material impact on the consolidated financial statements.

Changes to standards and interpretations

IFRS 9: Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9, bringing together the classification and measurement,
impairment and hedge accounting phases of the project to replace IAS 39, Financial Instruments: Recognition and
Measurement. This standard simplifies the classification of a financial asset as either at amortized cost or at fair
value as opposed to the multiple classifications which were permitted under IAS 39. This standard also requires the
use of a single impairment method as opposed to the multiple methods in IAS 39. The approach in IFRS 9 is based
on how an entity manages its financial instruments in the context of its business model and the contractual cash flow
characteristics of the financial assets. The standard also adds guidance on the classification and measurement of
financial liabilities. IFRS 9 is to be applied retrospectively for annual periods beginning on or after January 1, 2018.
Early application is permitted. The Company does not intend to adopt this standard early and is currently evaluating
the impact of adopting this standard on the consolidated financial statements.

IFRS 15: Revenue from Contracts with Customers

In May 2014, the International Accounting Standards Board issued IFRS 15, Revenue from Contracts with
Customers, which provides a single, principles-based five-step model for revenue recognition to be applied to all
customer contracts, and requires enhanced disclosures. This standard is effective January 1, 2017 and allows early
adoption. The Company does not intend to adopt this standard early and is currently evaluating the impact of
adopting this standard on the consolidated financial statements.

Controls and Procedures

Disclosure Controls and Procedures

The Company’s Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”) are responsible for
establishing and maintaining disclosure controls and procedures for the Company. The Company maintains a set of
disclosure controls and procedures designed to provide reasonable assurance that information required to be publicly
disclosed is recorded, processed, summarized and reported on a timely basis. The CEO and CFO have evaluated the

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
Management's Discussion and Analysis

Management's Discussion and Analysis

design and effectiveness of the Company’s disclosure controls and procedures at the financial year end and based on
the evaluation, the CEO and CFO have concluded that the disclosure controls and procedures are effective.

Internal Controls over Financial Reporting

The Company’s internal controls over financial reporting (“ICFR”) are designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
The Company’s internal controls over financial reporting (“ICFR”) are designed to provide reasonable
purposes in accordance with IFRS. The Company’s management is responsible for establishing and maintaining
assurance regarding the reliability of financial reporting and the preparation of financial statements for external
adequate ICFR for the Company. Management, including the CEO and CFO, does not expect that the Company’s
purposes in accordance with IFRS. The Company’s management is responsible for establishing and maintaining
ICFR will prevent or detect all errors and all fraud or will be effective under all future conditions. A control system
adequate ICFR for the Company. Management, including the CEO and CFO, does not expect that the Company’s
is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but
ICFR will prevent or detect all errors and all fraud or will be effective under all future conditions. A control system
not absolute, assurance that the control objectives will be met with respect to financial statement preparation and
is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but
presentation.
not absolute, assurance that the control objectives will be met with respect to financial statement preparation and
presentation.

CSA National Instrument 52-109 requires the CEO and CFO to certify that they are responsible for establishing
CSA National Instrument 52-109 requires the CEO and CFO to certify that they are responsible for establishing
and maintaining ICFR for the Company and that those internal controls have been designed and are effective in
and maintaining ICFR for the Company and that those internal controls have been designed and are effective in
providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial
providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements in accordance with IFRS. The CEO and CFO are also responsible for disclosing any changes to the
statements in accordance with IFRS. The CEO and CFO are also responsible for disclosing any changes to the
Company’s internal controls during the most recent period that have materially affected, or are reasonably likely to
Company’s internal controls during the most recent period that have materially affected, or are reasonably likely to
materially affect, its internal control over financial reporting. The Company’s management under the supervision of
materially affect, its internal control over financial reporting. The Company’s management under the supervision of
the CEO and CFO has evaluated the effectiveness of the Company’s ICFR based on the Internal Control –
the CEO and CFO has evaluated the effectiveness of the Company’s ICFR based on the Internal Control –
Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.
Integrated Framework issued in 2013 by the Committee of Sponsoring Organizations of the Treadway Commission.
As at December 31, 2014, management assessed the effectiveness of the Company’s ICFR and concluded that such
As at December 31, 2014, management assessed the effectiveness of the Company’s ICFR and concluded that such
ICFR is effective and that there are no material weaknesses in the Company’s ICFR that have been identified by
ICFR is effective and that there are no material weaknesses in the Company’s ICFR that have been identified by
management. There have been no changes in the Company's internal control over financial reporting during the
management. There have been no changes in the Company's internal control over financial reporting during the
period that have materially affected, or are likely to materially affect, the Company's internal control over financial
period that have materially affected, or are likely to materially affect, the Company's internal control over financial
reporting.
reporting.

Outstanding Share Information

As of December 31, 2014, our authorized capital consists of an unlimited number of Common Shares with no
As of December 31, 2014, our authorized capital consists of an unlimited number of Common Shares with no
stated par value. Changes in the number of Common Shares, options and restricted share units outstanding for the
stated par value. Changes in the number of Common Shares, options and restricted share units outstanding for the
year ended December 31, 2014 are summarized as follows:
year ended December 31, 2014 are summarized as follows:

Class of Security

Common Shares
Common Shares
Non-Voting Common Shares
Non-Voting Common Shares
Class A Preferred Shares
Class A Preferred Shares
Stock Options
Stock Options
Restricted Share Units
Restricted Share Units

Number
Number
outstanding at
outstanding at
December 31,
December 31,
2013
2013

7,674,049
7,674,049
5,332,504
5,332,504
5,111,917
5,111,917
1,945,580
1,945,580
̶
̶

Number
Number
outstanding at
outstanding at
December 31,
December 31,
2014
2014

23,739,342
23,739,342
̶
̶
̶
̶
2,170,802
2,170,802
53,333
53,333

Number
Number
outstanding at
outstanding at
February 24,
February 24,
2015
2015

23,747,467
23,747,467
̶
̶
̶
̶
2,160,802
2,160,802
53,333
53,333

Net issued

8,125

(10,000)

Net issued
Net issued

16,065,293
16,065,293
(5,332,504)
(5,332,504)
(5,111,917)
(5,111,917)
225,222
225,222
53,333
53,333

Our outstanding Common Shares increased by 16.0 million shares in 2014 due to 137,801 options exercised, the
Our outstanding Common Shares increased by 16.0 million shares in 2014 due to 137,801 options exercised, the
vesting of 26,667 restricted share units which were settled by the issuance of Common Shares, the conversion of 5.8
vesting of 26,667 restricted share units which were settled by the issuance of Common Shares, the conversion of 5.8
million Non-Voting Common Shares and 5.1 million Class A Preferred Shares into Common Shares due to the
million Non-Voting Common Shares and 5.1 million Class A Preferred Shares into Common Shares due to the
capital reorganization prior to our initial public offering, and the issuance of 5.0 million Common Shares from
capital reorganization prior to our initial public offering, and the issuance of 5.0 million Common Shares from
treasury upon closing of the offering. Our Non-Voting Common Shares decreased by 5.3 million during the first
half of 2014 due to conversion of 5.8 million Non-Voting Common Shares into Common Shares net of 60,000
treasury upon closing of the offering. Our Non-Voting Common Shares decreased by 5.3 million during the first
shares issued for cash and 396,471 shares issued upon the exercise of options. Our Class A Preferred Shares
half of 2014 due to conversion of 5.8 million Non-Voting Common Shares into Common Shares net of 60,000
decreased by 5.1 million due to the conversion of Class A Preferred Shares into Common Shares resulting from the
shares issued for cash and 396,471 shares issued upon the exercise of options. Our Class A Preferred Shares
capital reorganization.
decreased by 5.1 million due to the conversion of Class A Preferred Shares into Common Shares resulting from the
capital reorganization.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSISManagement's Discussion and Analysis

Our outstanding stock options increased by 225,222 options during 2014 due to the grant of 865,000 options
less 534,272 options exercised and 105,506 options forfeited or expired. Each option is exercisable for one
Common Share.

Our outstanding restricted share units increased by 53,000 during 2014 due to the grant of 80,000 restricted
share units and the vesting of 26,667 such restricted share units which were settled by the issuance of Common
Shares. Upon vesting, each restricted share unit can be paid out or settled in cash, Common Shares, or a combination
thereof, as elected by the Compensation Committee of the Board of Directors.

KINAXIS ANNUAL REPORT 2014

MANAGEMENT’S DISCUSSION & ANALYSIS
28

KINAXIS ANNUAL REPORT 2014

Consolidated Financial Statements of

Kinaxis Inc.

Years ended December 31, 2014 and 2013

KINAXIS ANNUAL REPORT 2014

KPMG LLP
Suite 1800
150 Elgin Street
Ottawa, ON K2P 2P8
Canada

Telephone (613) 212-KPMG (5764)
Fax
Internet

(613) 212-2896
www.kpmg.ca

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Kinaxis Inc.

We have audited the accompanying consolidated financial statements of Kinaxis Inc., which comprise the
consolidated statements of financial position as at December 31, 2014 and December 31, 2013, the
consolidated statements of comprehensive income, changes in shareholders’ equity (deficiency) and
cash flows for the years ended December 31, 2014, and December 2013, and notes, comprising a
summary of significant accounting policies and other explanatory information.

Management's Responsibility for the Consolidated Financial Statements

Management is responsible for the preparation and fair presentation of these consolidated financial
statements in accordance with International Financial Reporting Standards, and for such internal control
as management determines is necessary to enable the preparation of consolidated financial statements
that are free from material misstatement, whether due to fraud or error.

Auditors’ Responsibility

Our responsibility is to express an opinion on these consolidated financial statements based on our
audits. We conducted our audits in accordance with Canadian generally accepted auditing standards.
Those standards require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements are free from material
misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the consolidated financial statements. The procedures selected depend on our judgment, including the
assessment of the risks of material misstatement of the consolidated financial statements, whether due
to fraud or error. In making those risk assessments, we consider internal control relevant to the entity's
preparation and fair presentation of the consolidated financial statements in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on
the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of accounting estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained in our audits is sufficient and appropriate to provide
a basis for our audit opinion.

KINAXIS ANNUAL REPORT 2014

Opinion

In our opinion, the consolidated financial statements present fairly, in all material respects, the
consolidated financial position of Kinaxis Inc. as at December 31, 2014 and December 31, 2013, and its
consolidated financial performance and its consolidated cash flows for the years ended December 31,
2014, and December 31, 2013 in accordance with International Financial Reporting Standards.

