Dear Shareholders,
It was another tremendous year for Kinaxis and our revolutionary RapidResponse platform. We delivered 30% overall revenue
growth over fiscal 2014 while maintaining strong bottom line earnings as demonstrated by our adjusted EBITDA margin of
over 30%. Our consistency in delivering this unique combination of topline growth and strong bottom line results sets us apart
from a growing pool of Cloud based companies.
This commitment to profitable growth is why our financial position remains very strong. At year-end, Kinaxis had cash and
equivalents of almost $100 million, having generated a record $45.2 million in cash from operations over the course of 2015,
and remains debt-free.
With the addition of new customers, expansions from existing customers and partnership influence, we expect to see the
growth and breadth of our RapidResponse platform accelerate. The primary drivers of this growth remain our expanding
partner network, emerging knowledge services offerings as well as enriching the RapidResponse features and scale of the
platform.
Our strategic partner initiatives are key to realizing accelerated growth. In 2015, we established
a Joint Initiative agreement with Accenture, which has led to activities with several other large
system integrator firms. These relationships will allow us to hasten the adoption rate of
RapidResponse and assist Kinaxis in winning opportunities within our growing market
segments and geographies.
These partners have deep and trusted relationships with their clients which we can leverage to efficiently gain access to a
broader group of global enterprises. Over time, we intend to further expand our partner network and sign additional strategic
alliances to extend our reach across a variety of market verticals and geographies.
In 2015, we began to strategically invest in our knowledge services offerings as we believe this initiative will play a pivotal role
in our partner’s and customer’s success and our longer term growth. A key element of this initiative is our certification program
which will expand the number of qualified deployment partners. In addition, this certification program assists existing customers
to further leverage their investment in RapidResponse within their organization.
Global organizations are increasingly recognizing that the traditional, highly-customized legacy approach to their supply chain
management challenges cannot respond to today’s fast paced and ever changing business environment. Increasingly, they
are turning to Kinaxis to utilize our breakthrough solution that provides end-to-end supply chain visibility, simulation and
collaboration. Familiarity of Kinaxis amongst these organizations has been fueled by our growing industry recognition from
influencers, including Gartner, who positions Kinaxis as the leader in both vision and execution, and through our expanding
partner ecosystem.
In the 22 years I have been with Kinaxis, I have had the distinct privilege of experiencing our evolution and growth, and
collaborated with many talented people on the strategies that have led us to where we are today. This has offered me a unique
understanding of both the intricate challenges of supply chain and the opportunity that exists for our revolutionary platform. In
many ways, I feel as though our bigger journey is just getting started. I am confidently looking forward to 2016 and the years
to come.
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,
John Sicard
President, Chief Executive Officer
700 Silver Seven Road, Ottawa, Ontario, Canada K2V 1C3 ■ +1 877.KINAXIS (546.2947) ■ kinaxis.com
KINAXIS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2015
DATED: February 17, 2016
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, 2015. This MD&A has been prepared with an effective date of February 17, 2016.
This MD&A for the years ended December 31, 2015 and 2014 should be read in conjunction with our annual
consolidated financial statements as at and for the year ended December 31, 2015. 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. including the Company’s most recently completed Annual
Information Form, 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 EBITDA”
and “Adjusted diluted earnings per share”. 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,
2015. 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
“Reconciliation of Non-IFRS Measures” 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:
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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;
2
Management's Discussion and Analysis
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our plans for and timing of expansion of our solutions and services;
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.
Whether actual results, performance or achievements will conform to our expectations and predictions is subject
to a number of known and unknown risks and uncertainties, including those set forth below under the heading
“Risks and Uncertainties”. These risks and uncertainties 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. In light of these risks and uncertainties, readers should not place undue
reliance on 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.
Risks and Uncertainties
We are exposed to risks and uncertainties in our business, including the risk factors set forth below:
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If we are unable to attract new customers or sell additional products to our existing customers, our revenue
growth and profitability will be affected.
We derive a significant portion of our revenue from a relatively small number of customers, and our growth
depends on our ability to retain existing customers and add new customers.
We encounter long sales cycles, particularly with our larger customers, which could have an adverse effect
on the amount, timing and predictability of our revenue.
We rely significantly on recurring revenue, and if recurring revenue declines or is not renewed our future
results of operations could be harmed.
Downturns or upturns in new sales will not be immediately reflected in operating results and may be
difficult to discern.
Our quarterly results of operations may fluctuate. As a result, we may fail to meet or exceed the
expectations of investors or securities analysts which could cause our share price to decline.
We are subject to risks associated with fluctuations in currency exchange rates.
3
Management's Discussion and Analysis
If we are unable to develop new products and services, sell our solutions into new markets or further
penetrate our existing markets, our revenue will not grow as expected.
If we do not maintain the compatibility of our solutions with third-party applications that our customers use
in their business processes, demand for our solutions could decline.
If we fail to adapt to rapid technological change our ability to remain competitive could be impaired.
We enter into service level agreements with all of our customers. If we fail to meet these contractual
commitments, we could be obligated to provide credits or refunds for prepaid amounts related to unused
subscription services or face contract terminations, which could adversely affect our revenues.
Downturns in general economic and market conditions and reductions in IT spending may reduce demand
for our solutions, which could negatively affect our revenue, results of operations and cash flows.
Our ability to retain customers and attract new customers could be adversely affected by an actual or
perceived breach of security relating to customer information.
If we fail to protect our intellectual property and proprietary rights adequately, our business could be
adversely affected.
Our solutions are complex and customers may experience difficulty in implementing or upgrading our
products successfully or otherwise achieving the benefits attributable to our products.
The markets in which we participate are highly competitive, and our failure to compete successfully would
make it difficult for us to add and retain customers and would reduce or impede the growth of our business.
If we fail to retain our key employees, our business would be harmed and we might not be able to
implement our business plan successfully.
Our growth is dependent upon the continued development of our direct sales force.
If we experience significant fluctuations in our rate of anticipated growth and fail to balance our expenses
with our revenue forecasts, our results could be harmed.
Interruptions or delays in the services provided by third-party data centers and/or internet service providers
could impair the delivery of our solutions and our business could suffer.
We may experience service failures or interruptions due to defects in the software, infrastructure, third-
party components or processes that comprise our existing or new solutions, any of which could adversely
affect our business.
An assertion by a third-party that we are infringing its intellectual property could subject us to costly and
time consuming litigation or expensive licenses which could harm our business.