Chartered Professional Accountants, Licensed Public Accountants
February 24, 2015
Ottawa, Canada

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Consolidated Statements of Financial Position
(Expressed in thousands of U.S. dollars)

Assets

Current assets:

Cash and cash equivalents
Trade and other receivables (note 4)
Investment tax credits receivable
Prepaid expenses

Non-current assets:

Property and equipment (note 5)
Investment tax credits recoverable
Deferred tax assets (note 16)

Liabilities and Shareholders’ Equity (Deficiency)

Current liabilities:

Trade payables and accrued liabilities (note 6)
Deferred revenue
Current portion of long-term debt (note 7)

Non-current liabilities:
Lease inducement
Deferred revenue
Long-term debt (note 7)
Redeemable preferred shares (note 9)

Shareholders’ equity (deficiency):

Share capital (note 10)
Contributed surplus
Accumulated other comprehensive income loss
Deficit

Commitments (note 20)
Contingencies (note 23)

2014

2013

56,725
17,023
1,974
1,926
77,648

4,744
3,091
5,726

13,804
12,449
1,330
1,207
28,790

2,408
2,108
8,166

91,209

41,472

6,945
35,740
‒
42,685

109
1,778
‒
‒
1,887

87,219
6,152
(453)
(46,281)
46,637

11,062
24,700
4,167
39,929

155
‒
20,833
54,135
75,123

9,902
3,948
(360)
(87,070)
(73,580)

91,209

41,472

See accompanying notes to consolidated financial statements.

On behalf of the Board of Directors:

(signed) Douglas Colbeth Director

(signed) John (Ian) Giffen Director

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Consolidated Statements of Comprehensive Income
(Expressed in thousands of U.S. dollars, except share and per share data)

Revenue (note 12)

Cost of revenue

Gross profit

Operating expenses:

Selling and marketing
Research and development (note 13)
General and administrative

Other income (expense):

Loss due to change in fair value of redeemable

preferred shares (note 9)

Foreign exchange loss
Net finance (expense) income (note 15)

Profit (loss) before income taxes

Income tax expense (note 16):

Current
Deferred (recovery)

Loss

Other comprehensive loss:

Items that are or may be reclassified subsequently

to profit or loss:

Foreign currency translation differences -

foreign operations

Total comprehensive loss

Basic loss per share

2014

2013

70,054

60,816

20,745

49,309

15,296
13,429
8,314
37,039

12,270

(6,760)
(599)
(490)
(7,849)

4,421

819
3,823
4,642

(221)

18,016

42,800

15,071
8,171
6,383
29,625

13,175

(17,884)
(168)
31
(18,021)

(4,846)

8,857
(3,983)
4,874

(9,720)

(93)

(314)

(0.01)

(63)

(9,783)

(0.59)

Weighted average number of basic common shares (note 11)

19,076,464

16,539,070

Diluted loss per share

(0.01)

(0.59)

Weighted average number of diluted common shares (note 11)

19,076,464

16,539,070

See accompanying notes to consolidated financial statements

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)
(Expressed in thousands of U.S. dollars)

Accumulated
other
Contributed comprehensive
loss

surplus

Share
capital

Total
equity
(deficiency)

Deficit

Balance, December 31, 2012

11,176

2,923

(297)

(29,508)

(15,706)

Loss
Other comprehensive loss
Total comprehensive loss

Repurchase of shares and

options

Share purchase plan

subscriptions

Share options exercised
Share based payments
Repayment of receivable

on share sale

Interest on receivable for

share sale

Total shareholder transactions

‒
‒
‒

(2,751)

347
163
‒

967

‒
(1,274)

‒
‒
‒

‒

‒
‒
1,003

‒

22
1,025

‒
(63)
(63)

(9,720)
‒
(9,720)

(9,720)
(63)
(9,783)

‒

‒
‒
‒

‒

‒
‒

(47,842)

(50,593)

‒
‒
‒

‒

(47,842)

347
163
1,003

967

22
(48,091)

Balance, December 31, 2013

9,902

3,948

(360)

(87,070)

(73,580)

Loss
Other comprehensive loss
Total comprehensive loss

Conversion of Class A preferred
shares to Common Shares
(notes 8 and 9)

Shares issued per offering (note 8)
Share issuance costs
net of tax (note 8)

Reduction of share capital (note 8)
Shares issued for cash
Share options exercised
Restricted share units vested
Share based payments
Total shareholder transactions

‒
‒
‒

60,895
59,562

(3,837)
(41,010)
585
804
318

77,317

‒
‒
‒

‒
‒

‒
‒
‒
(136)
(318)
2,658
2,204

‒
(93)
(93)

‒
‒

‒
‒
‒
‒
‒
‒
‒

(221)

‒
‒

‒

41,010

‒
‒
‒
‒

41,010

(221)
(93)
(314)

60,895
59,562

(3,837)
‒
585
668
‒
2,658
120,531

Balance, December 31, 2014

87,219

6,152

(453)

(46,281)

46,637

See accompanying notes to consolidated financial statements

KINAXIS ANNUAL REPORT 2014
3

̶
̶
Kinaxis Inc.
Consolidated Statements of Cash Flows
(Expressed in thousands of U.S. dollars)

Cash flows from operating activities:

Loss
Items not affecting cash:

Depreciation of property and equipment
Loss due to change in fair value of redeemable

preferred shares

Share-based compensation
Amortization of lease inducement
Long-term investment tax credits recoverable
Income tax expense
Changes in operating assets and liabilities (note 17)

Interest paid
Income taxes paid

Cash flows from investing activities:

Purchase of property and equipment

Cash flows from financing activities:
Non-Voting Common Shares

issued and share subscriptions received

Common Shares issued
Common Shares issued per offering
Share issuance costs
Repayment of receivable for share sale
Repurchase of Class A Preferred Shares
Repurchase of Common and Non-Voting

Common Shares

Issuance of long-term debt
Repayment of long-term debt
Payment of finance lease obligations

Increase (decrease) in cash and cash equivalents

Cash and cash equivalents, beginning of year

Effects of exchange rates on cash and cash equivalents

2014

2013

(221)

(9,720)

1,151

6,760
2,658
(46)
(983)
4,642
7,800
(545)
(4,966)
16,250

834

17,884
1,003
(46)
2,573
4,874
3,379
(3)
(1,149)
19,629

(3,487)

(1,397)

991
262
59,562
(5,220)
‒
‒

‒
5,000
(30,000)

‒

30,595

43,358

13,804

(437)

532
‒
‒
‒
967
(28,469)

(50,593)
25,000
‒
(59)
(52,622)

(34,390)

48,801

(607)

Cash and cash equivalents, end of the year (note 17)

56,725

13,804

See accompanying notes to consolidated financial statements.

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

1. Corporate information:

Kinaxis Inc., (the "Company") is incorporated under the Canada Business Corporations Act and
domiciled in Ontario, Canada. The address of the Company’s registered office is 700 Silver
Seven Road, Ottawa, Ontario. The consolidated financial statements of the Company as at and
for the year ended December 31, 2014 comprise the Company and its subsidiaries.

Kinaxis is a leading provider of cloud-based subscription software that enables its customers to
improve and accelerate analysis and decision-making across their supply chain operations.
Kinaxis is a global enterprise with offices in Chicago, United States; Tokyo, Japan; Hong Kong,
China; Eindhoven, The Netherlands; and Ottawa, Canada.

On June 10, 2014, the Company completed an initial public offering and its shares began trading
on the Toronto stock exchange under the symbol “KXS”.

2. Basis of preparation:

(a) Statement of compliance:

The consolidated financial statements have been prepared in accordance with International
Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards
Board (“IASB”), and include the accounts of Kinaxis Inc. and its four wholly-owned
subsidiaries, Kinaxis Corp., Kinaxis Asia Limited, Kinaxis Japan K.K. and Kinaxis Europe B.V.

The consolidated financial statements were authorized for issue by the Board of Directors on
February 24, 2015.

(b) Measurement basis:

The consolidated financial statements have been prepared on the historical cost basis except
for certain financial instruments measured at fair value. Historical cost is generally based on
the fair value of the consideration given in exchange for assets.

These consolidated financial statements are presented in United States dollars (“USD”) which
is the functional currency of the Company and its subsidiaries unless otherwise stated.
Tabular amounts are presented in thousands of USD.

KINAXIS ANNUAL REPORT 2014
5

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

2. Basis of preparation (continued):

(d) Foreign currency:

Foreign currency transactions

The financial statements of the Company and its wholly-owned subsidiaries (excluding
Kinaxis Japan K.K. and Kinaxis Europe B.V.), are measured using the United States dollar as
the functional currency. Transactions in currencies other than the U.S. dollar are translated
at the rates of exchange prevailing at the dates of the transactions. At the end of each
reporting period, monetary items denominated in foreign currencies are translated to the
functional currency at the rates prevailing at that date. Exchange differences on monetary
items are recognized in profit or loss in the period in which they arise. Non-monetary items
carried at fair value that are denominated in foreign currencies are translated to the functional
currency at the rates prevailing at the date when the fair value was determined. Non-
monetary items that are measured in terms of historical cost in a foreign currency are
translated using the rates at the date of the transaction.

Foreign operations

The consolidated financial statements also include the accounts of its wholly-owned
subsidiaries Kinaxis Japan K.K. and Kinaxis Europe B.V., translated into U.S. dollars. The
financial statements of Kinaxis Japan K.K. are measured using the Japanese Yen as its
functional currency and the financial statements of Kinaxis Europe B.V. are measured using
the European Euro as its functional currency. Assets and liabilities have been translated into
U.S. dollars using exchange rates prevailing at the end of each reporting period. Income and
expense items are translated at the average exchange rates for the period, unless exchange
rates fluctuate significantly during that period, in which case the exchange rates at the dates
of the transactions are used. Exchange differences arising, if any, are recognized in other
comprehensive income and accumulated in shareholders’ equity (deficiency).

(e) Use of estimates and judgments:

The preparation of the consolidated financial statements in accordance with IFRS requires
management to make judgments, estimates and assumptions that affect the application of
accounting policies and the reported amounts of assets, liabilities, revenue, expenses and
disclosure of contingent assets and liabilities. Actual results may differ from these estimates.

Estimates and judgments included, but not limited to, the determination of the value of
redeemable preferred shares, the allocation of consideration for a multiple element revenue
arrangement, recognition of deferred tax assets, valuation of investment tax credits
recoverable and valuation of share-based payments. Estimates and assumptions are
reviewed periodically and the effects of revisions are recorded in the consolidated financial
statements in the period in which the estimates are revised and in any future periods
affected.