Mergers or other strategic transactions involving our competitors or customers could weaken our
competitive position, which could harm our results of operations.
We are subject to taxation in various jurisdictions and the taxing authorities may disagree with our tax
positions.
Because our long-term success depends, in part, on our ability to continue to expand the sales of our
solutions to customers located outside of North America, our business will be susceptible to risks
associated with international operations.
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A comprehensive discussion of risks, including risks not specifically listed above, can be found in our most recently
filed Annual Information Form. Additional risks and uncertainties not presently known to us or that we currently
consider immaterial also may impair our business and operations and cause the price of our shares to decline. If any
of the noted risks actually occur, our business may be harmed and the financial condition and results of operation
may suffer significantly.
4
Management'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 consistent financial track record of strong revenue growth, solid earnings performance
and cash generation. Both our subscription and total annual revenues have grown at a compound annual growth rate
(CAGR) of 25% for the three years ended December 31, 2015. This growth is driven both by contracts with new
customers and expansion of our solution and service engagements within our existing customer base. For the year
ended December 31, 2015 our Adjusted EBITDA was 33% of revenue and ending cash balances grew to $99.4
million.
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 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, 2015, our ten largest customers accounted for approximately 46% of our total
revenues with one customer accounting for 10.6% 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 may have an impact on our performance.
Since our initial public offering in June 2014, we continue to drive growth in our business through new
customer acquisition and expansion of existing customers through our land and expand philosophy. Over the last
several years, approximately 40% of subscription revenue growth has been derived from our existing customer base.
Our net revenue retention is greater than 100%, reflecting our longer term contract structure and renewal history. We
continue to invest in developing our partner capabilities and in our technology. In August 2015, we released version
2015.3 of RapidResponse, reflecting our ongoing investment in our product’s scale and capabilities, and our
commitment to supporting the needs of our expanding customer base. In October 2015, we announced an
engagement with Accenture where Accenture will provide product development and product training services and
together we will develop differentiated supply chain solutions designed to meet enterprise end-customer supply
chain solutions.
We are headquartered in Ottawa, Ontario. We have subsidiaries located in the United States, the Netherlands
and Hong Kong and a subsidiary and office in Tokyo, Japan. We continue to expand our operations internationally.
In the year ended December 31, 2015, 92% of our revenues derived from North America and our remaining
revenues derived from outside North America, principally from Japan and Europe.
5
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 (as discussed below), Adjusted
EBITDA (as discussed below), Adjusted diluted earnings per share (as discussed below), 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. Subscription agreements are generally 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. For 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. In certain circumstances, the Company enters into arrangements for professional services on a fixed
price basis for which revenue is recognized by reference to the stage of completion of the contract.
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.
6
Management'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. 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 $41.0 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. Effective as of the date of our IPO, there will be no further impact on our results of
operations from these redeemable preferred shares.
7
Management's Discussion and Analysis
Results of Operations
The following table sets forth a summary of our results of operations for the three months ended December 31,
2015 and 2014 along with the years ended December 31, 2015, 2014 and 2013:
Three months ended
December 31
Years ended
December 31
2014
2015
2014
2015
(In thousands of U.S. dollars, except earnings (loss) per share)
2013
Statement of Operations
Revenue .............................................................................
Cost of revenue ..................................................................
Gross profit ........................................................................
Operating expenses ............................................................
Loss due to change in fair value of redeemable
preferred shares .................................................................
Foreign exchange (loss) gain .............................................
Net finance income (expense) ...........................................
Profit (Loss) before income taxes ......................................
Income tax expense ...........................................................
Profit (Loss) .......................................................................
Adjusted profit(1)................................................................
Adjusted EBITDA(1) ..........................................................
Basic earnings (loss) per share ..........................................
Diluted earnings (loss) per share .......................................
Adjusted diluted earnings per share(1) ................................
$ 24,191
6,789
17,402
11,984
$ 18,820
5,433
13,387
10,763
$ 91,271
25,743
65,528
41,721
$ 70,054
20,745
49,309
37,039
$ 60,816
18,016
42,800
29,625
5,418
2,624
23,807
12,270
13,175
̶
(18)
32
5,432
4,146
̶
(465)
17
2,176
1,592
̶
(1,041)
128
22,894
10,216
(6,760)
(599)
(490)
4,421
4,642
(17,884)
(168)
31
(4,846)
4,874
$ 1,286
$ 584
$ 12,678
$ (221)
$ (9,720)
$ 2,515
$ 1,429
$ 17,130
$ 9,197
$ 9,167
$ 7,146
$ 0.05
$ 0.05
$ 0.10
$ 3,803
$ 0.02
$ 0.02
$ 0.06
$ 29,985
$ 0.53
$ 0.50
$ 0.67
$ 15,012
$ 16,079
$ (0.01) $ (0.59)
$ (0.59)
$ (0.01)
$ 0.34
$ 0.41
As at
December 31,
2015
December 31,
2014
December 31,
2013
(In thousands of U.S. dollars)
Total assets .......................................................................
Deferred revenue ..............................................................
Redeemable preferred shares ............................................
Other non-current liabilities ................................................
Note:
$ 128,096
$ 91,209
54,633 37,518
̶
109
̶
1,065
$ 41,472
24,700
54,135
20,988
(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, where a comparable IFRS measure exists, see “Reconciliation of Non-IFRS
Measures” below.
8
Management's Discussion and Analysis
Reconciliation of Non-IFRS Measures
Adjusted profit and Adjusted diluted earnings per share
Adjusted profit represents profit adjusted to exclude the impact of our formerly outstanding redeemable
preferred shares and our share-based compensation plans. Adjusted diluted earnings per share represents diluted
earnings 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.
Adjusted EBITDA
Adjusted EBITDA represents profit (loss) adjusted to exclude the impact of our formerly outstanding
redeemable preferred shares, our share-based 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:
Three months ended
December 31,
2015
2014
Years ended
December 31
2014
2015
(In thousands of U.S. dollars)
2013
Profit (Loss) ......................................................................
$ 1,286
$ 584
$ 12,678
$ (221)
$ (9,720)
Loss due to change in fair value of redeemable
preferred shares .................................................................
Share-based compensation ................................................
̶
1,229
1,229
̶
845
845
̶
4,452
4,452
6,760
2,658
9,418
Adjusted profit...................................................................
Income tax expense ...........................................................
Depreciation ......................................................................