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

2. Basis of preparation (continued):

(e) Use of estimates and judgments (continued):

Fair value of redeemable preferred shares

The estimate of the fair value of the redeemable preferred shares is supported by an
independent valuation report prepared by a Chartered Business Valuator to provide a value
for each class of share at the reporting date. The valuator applied both the discounted cash
flow approach and a market based approach to estimate the value of the Company. An
option pricing model that considers the legal rights of all security classes and the respective
claims of each security class on the value of the Company was applied to determine the fair
value of the redeemable preferred shares. Changes to any one of the inputs into the
discounted cash flow or market based approaches may result in a different estimate of value
for the Company and a different estimate of the fair value of the redeemable preferred
shares. Furthermore, changes to inputs in the option pricing model may result in a different
value allocated to the redeemable preferred shares. Immediately prior to the completion of
the initial public offering on June 10, 2014, the fair value of the redeemable preferred shares
was measured at the offering price of the shares.

Allocation of consideration to multiple elements of a revenue arrangement

Judgment is applied in determining the components of a multiple element revenue
arrangement. In allocating the consideration received among the multiple elements of a
revenue arrangement, management must make estimates as to the fair value of each
individual element. The selling price of the element on a stand-alone basis is used to
determine the fair value. Where stand-alone sales do not exist, various inputs as detailed in
note 3(b) are used to determine the fair value. Changes to these inputs may result in different
estimates of fair value for an element and impact the allocation of consideration and timing of
revenue recognition.

Income taxes

The recognition of deferred tax assets requires the Company to assess future taxable income
available to utilize deferred tax assets related to deductible or taxable temporary differences.
The Company considers the nature and carry-forward period of deferred tax assets, the
Company’s recent earnings history and forecast of future earnings in performing this
assessment. The actual deferred tax assets realized may differ from the amount recorded
due to factors having a negative impact on operating results of the Company and lower future
taxable income.

KINAXIS ANNUAL REPORT 2014
7

Kinaxis Inc.
Notes to Consolidated Financial Statements

Kinaxis Inc.

Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

Years ended December 31, 2014 and 2013

(Expressed in thousands of U.S. dollars, except share and per share amounts)

2. Basis of preparation (continued):

(e) Use of estimates and judgments (continued):

Investment tax credits recoverable

The recognition of investment tax credits recoverable requires the Company to assess future
tax payable available to utilize the investment tax credits. The Company considers the carry-
forward period of the investment tax credits, the Company's recent earnings history and
forecast of future earnings in performing this assessment.

The Company determines the value of effort expended towards research and development
projects that qualify for investment tax credits and calculates the estimated recoverable to be
recognized. The allocation of direct salaries to qualifying projects is derived from time
records and assessment by management. The actual investment tax credits claimed and
realized may differ from the estimate based on the final tax returns and review by tax
authorities.

Fair value of share-based payments

The Company uses the Black-Scholes valuation model to determine the fair value of equity
settled stock options. Estimates are required for inputs to this model including the fair value
of the underlying shares, the expected life of the option, volatility, expected dividend yield and
the risk-free interest rate. Variation in actual results for any of these inputs will result in a
different value of the stock option realized from the original estimate. The assumptions and
estimates used are further outlined in note 10.

3. Significant accounting policies:

(a) Basis of consolidation:

Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries
are included in the consolidated financial statements from the date that control commences
until the date that control ceases. The accounting policies of subsidiaries have been changed
when necessary to align them with the policies adopted by the Company. All intercompany
transactions, balances, revenues and expenses between the Company and its subsidiaries
have been eliminated.

(b) Revenue recognition:

3. Significant accounting policies (continued):

(b) Revenue recognition (continued):

•

The Company commences revenue recognition when all of the following conditions are met:

it is probable that the economic benefits of the transaction will flow to the entity;

the amount of revenue can be measured reliably; and

the costs incurred for the transaction and the costs to complete the transaction can be

measured reliably.

The Company provides its SaaS, On-premise licenses and professional services on a stand-

alone basis or as part of a multiple element arrangement. Stand-alone sales occur through

renewals of the SaaS or On-premise term license and stand-alone purchases of the same or

similar professional services on an ongoing basis by customers. When sold in a multiple

element arrangement, the SaaS or On-premise license and the professional services

elements are considered separate units of accounting as they have stand-alone value to the

customer. The total consideration for the arrangement is allocated to the separate units of

accounting based on their relative fair value and the revenue is recognized for each unit

when the requirements for revenue recognition have been met. The Company determines

the fair value of each unit of accounting based on the selling price when they are sold

separately. When the fair value cannot be determined based on when it was sold separately,

the Company determines a value that most reasonably reflects the selling price that might be

achieved in a stand-alone transaction. Inputs considered in making this determination include

the specific parameters and model used in determining the contract price, contracted renewal

rates, the history of pricing, renewals and stand-alone sales activity of similar customers.

Subscription revenue related to the provision of SaaS or On-premise term licenses is

recognized ratably over the contract term as the service or access to the software is

delivered. The contract term begins when the service is made available or the license is

delivered to the customer.

The Company enters into arrangements for professional services primarily on a time and

materials basis. Revenue for professional services entered into on a time and material basis

is recognized as the services are performed. In certain circumstances, the Company enters

into arrangements for professional services on a fixed price basis. Revenue for fixed price

arrangements is recognized by reference to the stage of completion of the contract, taking

into consideration the cost incurred to date in relation to the total expected cost to complete

the deliverable. If the estimated cost to complete a contract results in a loss on the contract,

the loss is recognized immediately in profit or loss.

Maintenance and support services provided to customers with legacy perpetual licenses are

sold as a single element arrangement with one unit of accounting. Revenue for these

arrangements is recognized ratably over the term of the maintenance contract.

The Company derives revenue from subscription of its product (“subscription revenue”)
comprised of
term
subscription license of its software products (“On-premise license”). In addition, the
Company derives
including
implementation services, technical services and training and, to a lesser degree, from
maintenance and support services provided to customers with legacy perpetual licenses to its
software products. Professional services do not include significant customization to, or
development of, the software.

its hosted software-as-a-service application (“SaaS”) and

the provision of professional services

revenue

fixed

from

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

(b) Revenue recognition (continued):

The Company commences revenue recognition when all of the following conditions are met:

•

it is probable that the economic benefits of the transaction will flow to the entity;

the amount of revenue can be measured reliably; and

the costs incurred for the transaction and the costs to complete the transaction can be
measured reliably.

The Company provides its SaaS, On-premise licenses and professional services on a stand-
alone basis or as part of a multiple element arrangement. Stand-alone sales occur through
renewals of the SaaS or On-premise term license and stand-alone purchases of the same or
similar professional services on an ongoing basis by customers. When sold in a multiple
element arrangement, the SaaS or On-premise license and the professional services
elements are considered separate units of accounting as they have stand-alone value to the
customer. The total consideration for the arrangement is allocated to the separate units of
accounting based on their relative fair value and the revenue is recognized for each unit
when the requirements for revenue recognition have been met. The Company determines
the fair value of each unit of accounting based on the selling price when they are sold
separately. When the fair value cannot be determined based on when it was sold separately,
the Company determines a value that most reasonably reflects the selling price that might be
achieved in a stand-alone transaction. Inputs considered in making this determination include
the specific parameters and model used in determining the contract price, contracted renewal
rates, the history of pricing, renewals and stand-alone sales activity of similar customers.

Subscription revenue related to the provision of SaaS or On-premise term licenses is
recognized ratably over the contract term as the service or access to the software is
delivered. The contract term begins when the service is made available or the license is
delivered to the customer.

The Company enters into arrangements for professional services primarily on a time and
materials basis. Revenue for professional services entered into on a time and material basis
is recognized as the services are performed. In certain circumstances, the Company enters
into arrangements for professional services on a fixed price basis. Revenue for fixed price
arrangements is recognized by reference to the stage of completion of the contract, taking
into consideration the cost incurred to date in relation to the total expected cost to complete
the deliverable. If the estimated cost to complete a contract results in a loss on the contract,
the loss is recognized immediately in profit or loss.

Maintenance and support services provided to customers with legacy perpetual licenses are
sold as a single element arrangement with one unit of accounting. Revenue for these
arrangements is recognized ratably over the term of the maintenance contract.

KINAXIS ANNUAL REPORT 2014
9

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

Financial assets and financial liabilities are recognized when the Company becomes a party
to the contractual provisions of the instrument.

Financial assets and financial liabilities are initially measured at fair value. Transaction costs
that are directly attributable to the acquisition or issue of financial assets and financial
liabilities (other than financial assets and financial liabilities at fair value through profit or loss
(“FVTPL”)) are added to or deducted from the fair value of the financial assets or financial
liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the
acquisition of financial assets or financial liabilities at fair value through profit or loss are
recognized immediately in profit or loss.

Financial assets

All financial assets are recognized and de-recognized on trade date and are initially recorded
at fair value plus transaction costs, except for those financial assets classified FVTPL whose
transaction costs are expensed as incurred.

The Company determines the classification of its financial assets at initial recognition.
Financial instruments are classified as follows:

Financial Asset
Cash and cash equivalents
Trade and other receivables
Investment tax credits receivable

Loans and receivables

Classification under IAS 39
Loans and receivables – amortized cost
Loans and receivables – amortized cost
Loans and receivables – amortized cost

Financial assets classified as loans and receivables have fixed or determinable payments
that are not quoted in an active market. Subsequent to initial recognition, loans and
receivables are measured at amortized cost by using the effective interest method, less any
impairment. Interest income is recognized by applying the effective interest rate except for
short-term receivables where the interest revenue would be immaterial.

Effective interest method

The effective interest method is a method of calculating the amortized cost of a debt or asset
instrument and allocating interest income over the relevant period. The effective interest rate
is the rate that exactly discounts estimated future cash receipts (including all fees paid or
received that form an integral part of the effective interest rate, transaction costs and other
premiums or discounts) through the expected life of the debt
instrument, or, where
appropriate, a shorter period to the net carrying amount on initial recognition.

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

Impairment of financial assets

Financial assets, other than those categorized as FVTPL, are assessed for indicators of
impairment at the end of each reporting period. Financial assets are impaired where there is
objective evidence that, as a result of one or more events that occurred after the initial
recognition of the financial asset, the estimated future cash flows of the investment have
been negatively affected.