Foreign exchange loss ......................................................
Net finance (income) expense ...........................................
$ 2,515
4,146
499
18
(32)
$ 1,429
1,592
334
465
(17)
$ 17,130
10,216
1,726
1,041
(128)
$ 9,197
4,642
1,151
599
490
17,884
1,003
18,887
$ 9,167
4,874
834
168
(31)
Adjusted EBITDA .............................................................
$ 7,146
$ 3,803
$ 29,985
$ 16,079
$ 15,012
4,631
2,374
12,855
6,882
5,845
Revenue
The following table displays the breakdown of our revenue according to revenue type:
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31,
2015
2014
2014 to
2015
%
(In thousands of U.S. dollars, except percentages)
Revenue
Subscription ............................
Professional services ..............
Maintenance & Support .........
$ 16,963
6,977
251
$ 13,852
4,694
274
Total revenue ................................
24,191
18,820
22%
49%
(8%)
29%
$ 65,199
25,002
1,070
$ 51,119
17,755
1,180
28%
41%
(9%)
91,271
70,054
30%
9
Management's Discussion and Analysis
Total revenue for the fourth quarter of 2015 was $24.2 million or an increase of 29% compared to the same
period in 2014. For fiscal 2015 total revenue was $91.3 million compared to $70.1 million for the same period in
2014, representing an increase of 30%.
Subscription Revenue
Subscription revenue for the three months ended December 31, 2015 was $17.0 million, up from $13.9 million
for the same period in 2014, for an increase of 22% or $3.1 million. For fiscal 2015, subscription revenue was $65.2
million or 28% higher than the same year to date period in 2014 driven by contracts secured with new customers and
expansion of existing customer subscriptions. Approximately 73% of 2015 subscription revenue growth was derived
from new customers acquired in fiscal 2014 and 2015.
Professional services revenue
Professional services revenue varies quarter to quarter due to the size, timing and scheduling of customer
engagements. Professional services revenue for the fourth quarter of 2015 increased $2.3 million or 49% to $7.0
million from $4.7 million for the same period in 2014. For fiscal 2015, professional services revenue was $25.0
million compared to $17.8 million for the same period in 2014, representing an increase of $7.2 million or 41%.
Professional services revenue growth was driven primarily by initiation of deployment projects for new customers
acquired during the second half of fiscal 2014 and in fiscal 2015.
Maintenance & support revenue
Maintenance & support revenue was $0.3 million for both the fourth quarter of 2015 and 2014. For fiscal 2015,
maintenance & support revenue was $1.1 million compared to $1.2 million for the same period in 2014. We expect
to see a decrease over time in revenue from support contracts with legacy customers with perpetual licenses.
Cost of revenue
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31
2015
2014
(In thousands of U.S. dollars, except percentages)
Cost of revenue .............................
Gross profit ...................................
$ 6,789
17,402
$ 5,433
13,387
25%
30%
$ 25,743
65,528
$ 20,745
49,309
Gross profit % ...............................
72%
71%
72%
70%
2014 to
2015
%
24%
33%
Cost of revenue for the fourth quarter of 2015 increased $1.4 million, or 25%, to $6.8 million from $5.4 million
for the same period in 2014. For fiscal 2015, cost of revenue increased $5.0 million, or 24%, to $25.7 million from
$20.7 million for the same period in 2014. The increase in costs was due to an increase in headcount related
compensation costs for customer support and data centre operations driven by our customer growth as well as higher
variable compensation and share-based payments during the period. The increase in compensation costs is net of a
favourable impact of foreign exchange rates on Canadian dollar denominated compensation costs. For the fourth
quarter and fiscal year 2015, an increase in professional services activities drove an increase in costs associated with
the use of third party providers to support these engagements as well as an increase in travel costs and billable
expenses compared to the same periods in 2014. Depreciation and operating costs associated with the expansion of
data centre capacity to support new and ongoing customer engagements also increased for the fourth quarter and
fiscal year 2015 compared to the same periods in 2014.
Gross profit for the three months and year ended December 31, 2015 was $17.4 million and $65.5 million
respectively compared to $13.4 million and $49.3 million for the same periods in 2014. Gross profit as a percentage
of revenue increased to 72% in the fourth quarter ended December 31, 2015 from 71% in the same period of 2014.
The percentage increase in the fourth quarter was due to lower growth of cost of revenue in the fourth quarter of
2015 from investments in additional headcount and data centre capacity than the growth in total revenue in the
10
Management's Discussion and Analysis
period compared to the fourth quarter of 2014. For the year ended December 31, 2015 gross profit as a percentage of
revenue increased to 72% from 70% in the same period of 2014. The increase in gross profit percentage was due to
the growth in total revenue for fiscal 2015 while leveraging the investments made in our capacity to support
customer engagements.
Selling and Marketing Expenses
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31
2015
2014
2014 to
2015
%
(In thousands of U.S. dollars, except percentages)
Selling and marketing ...................
$ 6,175
$ 5,275
17%
$ 18,264
$ 15,296
19%
As a percentage of revenue ...........
26%
28%
20%
22%
Selling and marketing expenses for the fourth quarter of 2015 increased $0.9 million, or 17%, to $6.2 million
from $5.3 million in the fourth quarter of 2014. For the year ended December 31, 2015 selling and marketing
expenses increased $3.0 million or 19% to $18.3 million from $15.3 million for the same period in 2014. The
increase in sales and marketing costs was due to higher headcount and related compensation costs driven by our
investment in our knowledge services and customer success organizations. This was partially offset by lower
commission expenses which varies based upon the timing of closing of customer contracts. Marketing program
expenses related to our annual user conference also increased due to its continued success in growing attendance
from both current and prospective customers. In addition, sales and marketing expenses for the fourth quarter and
fiscal year 2015 compared to the same periods in 2014 increased due to investments in the joint initiative with
Accenture announced in the third quarter of 2015. As a percentage of revenue, selling and marketing expenses were
26% in the fourth quarter of 2015 compared to 28% for the same period in 2014 due to lower growth in selling and
marketing costs relating to the investment activity relative to the growth in revenue. For the year ended December
31, 2015 selling and marketing costs were 20% of revenue compared to 22% for the year ended December 31, 2014
reflecting the higher growth in revenue for the period.