Certain categories of financial assets, such as trade and other receivables, are assessed for
impairment individually and on a collective basis. Objective evidence of impairment for a
portfolio of receivables could include the Company’s past experience of collecting payments,
an increase in the number of delayed payments in the portfolio past the average credit
period, as well as observable changes in national or local economic conditions that correlate
with default on receivables.

For all other financial assets, objective evidence of impairment could include significant
financial difficulty of the issuer or counterparty, default or delinquency in interest or principal
payments or it becoming probable that the borrower will enter bankruptcy or financial re-
organization.

For financial assets carried at amortized cost, the amount of the impairment is the difference
between the asset’s carrying amount and the present value of estimated future cash flows,
discounted at the financial asset’s original effective interest rate.

Financial liabilities

Financial liabilities are classified as either financial liabilities at FVTPL or other financial
liabilities.

The Company determines the classification of its financial liabilities at initial recognition.
Financial instruments are classified as follows:

Financial liability
Trade payables and accrued liabilities
Redeemable preferred shares

Classification under IAS 39
Other financial liabilities – amortized cost
Financial liabilities – FVTPL

Other financial liabilities

The Company classifies non-derivative financial liabilities as other financial liabilities. Other
financial liabilities are accounted for at amortized cost by using the effective interest method.

Financial liabilities - FVTPL

Financial liabilities that contain one or more embedded derivatives may be designated as
other financial liabilities at FVTPL and accounted for as one hybrid instrument rather than
separating the embedded derivatives from the host contract.

KINAXIS ANNUAL REPORT 2014
11

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

De-recognition of financial liabilities

The Company de-recognizes financial liabilities when, and only when, the Company’s
obligations are discharged, cancelled or they expire.

(d) Cash and cash equivalents:

Cash and cash equivalents include cash investments in interest-bearing accounts which can
readily be redeemed for cash without penalty or are issued for terms of ninety days or less
from the date of acquisition.

(e) Property and equipment:

less accumulated depreciation and
Property and equipment are measured at cost
accumulated impairment losses. Property and equipment under finance leases are stated at
the present value of minimum lease payments. Cost includes expenditures that are directly
attributable to the acquisition of the asset. The assets are depreciated over their estimated
useful lives using the straight-line method as this most closely reflects the expected pattern of
consumption of the future economic benefits.

Property and equipment

Computer equipment
Computer software
Office furniture and equipment
Leasehold improvements

Rate

3 - 5 years
1 - 5 years
3 - 5 years
Shorter of useful life or term of lease

Depreciation methods, useful lives and residual values are reviewed at each financial year
end and adjusted if appropriate.

At the end of each reporting period, the Company reviews the carrying amounts of its
property and equipment to determine whether there is any indication of impairment. If any
such indication exists, the recoverable amount of the asset is estimated in order to determine
the extent of the impairment loss (if any). The recoverable amount is the higher of fair value
less costs to sell and value in use. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount rate that reflects current market
assessments of the time value of money and the risks specific to the asset. For the purpose
of impairment testing, assets that cannot be tested individually are grouped together into the
smallest group of assets that generates cash inflows from continuing use that are largely
independent of the cash inflows of other assets or groups of assets (the “cash-generating
unit, or CGU”). If the recoverable amount of an asset is estimated to be less than its carrying
amount, the carrying amount of the asset is reduced to its recoverable amount. An
impairment loss is recognized immediately in profit or loss.

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

(e) Property and equipment (continued):

Assets to be disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

(f) Leases:

Leases are classified as either finance or operating in nature. Finance leases are those
which substantially transfer the benefits and risks of ownership to the Company. Assets
acquired under finance leases are depreciated at the same rates as those described in note
3(e). Obligations recorded under finance leases are reduced by the principal portion of lease
payments. The imputed interest portion of lease payments is charged to finance costs.

Payments made under operating leases are recognized in profit or loss on a straight-line
basis over the term of the lease. Lease incentives received are recognized as an integral part
of the total lease expense, over the term of the lease.

(g) Employee benefits:

The Company offers a defined contribution plan to its employees which is a post-employment
benefit plan under which an entity pays fixed contributions into a separate entity and will have
no legal or constructive obligation to pay further amounts. Obligations for contributions to
defined contribution pension plans are recognized as an employee benefit expense in profit
or loss in the periods during which services are rendered by employees.

(h) Provisions:

A provision is recognized if, as a result of a past event, the Company has a present legal or
constructive obligation that can be estimated reliably, and it is probable that an outflow of
economic benefits will be required to settle the obligation. Provisions are determined by
discounting the expected future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and the risks specific to the liability. The unwinding
of the discount is recognized as finance cost.

A provision for onerous contracts is recognized when the expected benefits to be derived by
the Company from a contract are lower than the unavoidable cost of meeting its obligations
under the contract. The provision is measured at the present value of the lower of the
expected cost of terminating the contract and the expected net cost of continuing with the
contract. Before a provision is established, the Company recognizes any impairment loss on
the assets associated with that contract.

(i) Research and development expense:

Research and development costs are expensed as incurred unless the criteria for
capitalization are met. No research or development costs have been capitalized to date.

KINAXIS ANNUAL REPORT 2014
13

Kinaxis Inc.
Notes to Consolidated Financial Statements

Kinaxis Inc.

Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

Years ended December 31, 2014 and 2013

(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

(j)

Income taxes:

3. Significant accounting policies (continued):

(k) Share-based payments:

Current and deferred income taxes are recognized as an expense or recovery in profit or
loss, except when they relate to items that are recognized outside profit or loss (whether in
other comprehensive income or directly in equity), in which case the tax is also recognized
outside of profit or loss.

Current income tax

Current income tax assets and liabilities for the current and prior periods are measured at the
amount expected to be recovered from, or paid to, the taxation authorities. The tax rates and
tax laws used to compute the amount are those that are enacted or substantively enacted, by
the reporting date, in the countries where the Company operates and generates taxable
income.

Deferred income tax

Deferred income tax assets and liabilities are recorded for the temporary differences between
transactions that have been included in the consolidated financial statements or income tax
returns. Deferred income taxes are provided for using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary differences
between the tax and financial statement bases of assets and liabilities and for certain carry-
forward items. Deferred income tax assets are recognized only to the extent that, in the
opinion of management, it is probable that the deferred income tax assets will be realized.

Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in
the year when the asset is realized or the liability is settled, based on tax rates (and tax laws)
that have been enacted or substantively enacted at the reporting date. Deferred income tax
assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date
of the enactment or substantive enactment. Deferred tax assets and liabilities are offset when
there is a legally enforceable right to set off current tax assets against current tax liabilities
and when they relate to income taxes levied by the same taxation authority and the Company
intends to settle its current tax assets and liabilities on a net basis.

Investment tax credits

(m) Lease inducement:

Investment tax credits relating to scientific research and experimental development
expenditures are recorded in the fiscal period the qualifying expenditures are incurred based
on management’s interpretation of applicable legislation in the Income Tax Act of Canada.
Credits are recorded provided there is reasonable assurance that the tax credit will be
realized. Credits claimed are subject to review by the Canada Revenue Agency.

Credits claimed in connection with research and development activities are accounted for
using the cost reduction method. Under this method, assistance and credits relating to the
acquisition of equipment is deducted from the cost of the related assets, and those relating to
current expenditures, which are primarily salaries and related benefits, are included in the
determination of profit or loss as a reduction of the research and development expenses.

KINAXIS ANNUAL REPORT 2014

The Company uses the fair value based method to measure share-based compensation for

all share-based awards made to employees and directors. The grant date fair value of equity-

settled share-based payment awards granted to employees is generally recognized as an

expense, with a corresponding increase in equity, over the vesting period of the awards. The

grant date fair value is determined using the Black-Scholes model. Each tranche of an award

is considered a separate award with its own vesting period and grant date fair value. The

amount recognized as an expense is adjusted to reflect the number of awards for which the

related service and non-market performance conditions are expected to be met, such that the

amount ultimately recognized is based on the number of awards that meet the related service

and non-market performance conditions at the vesting date. For share-based payment

awards with non-vesting (i.e. performance) conditions, the grant date fair value of the share-

based payment is measured to reflect such conditions and there is no true-up for differences

between expected and actual outcomes.

Where the terms of an equity-settled transaction award are modified, the minimum expense

recognized is the expense as if the terms had not been modified and if the original terms of

the award are met. An additional expense is recognized for any modification that increases

the total fair value of the share-based payment transaction, or is otherwise beneficial to the

employee as measured at the date of modification.

(l) Earnings per share:

Basic earnings per share are calculated by dividing profit or loss by the weighted average

number of common shares outstanding during the reporting period. Diluted earnings per

share are calculated similar to basic earnings per share except the weighted average number

of common shares outstanding is adjusted for the effects of all dilutive potential common

shares, which are comprised of additional shares from the assumed exercise or conversion of

share options and redeemable preferred shares outstanding. Options and redeemable

preferred shares that have a dilutive impact are assumed to have been exercised or

converted on the later of the beginning of the period or the date granted.

The lease inducement represents rent-free periods and a tenant allowance provided to the

Company by a lessor in connection with a leased property. These amounts have been

deferred as a lease inducement and are being amortized as a reduction in rent expense over

the expected term of the lease.

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

(k) Share-based payments:

The Company uses the fair value based method to measure share-based compensation for
all share-based awards made to employees and directors. The grant date fair value of equity-
settled share-based payment awards granted to employees is generally recognized as an
expense, with a corresponding increase in equity, over the vesting period of the awards. The
grant date fair value is determined using the Black-Scholes model. Each tranche of an award
is considered a separate award with its own vesting period and grant date fair value. The
amount recognized as an expense is adjusted to reflect the number of awards for which the
related service and non-market performance conditions are expected to be met, such that the
amount ultimately recognized is based on the number of awards that meet the related service
and non-market performance conditions at the vesting date. For share-based payment
awards with non-vesting (i.e. performance) conditions, the grant date fair value of the share-
based payment is measured to reflect such conditions and there is no true-up for differences
between expected and actual outcomes.

Where the terms of an equity-settled transaction award are modified, the minimum expense
recognized is the expense as if the terms had not been modified and if the original terms of
the award are met. An additional expense is recognized for any modification that increases
the total fair value of the share-based payment transaction, or is otherwise beneficial to the
employee as measured at the date of modification.

(l) Earnings per share:

Basic earnings per share are calculated by dividing profit or loss by the weighted average
number of common shares outstanding during the reporting period. Diluted earnings per
share are calculated similar to basic earnings per share except the weighted average number
of common shares outstanding is adjusted for the effects of all dilutive potential common
shares, which are comprised of additional shares from the assumed exercise or conversion of
share options and redeemable preferred shares outstanding. Options and redeemable
preferred shares that have a dilutive impact are assumed to have been exercised or
converted on the later of the beginning of the period or the date granted.

(m) Lease inducement:

The lease inducement represents rent-free periods and a tenant allowance provided to the
Company by a lessor in connection with a leased property. These amounts have been
deferred as a lease inducement and are being amortized as a reduction in rent expense over
the expected term of the lease.

KINAXIS ANNUAL REPORT 2014
15

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

(n) Standards and interpretations in issue:

International Accounting Standard 32: Financial Instruments: Presentation (“IAS 32”)

In December 2011, the International Accounting Standards Board amended International
Accounting Standard 32 to clarify the meaning of when an entity has a current legally
enforceable right of set-off. The amendments are effective for annual periods beginning on
or after January 1, 2014 and are required to be applied retrospectively. The adoption of IAS
32 did not have a material impact on the consolidated financial statements.

IFRIC 21: Levies

In May 2013, the International Accounting Standards Board issued IFRIC 21 which provides
guidance on accounting for levies in accordance with the requirements of International
Accounting Standard 37: Provisions, Contingent Liabilities and Contingent Assets. The
interpretation defines a levy as an outflow from an entity imposed by a government in
accordance with legislation. It also notes that levies do not arise from executor contracts of
other contractual arrangements. The interpretation also confirms that an entity recognizes a
liability for a levy only when the triggering event specified in the legislation occurs. This IFRIC
is effective for annual reporting periods beginning on or after January 1, 2014 and is required
to be applied retrospectively. The adoption of IFRIC 21 did not have a material impact on the
consolidated financial statements.

(o) Standards and interpretations in issue not yet adopted:

The following is a list of standards and amendments that have been issued but not yet
adopted by the Company.

IFRS 9: Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9, bringing together the classification
and measurement, impairment and hedge accounting phases of the project to replace IAS
39, Financial Instruments: Recognition and Measurement. This standard simplifies the
classification of a financial asset as either at amortized cost or at fair value as opposed to the
multiple classifications which were permitted under IAS 39. This standard also requires the
use of a single impairment method as opposed to the multiple methods in IAS 39. The
approach in IFRS 9 is based on how an entity manages its financial instruments in the
context of its business model and the contractual cash flow characteristics of the financial
assets. The standard also adds guidance on the classification and measurement of financial
liabilities. IFRS 9 is to be applied retrospectively for annual periods beginning on or after
January 1, 2018. Early application is permitted. The Company does not intend to adopt this
standard early and is currently evaluating the impact of adopting this standard on the
consolidated financial statements.

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

3. Significant accounting policies (continued):

(o) Standards and interpretations in issue not yet adopted (continued):

IFRS 15: Revenue from Contracts with Customers

In May 2014, the International Accounting Standards Board issued IFRS 15, Revenue from
Contracts with Customers, which provides a single, principles-based five-step model for
revenue recognition to be applied to all customer contracts, and requires enhanced
disclosures. This standard is effective January 1, 2017 and allows early adoption. The
Company does not intend to adopt this standard early and is currently evaluating the impact
of adopting this standard on the consolidated financial statements.

4. Accounts receivable:

Trade accounts receivable
Other

2014

16,387
636

17,023

2013

12,125
324

12,449

There have been no balances written off for the years ended December 31, 2014 and December
31, 2013 or any allowance for doubtful accounts recorded as at December 31, 2014 (2013 - $Nil).

KINAXIS ANNUAL REPORT 2014
17

Kinaxis Inc.
Notes to Consolidated Financial Statements

Kinaxis Inc.

Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

Years ended December 31, 2014 and 2013

(Expressed in thousands of U.S. dollars, except share and per share amounts)

5. Property and equipment:

5. Property and equipment (continued):

The following table presents the depreciation expense by function for the year ended

December 31:

Cost

Balance, December

31, 2012

Additions
Balance, December

31, 2013

Additions
Balance, December

31, 2014

Accumulated
depreciation

Balance, December

31, 2012

Depreciation
Balance, December

31, 2013

Depreciation
Balance, December

31, 2014

Computer
equipment

Computer
software

Office
furniture and
equipment

Leasehold
improvements

Total
property and
equipment

2,713

493

882

2,129

6,217

1,168

184

‒

1,397

3,881

677

882

2,174

7,614

3,171

282

3,487

7,052

959

894

2,196

11,101

6. Accounts payable and accrued liabilities:

Computer
equipment

Computer
software

Office
furniture and
equipment

Leasehold
improvements

Total
property and
equipment

1,374

233

739

2,026

4,372

627

121

834

7. Long-term debt:

2,001

354

795

2,056

5,206

914

155

1,151

2,915

509

846

2,087

6,357

Non-revolving term facility

Less: Current portion of long-term debt

Cost of revenue

Selling and marketing

Research and development

General and administrative

Trade accounts payable

Accrued liabilities

1,151

2014

591

280

275

2014

637

6,308

6,945

2014

2013

321

214

287

834

2013

754

10,308

11,062

2013

25,000

4,167

20,833

Carrying
value

Computer
equipment

Computer
software

Office
furniture and
equipment

Leasehold
improvements

Total
property and
equipment

December 31, 2013
December 31, 2014

1,880
4,137

414
450

87
48

27
109

2,408
4,744

Depreciation expense for assets under finance leases for the year ended December 31, 2014
was $Nil (2013 - $22). Items under a finance lease included in computer equipment had a net
carrying value of $1 as at December 31, 2013.

On December 18, 2013, the Company’s credit facility was amended to include a revolving

demand facility in the amount of CAD$5,000 and a non-revolving term facility of $30,000. On

June 18, 2014, the balance of the Company’s non-revolving term facility was repaid using

proceeds from the Company’s initial public offering. Upon full repayment the non-revolving term

facility was terminated. The revolving demand facility bears interest at bank prime plus 1.00% per

annum and has not been drawn at December 31, 2014.

In addition to providing a general security agreement representing a first charge over the

Company’s assets, the Company must meet certain financial covenants as specified in the facility

agreement. The Company was in compliance with these financial covenants as at December 31,

2014 and continues to be at the time of approval of these consolidated financial statements.

KINAXIS ANNUAL REPORT 2014

̶
̶
̶
Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

5. Property and equipment (continued):

The following table presents the depreciation expense by function for the year ended
December 31:

Cost of revenue
Selling and marketing
Research and development
General and administrative

6. Accounts payable and accrued liabilities:

Trade accounts payable
Accrued liabilities

7. Long-term debt:

Non-revolving term facility
Less: Current portion of long-term debt

2014

591
5
280
275

1,151

2014

637
6,308

6,945

2014

2013

321
12
214
287

834

2013

754
10,308

11,062

2013

25,000
4,167

20,833

On December 18, 2013, the Company’s credit facility was amended to include a revolving
demand facility in the amount of CAD$5,000 and a non-revolving term facility of $30,000. On
June 18, 2014, the balance of the Company’s non-revolving term facility was repaid using
proceeds from the Company’s initial public offering. Upon full repayment the non-revolving term
facility was terminated. The revolving demand facility bears interest at bank prime plus 1.00% per
annum and has not been drawn at December 31, 2014.

In addition to providing a general security agreement representing a first charge over the
Company’s assets, the Company must meet certain financial covenants as specified in the facility
agreement. The Company was in compliance with these financial covenants as at December 31,
2014 and continues to be at the time of approval of these consolidated financial statements.

KINAXIS ANNUAL REPORT 2014
19

̶
̶
̶
Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

8. Capital reorganization:

Prior to the Company’s initial public offering, the Company’s authorized capital consisted of an
unlimited number of Common Shares, an unlimited number of Non-Voting Common Shares and
an unlimited number of Class A Preferred Shares. At the annual general and special meeting of
the shareholders held on May 22, 2014 the shareholders approved a capital reorganization
consisting of an amalgamation of one of our shareholders, 1170233 Alberta ULC (“Alberta ULC”),
and the Company with the resulting amalgamated entity having the following authorized capital:

•

an unlimited number of Class B Preferred Shares;

an unlimited number of Class A-1 Voting Common Shares;

an unlimited number of Class A-2 Non-Voting Common Shares;

an unlimited number of Class B Voting Common Shares;

an unlimited number of Class C Preferred Shares; and

an unlimited number of Common Shares.

Following the filing of the final prospectus for the Company’s initial public offering on June 3, 2014
the Company and Alberta ULC amalgamated. As a result of the amalgamation:

•

the holders of Common Shares and Non-Voting Common Shares received an equivalent
number of Class A-1 Voting Common Shares and Class A-2 Non-Voting Common Shares
respectively;

the Common Shares, Non-Voting Common Shares and Class A Preferred Shares held by
Alberta ULC were cancelled;

the shareholders of Alberta ULC received an aggregate of 1,253,892.5 Class B Preferred
Shares, 5,114,607.98 Class A-1 Voting Common Shares and 800,000 Class A-2 Non-Voting
Common Shares in exchange for their shares in Alberta ULC;

the remaining 3,858,025 Class A Preferred Shares were exchanged for Class B Preferred
Shares on a one-for-one basis;

as elected by certain holders, 1,078,525.47 Class A-1 Voting Common Shares and
1,128,633.44 Class A-2 Non-Voting Common Shares were converted into an aggregate of
2,207,132 Class B Voting Common Shares for purposes of receiving a stock dividend, which
was satisfied by issuing an aggregate of 2,207,132 Class C Preferred Shares.

Upon completion of the initial public offering on June 10, 2014:

•

all of the issued and outstanding Class B Preferred Shares, Class A-1 Voting Common
Shares, and Class A-2 Non-Voting Common Shares were converted into Common Shares on
a one-for-one basis with any fractional Common Shares that would otherwise have been
issued upon such conversion being cancelled;

all of the issued and outstanding Class B Voting Common Shares and Class C Preferred
Shares were converted into Common Shares on the basis of one Class B Voting Common
Share together with one Class C Preferred Shares into one Common Share;

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

8. Capital reorganization (continued):

•

the accumulated deficit generated by the non-cash fair value adjustments amounting to
$41,010 related to the converted preferred shares was reclassified from deficit to share
capital;

5,000,000 Common Shares were issued from treasury for CAD$13.00 (USD$11.91) per
share; and

Share issuance costs totaling $5,220 net of future tax recoveries of $1,383 was recorded to
share capital.