Research and Development Expenses
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31
2015
2014
2014 to
2015
%
(In thousands of U.S. dollars, except percentages)
$ 4,280
(585)
3,695
$ 3,940
(578)
3,362
9%
1%
10%
$ 16,786
(1,589)
15,197
$ 15,422
(1,993)
13,429
9%
(20%)
13%
Research and development -
gross
Less: Investment tax credits ..........
Research and development ...........
As a percentage of revenue ...........
Gross .......................................
Net ..........................................
18%
15%
21%
18%
18%
17%
22%
19%
Gross research and development expenses for the fourth quarter of 2015 increased $0.4 million to $4.3 million
or 9% and for the year ended December 31, 2015 increased $1.4 million to $16.8 million or 9%, in each case
compared to the same periods in 2014. The increase in research and development expenses was due to an increase
in headcount and related compensation costs net of a favourable impact of foreign exchange rates on Canadian
dollar denominated compensation costs. 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 was $0.6 million for both the fourth quarter of
11
Management's Discussion and Analysis
2015 and 2014. For fiscal 2015, investment tax credits earned decreased 20% to $1.6 million from $2.0 million for
the same period in 2014. The decrease in investment tax credits earned is the result of lower rates earned for public
companies applied in 2015. As a percentage of revenues, gross research and development expenses were 18% for
both the fourth quarter and the year to date of 2015 compared to 21% and 22% for the same periods in 2014,
reflecting the growth in revenue in the current period. Net research and development as a percentage of revenue for
the fourth quarter of 2015 was 15% and 17%, respectively, for the year to date compared to 18% and 19% for the
same periods in 2014. This was due to the growth in revenue for the period.
General and Administrative Expenses
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31
2015
2014
2014 to
2015
%
(In thousands of U.S. dollars, except percentages)
General and administrative ...........
$ 2,114
$ 2,126
(1%)
$ 8,260
$ 8,314
(1%)
As a percentage of revenue ...........
9%
11%
9%
12%
General and administrative expenses were $2.1 million for both the fourth quarter of 2015 and 2014, and $8.3
million for years ended December 31, 2015 and 2014. General and administrative expenses decreased due to lower
compensation costs driven by a functional realignment of information technology resources to customer data centre
support completed in the first quarter of 2015. The decrease in compensation costs includes a favourable impact of
foreign exchange rates on Canadian dollar denominated compensation. In addition, higher expenses related to share-
based payments were incurred. These decreases were offset by lower accounting, audit and legal fees which were
incurred in 2014 relating to the IFRS conversion and the initial public offering. As a percentage of revenue, general
and administrative expenses were 9% for both the fourth quarter and fiscal 2015, compared to 11% and 12% for the
same periods in 2014 due to the growth in revenue in those periods.
Other Income and Expense
The following table provides a breakdown of other income and expense by type:
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31
2015
2014
2014 to
2015
%
(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) ........
Net finance income
(expense) ................................
Total other expense .......................
$ ̶
$ ̶
̶
$ ̶
$ (6,760)
(100%)
(18)
32
(14)
(465)
17
(448)
(96%)
88%
(97%)
(1,041)
(599)
74%
128
(913)
(490)
(7,849)
̶ (1)
(88%)
For the three months ended December 31, 2015, total other expense was $Nil compared to a total other expense
of $0.4 million for the fourth quarter of 2014, and for fiscal year 2015 was $0.9 million compared to $7.8 million for
the same period in 2014. The decrease in expenses is due to the non-cash fair value adjustment recorded in 2014 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 coupled with a decrease in interest expenses that were incurred in the first half of 2014
on the term loan, which was repaid from the proceeds of the initial public offering. This was partially offset by an
12
Management's Discussion and Analysis
increase in foreign exchange loss which was primarily due to the revaluation of Canadian dollar denominated assets
against a strengthening U.S. dollar.
Income Taxes
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31
2015
2014
(In thousands of U.S. dollars, except percentages)
Income tax expense
Current ...................................
Deferred .................................
Total income tax expense .............
$ 3,143
1,003
4,146
$ 193
1,399
1,592
1,528%
(28%)
160%
$ 3,487
6,729
10,216
$ 819
3,823
4,642
2014 to
2015
%
326%
76%
120%
For the three months and year ended December 31, 2015, income tax expense of $4.1 million and $10.2 million
were recognized compared to $1.6 million and $4.6 million for the same periods in 2014. The change is the result of
increased profit before income taxes as well as the taxable foreign exchange gains included in Canadian taxable
income realized upon the revaluation of U.S. dollar denominated monetary assets to the Canadian dollar
Profit (loss)
Three months ended
December 31,
2015
2014
2014 to
2015
%
Years ended
December 31
2015
2014
(In thousands of U.S. dollars, except percentages)
Profit (Loss) ..................................
Adjusted profit(2) ...........................
Adjusted EBITDA(2) .....................
Basic earnings (loss) per share ......
Diluted earnings (loss) per share ...
Adjusted diluted earnings per
share(2)...........................................
Note:
$ 1,286
$ 584
2,515
7,146
0.05
0.05
1,429
3,803
0.02
0.02
0.10
0.06
483%
219%
88%
$ 12,678
$ (221)
17,130
29,985
0.53
0.50
0.67
9,197
16,079
(0.01)
(0.01)
0.41
2014 to
2015
%
̶ (1)
108%
86%
(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, where a comparable IFRS measure exists, see “Reconciliation of Non-
IFRS Measures” above.
Profit for the three months ended December 31, 2015 increased $0.7 million to $1.3 million or $0.05 per basic
share and diluted share, from $0.6 million or $0.02 per basic share and diluted share for the same period in 2014. For
the year ended December 31, 2015, profit increased $12.9 million to $12.7 million or $0.53 per basic share and
$0.50 per diluted share compared to a loss of $0.2 million or $0.01 per basic and diluted share in the same period in
2014. The increase in profit was driven primarily by our growth in revenue for the fourth quarter and fiscal year
2015 and the lower Canadian dollar versus the U.S. dollar had a positive effect on operating expenses and
profitability. In addition, profit for fiscal 2014 was impacted by a non-cash fair value adjustment on redeemable
preferred shares that were converted to common shares at the time of our initial public offering in June 2014. These
were partially offset by an increase in income tax expenses due to foreign exchange gains on U.S. denominated
monetary assets included in Canadian taxable income. Adjusted EBITDA for the fourth quarter of 2015 was $7.1
million, an increase of $3.3 million from $3.8 million for the corresponding period in 2014. For the fiscal year 2015,
Adjusted EBITDA increased $13.9 million to $30.0 million for 2015 from $16.1 million in the same period in 2014.