9. Redeemable preferred shares:

In November, 2013, the Company repurchased 3,124,998 Class A preferred shares for proceeds
of $28,469.The Class A Preferred Shares mandatorily converted to Common Shares in the event
of a qualifying initial public offering.

As at June 3, 2014, upon filing of the final prospectus for the Company’s initial public offering, the
Company had 5,111,917 (December 31, 2013 - 5,111,917) Class A Preferred Shares issued and
outstanding. Concurrent with the filing of the prospectus a capital reorganization occurred
pursuant to which the Class A Preferred Shares were converted into Class B Preferred Shares on
a one-to-one basis. Immediately prior to the completion of the initial public offering on June 10,
2014, the Class B Preferred Shares were converted into Common Shares on a one-to-one basis.

Measurement of fair value

The valuation techniques used to measure the fair value of the redeemable preferred shares are
unchanged from December 31, 2013. The redeemable preferred shares were converted to
Common Shares immediately prior to completion of the Company’s initial public offering. The fair
value of the redeemable preferred shares was measured at the offering price of the shares at the
time of conversion.

The following table reconciles the opening balances to the closing balances for Level 3 fair
values.

Balance at January 1, 2013

Increase in fair value
Repurchase of preferred shares
Balance at December 31, 2013

Increase in fair value
Conversion to Common Shares (note 8)

Fair value of
redeemable
preferred shares

64,720

17,884
(28,469)
54,135

6,760
(60,895)

Balance, December 31, 2014

KINAXIS ANNUAL REPORT 2014
21

Kinaxis Inc.
Notes to Consolidated Financial Statements

Kinaxis Inc.

Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

Years ended December 31, 2014 and 2013

(Expressed in thousands of U.S. dollars, except share and per share amounts)

10. Share capital:

Authorized

The Company is authorized to issue an unlimited number of Common Shares.

Issued:

Common shares

Non-voting
common shares

Amount

11,546,932

6,403

5,188,703

4,773

(3,115,226)

(1,745)

(898,426)

(1,006)

Repurchase of shares

‒

42,343

‒

(800,000)

‒

151,713

90,514

‒
(448)

‒

800,000

347

‒

121

967
448

7,674,049

4,252

5,332,504

5,650

137,801

26,667

398

318

60,000

396,471

585

406

Shares outstanding at

January 1, 2013

Repurchase of shares
Share purchase plan subscriptions

received

Shares issued from employee

share purchase plan

Shares issued from exercised

options

Repayment of receivable

on share sale

Share transfer

Shares outstanding at
December 31, 2013

Shares issued for cash
Shares issued from
exercised options
Shares issued from

vested restricted share units
Conversion of non-voting common

to Common Shares (note 8)

5,788,975

6,641

(5,788,975)

(6,641)

10. Share capital (continued):

Issued (continued):

In April 2003, the Company entered into a loan agreement with an officer to enable the purchase

of the Company’s Non-Voting Common Shares. In March 2008, upon the loan’s maturity, the

officer paid $149 of accrued interest on the loan and the Company entered into a second loan

agreement substantially on the same terms as the first loan. In March 2011, upon the second

loan’s maturity and payment of all interest, the officer and the Company entered into a third loan

agreement substantially on the same terms as the second loan. In December 2013, the balance

of the loan plus accrued interest was repaid.

During 2013, the Company received $347 from employees pursuant to the employee share

purchase plan to purchase 89,174 Non-Voting Common Shares.

In November 2013, the Company presented to its shareholders and employees an offer to

repurchase common and non-voting common shares and vested options for cancellation. As per

the terms of the offer, the Company may repurchase shares and options to a maximum

aggregate amount of $80,000. Pursuant to the offer, in December 2013 the Company

repurchased 3,115,226 common shares and 898,426 non-voting common shares for total cash

consideration of $39,218. In addition, 1,421,707 stock options were surrendered for net proceeds

of $11,375.

Stock option plans

The Company has outstanding stock options issued under its 2000 and 2010 stock option plans.

During 2012, the Company adopted a new stock option plan under which an aggregate of up to

1,100,000 options to purchase common stock may be granted to employees. In January 2014,

the option pool was increased by 400,000 to 1,500,000. Upon adoption of the new plan, no

further options may be granted under previous stock option plans. Stock options are granted with

an exercise price equal to or greater than the stock’s TSX price at the date of grant as determined

by the Board of Directors and the maximum term of an option is typically ten years. Options are

granted periodically and typically vest over four years.

Fractional shares cancelled
upon conversion (note 8)

Conversion of preferred shares

to Common Shares (note 8 and 9)

Reduction of share capital (note 8)
Shares issued per offering (note 8)
Share issuance costs

(67)

5,111,917
̶
5,000,000

60,895
(41,010)
59,562

(3,837)

̶
̶
̶

23,739,342

87,219

̶
̶
̶

net of tax (note 8)

Shares outstanding at
December 31, 2014

KINAXIS ANNUAL REPORT 2014

̶
̶
̶
Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

10. Share capital (continued):

Issued (continued):

In April 2003, the Company entered into a loan agreement with an officer to enable the purchase
of the Company’s Non-Voting Common Shares. In March 2008, upon the loan’s maturity, the
officer paid $149 of accrued interest on the loan and the Company entered into a second loan
agreement substantially on the same terms as the first loan. In March 2011, upon the second
loan’s maturity and payment of all interest, the officer and the Company entered into a third loan
agreement substantially on the same terms as the second loan. In December 2013, the balance
of the loan plus accrued interest was repaid.

During 2013, the Company received $347 from employees pursuant to the employee share
purchase plan to purchase 89,174 Non-Voting Common Shares.

Repurchase of shares

In November 2013, the Company presented to its shareholders and employees an offer to
repurchase common and non-voting common shares and vested options for cancellation. As per
the terms of the offer, the Company may repurchase shares and options to a maximum
aggregate amount of $80,000. Pursuant to the offer, in December 2013 the Company
repurchased 3,115,226 common shares and 898,426 non-voting common shares for total cash
consideration of $39,218. In addition, 1,421,707 stock options were surrendered for net proceeds
of $11,375.

Stock option plans

The Company has outstanding stock options issued under its 2000 and 2010 stock option plans.
During 2012, the Company adopted a new stock option plan under which an aggregate of up to
1,100,000 options to purchase common stock may be granted to employees. In January 2014,
the option pool was increased by 400,000 to 1,500,000. Upon adoption of the new plan, no
further options may be granted under previous stock option plans. Stock options are granted with
an exercise price equal to or greater than the stock’s TSX price at the date of grant as determined
by the Board of Directors and the maximum term of an option is typically ten years. Options are
granted periodically and typically vest over four years.

KINAXIS ANNUAL REPORT 2014
23

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

10. Share capital (continued):

Stock option plans (continued):

A summary of the status of the plan is as follows:

December 31, 2014

Weighted
average
Shares exercise price

December 31, 2013

Weighted
average
exercise price

1,945,580
865,000
(534,272)
(102,506)
(3,000)

2.21
10.91
1.25
5.58
3.20

3,253,581
280,000
(132,857)
(33,437)

‒

(1,421,707)

$ 1.81
4.05
1.23
2.56
‒

1.75

2,170,802

5.74

1,945,580

$ 2.21

880,642

2.26

984,171

$ 1.62

Options outstanding,
beginning of year

Granted
Exercised
Forfeited
Expired
Tendered (repurchase

program)

Options outstanding,

end of year

Options exercisable,

end of year

The following table summarizes information about stock options outstanding at December 31,
2014:

Options outstanding

Options exercisable

Range
of exercise
prices

Number
outstanding
at 12/31/14

$1.00 to 1.20
$1.60 to 3.20
$6.60 to 9.75
$11.95 to 15.35
$15.35 to 15.95

197,885
1,097,917
675,000
100,000
100,000

Weighted
average
remaining
contractual
life

2.64
7.11
9.06
9.62
9.93

Weighted
average
exercise
price

$ 1.08
2.61
9.56
13.63
15.73

Number
exercisable
at 12/31/14

196,322
674,320
10,000

‒
‒

Weighted
average
exercise
price

$ 1.08
2.54
6.60
‒
‒

2,170,802

7.55

$ 5.74

880,642

$ 2.26

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

10. Share capital (continued):

Stock option plans (continued):

At December 31, 2014, there were 384,250 (2013 - 923,000) stock options available for grant
under the Plan. In 2014, the Company issued 865,000 (2013 - 280,000) options and recorded
share-based compensation expense of $2,144 (2013 - $1,003) related to the vesting of options
granted in 2014 and previous years. The per share weighted-average grant date fair value of
stock options granted during 2014 was $5.73 (2013 - $2.02) on the date of grant using the Black
Scholes option-pricing model with the following weighted-average assumptions: exercise price is
equal to the price of the underlying share, expected dividend yield 0%, risk-free interest rate of
1.98% (2013 - 1.87%), an expected life of 8 years (2013 - 8 years), and estimated volatility of
46% (2013 - 47%). Volatility is estimated by benchmarking to comparable publicly traded
companies operating in a similar market segment. The forfeiture rate was estimated at 5% (2013
- 5%).

Share Unit Plan

On May 30, 2014, the Board of Directors adopted a Share Unit Plan to provide long-term
incentive compensation to executives, key employees and non-employee directors. Share Units
may be granted in the form of Restricted Share Units (“RSU”), Performance Share Units (“PSU”)
or Deferred Share Units (“DSU”). RSUs vest based on the passage of time, generally in three
annual increments, PSUs vest based on performance criteria as determined by the Board of
Directors and DSUs do not vest until the participant’s termination of service. Each vested share
unit entitles the participant to receive one Common Share or its cash equivalent.

At December 31, 2014, there were 670,000 share units available for grant under the Plan. During
the year ended December 31, 2014, the Company granted 80,000 RSUs. Each RSU entitles the
participant to receive one Common Share. The RSUs vest based over time in three equal annual
tranches. The fair value of the RSUs granted was $11.91 per unit using the fair value of a
Common Share at time of grant. The Company recorded share-based compensation expense for
the year ended December 31, 2014 of $514 related to the vesting of RSUs granted in 2014. On
December 10, 2014 the first 26,667 of the RSUs granted in 2014 vested and were released.

The following table presents the share-based payments expense by function:

Cost of revenue
Selling and marketing
Research and development
General and administrative

2014

331
621
533
1,173

2013

77
429
96
401

2,658

1,003

KINAXIS ANNUAL REPORT 2014
25

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

11. Earnings (loss) per share:

The following table summarized the calculation of the weighted average number of basic and
diluted common shares.

Issued common shares at beginning of period

13,006,553

16,735,635

2014

2013

Effect of repurchase of shares
Effect of shares issued from employee

share purchase plan

Effect of shares issued for cash
Effect of shares issued

per offering

Effect of preferred shares

converted to Common Shares

Effect of fractional shares

cancelled upon conversion

Effect of shares issued from exercise of options
Effect of shares issued from vesting of restricted

share units

‒

(334,471)

101,119

50,440

2,802,198

2,864,921

(37)
350,851

1,538

‒

36,787

‒

Weighted average number of basic and diluted common

shares at December 31

19,076,464

16,539,070

Due to the loss in December 31, 2014 and December 31, 2013, all outstanding options, restricted
share units and redeemable preferred shares, as applicable, were excluded from the diluted
weighted average number of shares as their effect would have been anti-dilutive.

12. Revenue:

Subscription
Professional services
Maintenance and support

2014

2013

51,119
17,755
1,180

40,039
19,173
1,604

70,054

60,816

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

13. Research and development:

Research and development expenses
Investment tax credits

2014

2013

15,422
(1,993)

13,429

10,417
(2,246)

8,171

14. Personnel expenses:

The following table presents the personnel expenses incurred by the Company for the years
ended December 31, 2014, and 2013:

Salaries including bonuses
Benefits
Commissions
Share-based payments

2014

2013

31,028
4,555
5,783
2,658

28,305
3,944
3,744
1,003

44,024

36,996

15. Net finance (expense) income:

The following table presents the net finance (expense) income incurred by the Company:

Interest income on cash equivalents
Less finance costs:

Interest expense on finance leases
Interest expense on long term debt

2014

2013

169

‒
(530)

(1)
(137)

(490)

KINAXIS ANNUAL REPORT 2014
27

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

16. Income taxes:

The income tax amounts recognized in profit and loss are as follows:

Current tax expense

Current income tax
Part VI.1 tax on deemed dividends on

repurchase of preferred shares

Deferred tax expense (recovery):

Origination and reversal of temporary differences
Temporary differences resulting from

Part VI.1 tax liability

Recognition of previously unrecognized temporary differences

2014

2013

819

4,899

‒
819

3,823

‒
‒
3,823

3,958
8,857

582

(3,634)
(931)
(3,983)

4,642

4,874

A reconciliation of the income tax expense to the expected amount using the Company’s
Canadian tax rate is as follows:

Canadian tax rate

2014

2013

26.50%

Expected Canadian income tax expense (recovery)

1,172

(1,285)

Increase (reduction) in income taxes resulting from:
Tax effect of loss due to change in fair value of

preferred shares

Difference between current and future tax rates and other
Foreign tax rate differences
Part VI.1 tax rate difference
Recognition of previously unrecognized

temporary differences

Reversal of previously recognized temporary differences
Permanent difference of stock-based compensation
Exchange rate

1,791
(5)
221
‒

‒
‒
704
759

4,739
213
200
324

(931)
1,056
267
291

4,642

4,874

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

16. Income taxes (continued):

The tax effects of temporary differences and carry-forwards are as follows:

Deferred tax assets (liabilities):

Non-capital loss carry-forwards
Unclaimed scientific research and

experimental development

Tax effect of investment tax credits
Share issuance costs
Property and equipment
Other

2014

2013

2,509

6,349

2,013
(867)
1,138
863
70

1,828
(1,480)
‒
1,407
62

5,726

8,166

The movements in the deferred tax balances during the period were as follows:

Balance at
January 1,
2014

Recognized
in profit
and loss

Balance at
Recognized December 31
2014

in equity

Non-capital loss carry-forwards
Unclaimed scientific research and

experimental development

Tax effect of investment
Tax effect of investment tax credits
Share issuance costs
Property and equipment
Other

6,349

(3,840)

1,828

(1,480)
‒
1,407
62

185

613
(245)
(544)
8

‒

‒
1,383
‒
‒

2,509

2,013

(867)
1,138
863
70

8,166

(3,823)

1,383

5,726

The Company has non-capital losses available to reduce taxable income of $9,470 as at
December 31, 2014 (2013 - $23,960) which begin to expire in 2033. The Company has
investment tax credits available to reduce federal income taxes payable in Canada of $2,643 as at
December 31, 2014 (2013 - $1,982) and provincial income taxes payable in Ontario of $448 as at
December 31, 2014 (2013 - $125) which begin to expire in 2028 and 2033 respectively.

The Company recognizes deferred tax assets pursuant to an assessment of the likelihood that the
Company will generate sufficient future taxable income against which the benefit of the deferred
tax assets may or may not be realized. This assessment requires management to exercise
significant judgment and make estimates with respect to the Company’s ability to generate taxable
income in future periods and utilize deferred tax assets. The Company considered all existing
evidence in performing this assessment including the history of profitability, secured backlog,
forecasted earnings potential for new business growth, and the ability to realize the assets prior to
expiry.

KINAXIS ANNUAL REPORT 2014
29

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

16. Income taxes (continued):

At December 31, 2013, due to an assessment received from tax authorities on the value of the
tax basis of certain property and equipment and the status of appeals relating to this assessment,
the Company determined the likelihood of realizing the benefit of the related temporary
differences was lower and reversed the previously recorded deferred tax assets reflecting the net
impact of the assessment.

Deferred tax liabilities have not been recognized for temporary differences associated with
investments in subsidiaries as the Company is able to control the timing of the reversal of the
temporary differences and it is probable that the temporary differences will not reverse in the
foreseeable future. The aggregate amount of these temporary differences at December 31, 2014
was $3,860 (2013 - $3,067).

17. Statement of cash flows:

(a) Changes in operating assets and liabilities:

Trade and other receivables
Investment tax credits receivable
Prepaid expenses
Trade payables and accrued liabilities
Deferred revenue

(4,696)
(644)
(729)
651
13,218

(2,057)
44
(50)
576
4,866

2014

2013

(b) Cash and cash equivalents are as follows:

Cash
Cash equivalents

7,800

3,379

2014

2013

56,725
‒

56,725

10,093
3,711

13,804

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

18. Financial instruments:

Fair value of financial instruments

The fair value of financial assets and liabilities, together with their carrying amounts are as
follows:

Carrying
value

2014
Fair
value

Carrying
value

2013
Fair
value

Financial assets

Loans and receivables, measured

at amortized cost:

Cash and cash equivalents
Trade and other receivables
Investment tax credits receivable

56,725
17,023
1,974

13,804
12,449
1,330

75,722

27,583

Financial liabilities

Liabilities measured at FVTPL:

Carrying
value

2014
Fair
value

Carrying
value

2013
Fair
value

Redeemable preferred shares

‒

54,135

Other financial liabilities, measured

at amortized cost

Trade payables and accrued

liabilities

Long-term debt

6,945
‒

11,062
25,000

6,945

90,197

KINAXIS ANNUAL REPORT 2014
31

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

18. Financial instruments (continued):

Measurement of fair value

The Company’s fair value hierarchy prioritizes the inputs to valuation techniques used to measure

fair value. The three levels of the fair value hierarchy are:

Level 1 values are based on unadjusted quoted prices in active markets that are

accessible at the measurement date for identical assets or liabilities.

Level 2 values are based on quoted prices in markets that are not active or model inputs
that are observable either directly or indirectly for substantially the full term of the
asset or liability.

Level 3 values are based on prices or valuation techniques that require inputs that are

both unobservable and significant to the overall fair value measurement.

When the inputs used to measure fair value fall within more than one level of the hierarchy, the
level within which the fair value measurement is categorized is based on the Company’s
assessment of the lowest level input that is the most significant to the fair value measurement.

The fair value of financial assets and liabilities are determined as follows:

•

The carrying amounts of trade and other receivables, investment tax credits
receivable and trade payables and accrued liabilities approximate fair market value
due to the short-term maturity of these instruments.

The carrying amount of long-term debt represents the present value of future
payments and approximates their fair market value.

The redeemable preferred shares were measured at fair value (Level 3)

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

18. Financial instruments (continued):

Financial risk management:

(a) Credit risk:

Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial
instrument fails to meet its contractual obligations. The Company’s credit risk is primarily
attributable to its trade and other receivables.

The nature of the Company’s subscription based business results in payments being
received in advance of the majority of the services being delivered; as a result, the
Company’s credit risk exposure is low. At December 31, 2014, one customer accounted for
greater than 10% of total trade receivables (2013 - two customers - 17%). For the year ended
December 31, 2014, no customer individually accounted for greater than 10% of revenue
(2013 - one customer - 10%). As the majority of the Company’s revenues are earned over a
period of time, the potential impact on the Company’s operating results is low as any
uncollectible amounts would affect trade and other receivables and deferred revenue.

The maximum exposure to credit risk for trade receivables by geographic region was as
follows:

Canada
United States
Other foreign

2014

430
15,049
908

2013

721
10,865
539

16,387

12,125

The aging of the trade receivables at the reporting date was as follows:

Current

Past due:

0 – 30 days
31 – 60 days
Greater than 60 days

2014

13,757

2,250
195
185

2013

7,449

4,669
6
1

16,387

12,125

KINAXIS ANNUAL REPORT 2014
33

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

18. Financial instruments (continued):

Financial risk management (continued):

(a) Credit risk (continued):

The Company establishes an allowance for doubtful accounts based on amounts which are
past due, historical trends, and any available information indicating that a customer could be
experiencing liquidity or going concern problems. During the year ended December 31, 2014,
the Company did not write off any trade receivables that were deemed not collectible and did
not record an allowance for doubtful accounts as at December 31, 2014 (2013 - $Nil).

The Company invests its excess cash in short-term investments with the objective of
maintaining safety of principal and providing adequate liquidity to meet all current payment
obligations and future planned capital expenditures with the secondary objective of
maximizing the overall yield of the investment. The Company manages its credit risk on
investments by dealing only with major Canadian banks and investing only in instruments that
management believes have high credit ratings. Given these high credit ratings, the Company
does not expect any counterparties to these investments to fail to meet their obligations.

The Company’s exposure to credit risk is limited to the carrying amount of financial assets
recognized at the date of Consolidated Statement of Financial Position, as summarized
below:

Cash and cash equivalents
Trade and other receivables
Investment tax credits receivable

(b) Liquidity risk:

2014

56,725
17,023
1,974

2013

13,804
12,449
1,330

75,722

27,583

Liquidity risk is the risk that the Company will not be able to meet its financial obligations as
they fall due.