The increase in Adjusted EBITDA in the three months and year ended December 31, 2015 is due to an increase in
operating profits.
13
Management's Discussion and Analysis
Key Balance Sheet Items
Total assets ...............................................................................
Total liabilities .........................................................................
$ 128,096
62,492
$ 91,209
44,572
As at December
As at December
31, 2015
31, 2014
(In thousands of U.S. dollars)
An analysis of the key balance sheet items driving the change in total assets and liabilities is as follows:
Trade and other receivables
As at December
As at December
31, 2015
31, 2014
(In thousands of U.S. dollars)
Trade and other receivables......................................................
$ 15,833
$ 17,023
Trade and other receivables were $15.8 million at December 31, 2015, a decrease of $2.8 million compared to
$17.0 million at December 31, 2014. 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
As at December
31, 2015
31, 2014
(In thousands of U.S. dollars)
Investment tax credits receivable .............................................
Long-term investment tax credits recoverable .........................
$ 1,532
2,083
$ 1,974
3,091
Investment tax credits receivable of $1.5 million at December 31, 2015 were $0.5 million lower compared to
$2.0 million at December 31, 2014. The decrease is due to the receipt of a portion of the outstanding balance during
the period and foreign exchange losses on the refundable investment tax credits denominated in Canadian dollars
revalued against a strengthening U.S. dollar. The investment tax credits receivable relate to refundable tax credits
filed for the 2013 tax year and the 2014 tax period prior to our initial public offering that remains outstanding. Long-
term investment tax credits recoverable are the non-refundable portion of investment tax credits earned. The balance
decreased $1.0 million to $2.1 million at December 31, 2015 from $3.1 million at December 31, 2014 due to
utilization of investment tax credits against current income taxes payable. This decrease was partially offset by
estimated non-refundable credits earned during 2015 net of foreign exchange losses incurred upon revaluation of the
recoverable balance denominated in Canadian dollars against a stronger U.S. dollar.
Deferred revenue
Current .....................................................................................
Non-current ..............................................................................
$ 40,442
14,191
54,633
$ 35,740
1,778
37,518
As at December
As at December
31, 2015
31, 2014
(In thousands of U.S. dollars)
Deferred revenue at December 31, 2015 was $54.6 million, an increase of $17.1 million compared to $37.5
million at December 31, 2014. 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 is due
primarily to the prepayment of a multi-year subscription of approximately $20.0 million in the first quarter of 2015
as well as other new subscription arrangements. Deferred revenue relating to subscription term periods beyond one
year totaled $14.2 million at December 31, 2015.
14
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, 2015.
December
31, 2015
September
30, 2015
June
30, 2015
Three months ended
March
31, 2015
December
31, 2014
September
30, 2014
June
30, 2014
March
31, 2014
Revenue:
Subscription .....................................
Professional services ........................
Maintenance and support .................
Cost of revenue ....................................
Gross profit ..........................................
Operating expenses ..............................
$ 16,963
6,977
251
24,191
6,789
17,402
11,984
5,418
$ 16,544
6,870
251
23,665
6,862
16,803
10,402
6,401
Loss due to change in fair value of
redeemable preferred shares .................
Foreign exchange (loss) gain ................
Net finance income (expense)……..
Profit (loss) before income taxes ..........
Income tax expense ..............................
-
(18)
32
5,432
4,146
-
(497)
30
5,934
2,128
$ 16,284
7,137
283
23,704
6,287
17,417
9,677
7,740
-
(47)
42
7,735
2,537
$ 15,408 $ 13,852
4,018
285
19,711
5,805
13,906
9,658
4,248
-
(479)
24
3,793
1,405
4,694
274
18,820
5,433
13,387
10,763
2,624
-
(465)
17
2,176
1,592
$ 13,302
4,081
298
17,681
4,855
12,826
8,697
4,129
$ 12,645
4,979
306
17,930
5,628
12,302
9,934
2,368
-
(262)
3
3,870
1,358
(6,581)
81
(253)
(4,385)
889
$ 11,320
4,001
302
15,623
4,829
10,794
7,645
3,149
(179)
47
(257)
2,760
803
Profit (loss) ..........................................
$ 1,286
$ 3,806
$ 5,198
$ 2,388
$ 584
$ 2,512
$ (5,274)
$ 1,957
Loss due to change in fair value of
redeemable preferred shares .................
Share-based compensation ...................
Adjusted profit(1) ..................................
-
1,229
1,229
-
1,176
1,176
-
1,083
1,083
-
964
964
-
845
845
-
794
794
6,581
631
7,212
179
388
567
$ 2,515
$ 4,982
$ 6,281
$ 3,352
$ 1,429
$ 3,306
$ 1,938
$ 2,524
Income tax expense ..............................
4,146
2,128
2,537
Depreciation .........................................
Foreign exchange loss (gain) ................
Net finance (income) expense ..............
499
18
(32)
461
497
(30)
412
47
(42)
1,405
354
479
(24)
4,631
3,056
2,954
2,214
1,592
334
465
(17)
2,374
1,358
317
262
(3)
1,934
889
260
(81)
253
1,321
803
240
(47)
257
1,253
Adjusted EBITDA(1) .............................
$ 7,146
$ 8,038
$ 9,235
$ 5,566
$ 3,803
$ 5,240
$ 3,259
$ 3,777
Basic earnings (loss) per share .............
$ 0.05
$ 0.16
$ 0.22
$ 0.10
$ 0.02
$ 0.11
$ (0.34)
$ 0.15
Diluted earnings (loss) per share ..........
$ 0.05
$ 0.15
$ 0.20
$ 0.10
$ 0.02
$ 0.10
$ (0.34)
$ 0.10
Adjusted diluted earnings per
share(1)………………………………
Note:
$ 0.10
$ 0.20
$ 0.25
$ 0.13
$ 0.06
$ 0.13
$ 0.09
$ 0.13
(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, where a comparable IFRS measure exists, see “Reconciliation of Non-
IFRS Measures” above.