The Company’s approach to managing liquidity risk to is ensure, as far as possible, that it will
always have sufficient liquidity to meet liabilities when due. The Company also manages
liquidity risk by continuously monitoring actual and budgeted expenses. Furthermore, the
Board of Directors reviews and approves the Company’s operating and capital budgets, as
well as any material transactions out of the ordinary course of business, including
acquisitions or other major investments or divestitures.

At December 31, 2014, the Company had cash and cash equivalents totaling $56,725 (2013 -
$13,804). Further, the Company has a credit facility as disclosed in note 7.

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

18. Financial instruments (continued):

(b) Liquidity risk (continued):

The following are the remaining contractual maturities of financial liabilities at December 31,
2014 and 2013:

December 31, 2014

Trade payables and
accrued liabilities

Contractual cash flows

Carrying
amount

Total

3 months
or less

3 to 12
months

1 to 5
years

More
than 5
years

6,945

$ 6,945

6,945

$ 6,945

‒

December 31, 2013

Carrying
amount

Total

3 months
or less

3 to 12
months

1 to 5
years

Contractual cash flows

Trade payables and
accrued liabilities

Long-term debt
Redeemable preferred

$ 11,062
25,000

54,135

$ 11,062

‒

‒
4,167

‒

20,833

‒

54,135

$ 90,197

$ 11,062

$ 4,167

$ 74,968

More
than 5
years

‒
‒

‒

Market risk is the risk that changes in market prices, such as foreign exchange rates and
interest rates, will affect the Company’s income or the value of its holdings of financial
instruments.

Currency risk

A portion of the Company’s revenues and operating costs are realized in currencies other
than its functional currency, such as the Canadian dollar, Euro, Hong Kong dollar and
Japanese Yen. As a result, the Company is exposed to currency risk on these transactions.
Also, additional earnings volatility arises from the translation of monetary assets and liabilities
denominated in foreign currencies at the rate of exchange on each date of the Consolidated
Statements of Financial Position; the impact of which is reported as a foreign exchange gain
or loss.

KINAXIS ANNUAL REPORT 2014
35

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

18. Financial instruments (continued):

The Company’s objective in managing its currency risk is to minimize its exposure to
currencies other than its functional currency. The Company does so by matching foreign
denominated assets with foreign denominated liabilities.

The Company is mainly exposed to fluctuations between the U.S. dollar and the Canadian
dollar. For the year ending December 31, 2014, if the Canadian dollar had strengthened 5%
against the U.S. dollar with all other variables held constant, pre-tax income for the year
would have been $984 lower (2013 - $857 lower). Conversely, if the Canadian dollar had
weakened 5% against the U.S. dollar with all other variables held constant, there would be an
equal, and opposite impact, on pre-tax income.

The summary quantitative data about the Company’s exposure to currency risk is as follows:

December 31, 2014

In thousands of (local currency)

USD

CAD

JPY

EUR

HKD

Trade receivables
Other receivables
Trade payables
Accrued liabilities

December 31, 2013

In thousands of

Trade receivables
Other receivables
Trade payables
Accrued liabilities

Interest rate risk

15,480
576
(354)
(3,985)

–
45
(25)
(1,988)

60,328

–

(31,145)
(21,095)

11,717

(1,968)

8,088

332
4

–
(95)

241

–
–
(18)
(528)

(546)

USD

CAD

JPY

EUR

HKD

11,621
315
(521)
(9,162)

–
–
(116)
(792)

7,206
–

(12,765)
(19,366)

2,253

(908)

(24,925)

316
–
(1)
(79)

236

–
–
(12)
(507)

(519)

Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will
fluctuate due to changes in market interest rates. The Company believes that interest rate
risk is low as the majority of investments are made in fixed rate instruments. At
December 31, 2014, the Company has not drawn on the revolving demand facility.

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

19. Segmented information:

The Company’s Chief Executive Officer (“CEO”) has been identified as the chief operating
decision maker. The CEO evaluates the performance of the Company and allocates resources
based on the information provided by the Company’s internal management system at a
consolidated level. The Company has determined that it has only one operating segment.

Geographic information

Revenue from external customers is attributed to geographic areas based on the location of the
contracting customers. External revenue on a geographic basis is as follows:

United States
Canada
Europe
Japan
Other foreign

2014

56,317
5,829
4,077
3,693
138

2013

42,025
9,402
4,481
4,399
509

70,054

60,816

Total property and equipment on a geographic basis are as follows:

Canada
United States
Japan
Other foreign

2014

3,453 $

1,284
7

‒

2013

1,597
798
11
2

4,744

2,408

20. Operating lease commitments:

The Company’s minimum payments required under operating leases are as follows:

Less than one year
Between one and five years
More than five years

1,206
5,498
2,658

9,362

The Company’s operating leases are primarily for office space. These leases generally contain
renewal options for periods ranging from one to five years and require the Company to pay
operating costs such as utilities and maintenance. Gross rental expense for operating leases for
the year ending December 31, 2014 was $898 (2013 - $953).

KINAXIS ANNUAL REPORT 2014
37

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

21. Related party transactions:

Details of the Company’s subsidiaries at December 31, 2014 and 2013 are as follows:

Name of subsidiary

activity

operation

voting power held

Principle

Place of incorporation and

Proportion of ownership interest and

Kinaxis Corp.

Sales

State of Delaware, USA

Kinaxis Japan K.K.

Sales

Japan

Kinaxis Europe B.V.

Sales

The Netherlands

Kinaxis Asia

Sales

Hong Kong

Kinaxis Holdings Inc.

IP Holding

New Brunswick, Canada

Kinaxis Software LLC Investment Co. State of Delaware, USA

2014

100%

–

2013

100%

On December 15, 2013, Kinaxis Holdings Inc. was amalgamated with Kinaxis Inc. and on
December 31, 2013 Kinaxis Software LLC was wound up.

Balances and transactions between the Company and its subsidiaries, which are related parties
of the Company, have been eliminated on consolidation and are not disclosed in this note.

During the year, the Company donated $nil (2013 - $65), in lieu of salary, to a charitable
organization which is a related party to the Company’s CEO.

Compensation of key management personnel

The Company defines key management personnel as being the CEO and his direct reports. The
remuneration of directors and other members of key management personnel during the year were
as follows:

Salary and other short-term benefits
Share-based payments
Termination benefits

2014

2,772
1,309
–

4,081

2013

1,916
591
54

2,561

KINAXIS ANNUAL REPORT 2014

Kinaxis Inc.
Notes to Consolidated Financial Statements

Years ended December 31, 2014 and 2013
(Expressed in thousands of U.S. dollars, except share and per share amounts)

22. Capital management:

The Company’s capital is composed of its shareholders’ equity. The Company’s objective in
managing its capital is to ensure financial stability and sufficient liquidity to increase shareholder
value through organic growth and investment in sales, marketing and product development. The
Company’s senior management is responsible for managing the capital through regular review of
financial information to ensure sufficient resources are available to meet operating requirements
and investments to support its growth strategy. The Board of Directors is responsible for
overseeing this process. In order to maintain or adjust its capital structure, the Company could
issue new shares, repurchase shares, approve special dividends or issue debt.

The Company has access to a revolving demand facility bears interest at bank prime plus 1.00%
per annum which has not been drawn as at December 31, 2014. The terms of the facility require
the Company to meet certain financial covenants which are monitored by senior management to
ensure compliance.

23. Contingencies:

In the normal course of business, the Company and its subsidiaries enter into lease agreements
for facilities or equipment. It is common in such commercial lease transactions for the Company
or its subsidiaries as the lessee to agree to indemnify the lessor and other related third parties for
liabilities that may arise from the use of the leased assets. The maximum amount potentially
payable under the foregoing indemnities cannot be reasonably estimated. The Company has
liability insurance that relates to the indemnifications described above.

The Company includes standard intellectual property indemnification clauses in its software
license and service agreements. Pursuant to these clauses, and subject to certain limitations, the
Company holds harmless and agrees to defend the indemnified party, generally the Company’s
business partners and customers, in connection with certain patent, copyright or trade secret
infringement claims by third parties with respect to the Company’s products. The term of the
indemnification clauses is generally for the subscription term and applicable statutory period after
execution of the software license and service agreement. In the event an infringement claim
against the Company or an indemnified party is successful, the Company, at its sole option,
agrees to do one of the following: (i) procure for the indemnified party the right to continue use of
the software; (ii) provide a modification to the software so that its use becomes non-infringing; (iii)
replace the software with software which is substantially similar in functionality and performance;
or (iv) refund the residual value of the software license fees paid by the indemnified party for the
infringing software. The Company believes the estimated fair value of these intellectual property
indemnification clauses is minimal.

Historically, the Company has not made any significant payments related to the above-noted
guarantees and indemnities and accordingly, no liabilities have been accrued in the consolidated
financial statements.

KINAXIS ANNUAL REPORT 2014
39

KINAXIS ANNUAL REPORT 2014

Board of Directors

Senior Management

Shareholder Information

Doug Colbeth (Chair)
President and Chief Executive Officer

Doug Colbeth
President and Chief Executive Officer

Ian Giffen
(Independent Lead Director)

Howard Gwin

Rob Wadsworth

Marc Balevi

Ronald A. Matricaria

Richard Monkman
Chief Financial Officer

John Sicard
Chief Products Officer

Jeff Johnson
EVP Global Operations

Stock Exchange Listing
The Company’s common shares are listed
on the Toronto Stock Exchange under the
Symbol “KXS”

Shareholder Inquiries
Inquiries regarding change of address,
transfer requirements or lost certificates
should be directed to the Company’s
transfer agent.

Transfer Agent
CST Trust Company
320 Bay Street, 3rd Floor
Toronto, ON M5H 4A6
Shareholder Inquiries: 1-800-387-0825
or 416-682-3860;
inquiries@canstockta.com
https://www.canstockta.com/

Legal Counsel
Dentons LLP

Auditors
KPMG

Investor Relations

Richard Monkman
Chief Financial Officer
T: 613 592 7376
rmonkman@kinaxis.com

Robert Kelly
TMX Equicom
T: 416 815 0700 EXT 253
rkelly@tmxequicom.com

700 Silver Seven Road

Phone: +1 613.592.5780

kinaxis.com

Ottawa, Ontario

Canada K2V 1C3

Toll Free: +1 877.KINAXIS (546.2947)

Fax: +1 613.592.0584