Subscription revenue has increased steadily over the quarters due to acquisition of new customers and
expansion of existing customers. Professional services revenue varies quarter to quarter due to the size, timing and
scheduling of customer engagements. Maintenance & support revenue has declined over the quarters due to support
contracts with legacy customers with perpetual licenses that have lapsed and the migration of customers to a
subscription model. Cost of revenue has increased as we continue to invest in the capacity to support the growth in
our business with gross margin ranging from 69% to 73% of revenue. Operating expenses have increased as we
invest in sales and marketing and product development. In addition to increased investment, our quarterly operating
15
Management's Discussion and Analysis
expenses are impacted by timing of sales commissions and marketing events. We also experienced 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. As a significant component of our operating expenses
are denominated in Canadian dollars, fluctuations in the foreign exchange rate with the U.S. dollar have had a
positive impact on operating expenses and quarterly profit during fiscal 2015. Our 2014 quarterly profit was
impacted significantly by the non-cash 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
As at December
31, 2015
31, 2014
(In thousands of U.S. dollars)
Cash and cash equivalents ........................................................
$ 99,390
$ 56,725
Cash and cash equivalents increased $42.7 million to $99.4 million at December 31, 2015, from $56.7 million at
December 31, 2014. The increase is due to cash generated from operations and the receipt of prepayment of a multi-
year subscription of approximately $20.0 million in the first quarter of 2015 as well as other subscription
arrangements.
In addition to the cash balances, we have a Cdn. $20.0 million revolving demand credit 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 December 31, 2015 was $112.3 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:
Three months ended
December 31,
Years ended
December 31
2015
2014
2015
2014
(In thousands of U.S. dollars)
(In thousands of U.S. dollars)
Cash Inflow (Outflows) by activity
Operating activities ..............................
Investing activities ...............................
Financing activities ..............................
Effects of exchange rates .....................
$ 8,522
(573)
868
(53)
$ 1,293
(416)
159
(239)
$ 45,248
(4,334)
1,858
(107)
Net cash inflows (outflows) .................
8,764
797
42,665
$ 16,250
(3,487)
30,595
(437)
42,921
Cash provided by operating activities
Cash generated by operating activities for the three months ended December 31, 2015 was $8.5 million, up from
$1.3 million for the same period in 2014. The increase was due to an increase in the change in working capital
driven by a decrease in accounts receivable which was partially offset by a decrease in deferred revenue and accrued
liabilities. These changes were coupled with higher net income and an increase in share based compensation. For
fiscal 2015, cash generated by operating activities was $45.2 million compared to $16.3 million for the same period
in 2014. The increase in cash provided by operating activities of $28.9 million was due primarily to the receipt of
16
Management's Discussion and Analysis
prepayment of subscription arrangements, the timing of subscription billings, and the increase in net income, share
based compensation and income tax expense.
Cash used in investing activities
Cash used in investing activities is driven by the purchase of property and equipment primarily related to
computer equipment for use in our hosting facilities and to support research and development. Cash used in the
purchase of property and equipment for the three months ended December 31, 2015 was $0.9 million, an increase of
$0.7 million from $0.2 million in 2014. For fiscal 2015, cash used to purchase property and equipment was $4.3
million, an increase of $0.8 million from $3.5 million in 2014. 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 financing activities
Cash provided by financing activities was $0.9 million and $1.9 million for the three months and year ended
December 31, 2015 respectively compared to $0.2 million and $30.6 million for the same periods in 2014. The cash
provided by financing activities for fiscal 2015 is comprised of proceeds received upon exercise of options. The cash
provided by financing activities for fiscal 2014 was comprised of $1.2 million of proceeds from shares issued for
cash and upon exercise of options prior to completion of our initial public offering, $54.3 million of proceeds from
the initial public offering net of share issuance costs incurred, $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 $30.0 million.
Revolving Credit Facility
We have a Cdn.$20.0 million revolving demand credit facility (the “Revolving Facility”). As of December 31,
2015, and as of the date of this MD&A, no amounts had been drawn against the Revolving Facility.
The interest rate on the Revolving Facility is RBC U.S. prime plus 0.50% per annum for U.S. dollar
denominated amounts and RBC U.S. base rate plus 0.50% per annum for Canadian dollar denominated amounts. In
the event our aggregate borrowings under the Revolving Facility exceed Cdn. $2.5 million a borrowing limit applies
that is based principally on our accounts receivable.
17
Management's Discussion and Analysis
Contractual Obligations
The following table summarizes our contractual obligations as at December 31, 2015, including commitments
relating to leasing contracts:
Commitments
Operating lease agreements ...........................
Financial Obligations
Trade payables and accrued liabilities ...........
Less than 1
year
More than 5
1 to
5 years
years
(In thousands of U.S. dollars)
Total amount
$ 1,462
$ 5,097
$ 1,374 $ 7,933
6,794
̶
̶
6,794
Total Obligations
$ 8,256
$ 5,097
$ 1,374
$ 14,727
The following table summarizes our contractual obligations as at December 31, 2014, including commitments
relating to leasing contracts:
Commitments
Operating lease agreements ...........................
Financial Obligations
Trade payables and accrued liabilities ...........
Less than 1
year
More than 5
1 to
years
5 years
(In thousands of U.S. dollars)
Total amount
$ 1,206
$ 5,498
$ 2,658 $ 9,362
6,945
̶
̶
6,945
Total Obligations
$ 8,151
$ 5,498
$ 2,658
$ 16,307
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, 2015 and 2014 that would be considered
to be between the Company and a related party.
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
18
Management'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, investment tax credits recoverable and deferred tax 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 or as income tax expense for deferred tax assets and liabilities.
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 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
19
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.
20
Management'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
Amendments to IFRS 2
In December 2013, the IASB issued amendments to IFRS 2 Share-based payments. The amendments clarify vesting
conditions by separately defining a performance condition and a service condition, both of which were previously
incorporated within the definition of a vesting condition. The amendments became effective for annual periods
beginning on or after July 1, 2014 and interim periods within those annual periods. The adoption of these
amendments did not have a material impact on the consolidated financial statements.
Amendments to IFRS 13
In December 2013, the IASB issued amendments to IFRS 13 Fair Value Measurements, which relate to the
measurement of short-term receivables and payables, and the scope of the portfolio exemption. Short term
receivables and payables with no stated interest rate can still be measured at the invoice amount without discounting,
if the effect of discounting is immaterial. The portfolio exemption permits an entity to measure the fair value of a
group of financial assets and financial liabilities on a net basis. The amendment clarifies that the portfolio exemption
applies to all contracts within the scope of IAS 39 Financial Instruments: Recognition and Measurement (or IFRS 9
Financial Instruments if this has been adopted early), regardless of whether they meet the definition of financial
assets or financial liabilities in IAS 32 Financial Instruments: Presentation. The amendments became effective for
annual periods beginning on or after July 1, 2014. The adoption of these amendments 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 (“IFRS 15”)
In May 2014, the IASB 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. The IASB recently confirmed a one-year deferral of this standard, which will now be effective
January 1, 2018 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.
IFRS 16: Leases
In January 2016, the IASB issued IFRS 16, Leases, which specifies how to recognize, measure, present and disclose
leases. The standard provides a single lessee accounting model, requiring lessees to recognize assets and liabilities
for all leases unless the lease term is 12 months or less or the underlying asset has a low value. Consistent with its
predecessor, IAS 17, the new lease standard continues to require lessors to classify leases as operating or finance.
21
Management's Discussion and Analysis
IFRS 16 is to be applied retrospectively for annual periods beginning on or after January 1, 2019. Earlier application
is permitted if IFRS 15 Revenue from contract with customers has also been applied. 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.
Amendments to IAS 16 and IAS 38
In May 2014, the IASB issued amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets.
These amendments prohibit entities from using a revenue-based depreciation method for items of property, plant and
equipment. They also introduce a rebuttable presumption that revenue is not an appropriate basis for amortization of
an intangible asset. The amendments explain that an expected future reduction in selling prices could be indicative
of a reduction of the future economic benefits embodied in an asset. These amendments are to be applied
prospectively for annual periods beginning on or after January 1, 2016. Early adoption is allowed. The Company is
currently evaluating the impact of adopting these amendments 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
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
purposes in accordance with IFRS. The Company’s management is responsible for establishing and maintaining
adequate ICFR for the Company. Management, including the CEO and CFO, does not expect that the Company’s
ICFR will prevent or detect all errors and all fraud or will be effective under all future conditions. A control system
is subject to inherent limitations and even those systems determined to be effective can provide only reasonable, but
not absolute, assurance that the control objectives will be met with respect to financial statement preparation and
presentation.
National Instrument 52-109 of the Canadian Securities Administrators 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 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 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 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. As at December 31, 2015, 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 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 reporting.
22
Management's Discussion and Analysis
Outstanding Share Information
As of December 31, 2015, our authorized capital consists of an unlimited number of common shares with no
stated par value. Changes in the number of common shares, options, restricted share units and deferred shares units
outstanding for the year ended December 31, 2015 and as of February 17, 2016 are summarized as follows:
Number
outstanding at
December 31,
2014
23,739,342
2,170,802
53,333
-
Net issued
during the
fiscal year
ended
December 31,
2015
680,662
400,404
36,666
9,000
Number
outstanding at
December 31,
2015
24,420,004
2,571,206
89,999
9,000
Net issued
during the
period
ending on
December
31, 2015 and
ending on
February
17, 2016
Number
outstanding at
February 17,
2016
13,963
(13,963)
-
-
24,433,967
2,557,243
89,999
9,000
Class of Security
Common shares
Stock Options
Restricted Share Units
Deferred Share Units
Our outstanding common shares increased by 680,662 shares in 2015 due to 622,328 options exercised and the
vesting of 58,334 restricted share units which were settled by the issuance of common shares.
Our outstanding stock options increased by 400,404 options during 2015 due to the grant of 1,048,000 options
less 622,328 options exercised and 25,268 options forfeited or expired. Each option is exercisable for one common
share.
Our outstanding restricted share units increased by 36,666 during 2015 due to the grant of 95,000 restricted
share units and the vesting of 58,334 such restricted shares units which were settled by the issuance of common
shares. Our outstanding deferred share units increased by 9,000 during 2015 due to the grant of 9,000 deferred share
units. Upon vesting, each restricted share unit and deferred 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.
23
Consolidated Financial Statements of
Kinaxis Inc.
Years ended December 31, 2015 and 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, 2015 and December 31, 2014, the
consolidated statements of comprehensive income, changes in shareholders’ equity (deficiency) and
cash flows for the years ended December 31, 2015, and December 2014, 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.
KPMG LLP is a Canadian limited liability partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG International Cooperative
(“KPMG International”), a Swiss entity.
KPMG Canada provides services to KPMG LLP.
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, 2015 and December 31, 2014, and its
consolidated financial performance and its consolidated cash flows for the years ended December 31,
2015 and December 31, 2014 in accordance with International Financial Reporting Standards.
Chartered Professional Accountants, Licensed Public Accountants
February 17, 2016
Ottawa, Canada
Kinaxis Inc.
Consolidated Statements of Financial Position
As at December 31
(Expressed in thousands of U.S. dollars)
Assets
Current assets:
Cash and cash equivalents
Trade and other receivables (note 4)
Investment tax credits receivable (note 16)
Investment tax credits recoverable (note 16)
Prepaid expenses
Non-current assets:
Property and equipment (note 5)
Investment tax credits recoverable (note 16)
Deferred tax assets (note 16)
2015
2014
$
99,390
15,833
1,532
2,083
1,906
120,744
7,352
‒
‒
$
56,725
17,023
1,974
‒
1,926
77,648
4,744
3,091
5,726
$ 128,096
$
91,209
Liabilities and Shareholders’ Equity
Current liabilities:
Trade payables and accrued liabilities (note 6)
Deferred revenue
$
Non-current liabilities:
Lease inducement
Deferred revenue
Deferred tax liability (note 16)
Shareholders’ equity
Share capital (note 10)
Contributed surplus
Accumulated other comprehensive income loss
Deficit
Commitments (note 20)
Contingencies (note 23)
6,794
40,442
47,236
62
14,191
1,003
15,256
90,808
8,873
(474)
(33,603)
65,604
$
6,945
35,740
42,685
109
1,778
‒
1,887
87,219
6,152
(453)
(46,281)
46,637
$ 128,096
$
91,209
See accompanying notes to consolidated financial statements.
On behalf of the Board of Directors:
(signed) Douglas Colbeth Director (signed) John (Ian) Giffen Director
1
Kinaxis Inc.
Consolidated Statements of Comprehensive Income
Years ended December 31
(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 income (expense) (note 15)
Profit before income taxes
Income tax expense (note 16):
Current
Deferred
Profit (loss)
Other comprehensive loss:
Items that are or may be reclassified subsequently
to profit or loss:
Foreign currency translation differences -
foreign operations
Total comprehensive profit (loss)
Basic earnings (loss) per share
2015
2014
$
91,271
$
70,054
25,743
65,528
18,264
15,197
8,260
41,721
23,807
‒
(1,041)
128
(913)
20,745
49,309
15,296
13,429
8,314
37,039
12,270
(6,760)
(599)
(490)
(7,849)
22,894
4,421
3,487
6,729
10,216
12,678
(21)
$
$
12,657
0.53
$
$
819
3,823
4,642
(221)
(93)
(314)
(0.01)
Weighted average number of basic common shares (note 11)
23,953,609
19,076,464
Diluted earnings (loss) per share
0.50
(0.01)
Weighted average number of diluted common shares (note 11)
25,465,632
19,076,464
See accompanying notes to consolidated financial statements
2
Kinaxis Inc.
Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)
Years ended December 31
(Expressed in thousands of U.S. dollars)
Accumulated
other
Contributed comprehensive
loss
surplus
Share
capital
Total
equity
(deficiency)
Deficit
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)
̶
(221)
(221)
(93)
(314)
‒
‒
‒
41,010
‒
‒
‒
‒
41,010
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
Profit
Other comprehensive loss
Total comprehensive profit
Share options exercised
Restricted share units vested
Share-based payments
Total shareholder transactions
‒
‒
‒
2,721
868
̶
3,589
‒
‒
‒
(863)
(868)
4,452
2,721
‒
(21)
(21)
‒
‒
‒
‒
12,678
̶
12,678
‒
‒
‒
‒
12,678
(21)
12,657
1,858
‒
4,452
6,310
Balance, December 31, 2015
$ 90,808
$
8,873
$
(474)
$
(33,603)
$
65,604
See accompanying notes to consolidated financial statements
3
Kinaxis Inc.
Consolidated Statements of Cash Flows
Years ended December 31
(Expressed in thousands of U.S. dollars)
Cash flows from operating activities:
Profit (loss)
Items not affecting cash:
Depreciation of property and equipment (note 5)
Loss due to change in fair value of redeemable
preferred shares
Share-based payments (note 10)
Amortization of lease inducement
Investment tax credits recoverable
Income tax expense
Changes in operating assets and liabilities (note 17)
Interest paid
Income taxes paid
2015
2014
$
12,678
$
(221)
1,726
‒
4,452
(47)
1,008
10,216
16,100
‒
(885)
45,248
1,151
6,760
2,658
(46)
(983)
4,642
7,800
(545)
(4,966)
16,250
Cash flows used in investing activities:
Purchase of property and equipment (note 5)
(4,334)
(3,487)
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
Issuance of long-term debt
Repayment of long-term debt
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
‒
1,858
‒
‒
‒
‒
1,858
42,772
56,725
991
262
59,562
(5,220)
5,000
(30,000)
30,595
43,358
13,804
Effects of exchange rates on cash and cash equivalents
(107)
(437)
Cash and cash equivalents, end of the year
$
99,390
$
56,725
See accompanying notes to consolidated financial statements.
4
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
1. Corporate information:
Kinaxis Inc. (“Kinaxis” or 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, 2015 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.
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 17, 2016.
(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.
(c) Presentation currency:
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.
5
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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.
6
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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.
7
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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:
its hosted software-as-a-service application (“SaaS”) and
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.
the provision of professional services
revenue
fixed
from
8
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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.
9
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments:
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.
10
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments (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 Financial liabilities – FVTPL
Classification under IAS 39
Other financial liabilities – amortized cost
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.
11
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments (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:
Property and equipment are measured at cost less accumulated depreciation and
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.
12
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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.
13
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(j)
Income taxes:
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
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.
14
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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 for option grants. The
market value of the Company’s shares on the date of the grant is used to determine the fair
value of share units issued. 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.
15
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(n) Standards and interpretations in issue:
Amendments to IFRS 2
In December 2013, the IASB issued amendments to IFRS 2 Share-based payments. The
amendments clarify vesting conditions by separately defining a performance condition and a
service condition, both of which were previously incorporated within the definition of a vesting
condition. The amendments became effective for annual periods beginning on or after July 1,
2014 and interim periods within those annual periods. The adoption of these amendments did not
have a material impact on the consolidated financial statements.
Amendments to IFRS 13
In December 2013, the IASB issued amendments to IFRS 13 Fair Value Measurements, which
relate to the measurement of short-term receivables and payables, and the scope of the portfolio
exemption. Short term receivables and payables with no stated interest rate can still be measured
at the invoice amount without discounting, if the effect of discounting is immaterial. The portfolio
exemption permits an entity to measure the fair value of a group of financial assets and financial
liabilities on a net basis. The amendment clarifies that the portfolio exemption applies to all
contracts within the scope of IAS 39 Financial Instruments: Recognition and Measurement (or
IFRS 9 Financial Instruments if this has been adopted early), regardless of whether they meet the
definition of financial assets or financial liabilities in IAS 32 Financial Instruments: Presentation.
The amendments became effective for annual periods beginning on or after July 1, 2014. The
adoption of these amendments 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.
16
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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. The IASB
recently confirmed a one-year deferral of this standard, which will now be effective January 1,
2018 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.
IFRS 16: Leases
In January 2016, the International Accounting Standards Board issued IFRS 16, Leases, which
specifies how to recognize, measure, present and disclose leases. The standard provides a
single lessee accounting model, requiring lessees to recognize assets and liabilities for all leases
unless the lease term is 12 months or less or the underlying asset has a low value. Consistent
with its predecessor, IAS 17, the new lease standard continues to require lessors to classify
leases as operating or finance. IFRS 16 is to be applied retrospectively for annual periods
beginning on or after January 1, 2019. Earlier application is permitted if IFRS 15 Revenue from
contract with customers has also been applied. 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.
Amendments to IAS 16 and IAS 38
In May 2014, the International Accounting Standards Board issued amendments to IAS 16
Property, Plant and Equipment and IAS 38 Intangible Assets. These amendments prohibit entities
from using a revenue-based depreciation method for items of property, plant and equipment.
They also introduce a rebuttable presumption that revenue is not an appropriate basis for
amortization of an intangible asset. The amendments explain that an expected future reduction in
selling prices could be indicative of a reduction of the future economic benefits embodied in an
asset. These amendments are to be applied prospectively for annual periods beginning on or
after January 1, 2016. Early adoption is allowed. The Company is currently evaluating the impact
of adopting these amendments on the consolidated financial statements.
4. Trade and other receivables:
Trade accounts receivable
Other
2015
2014
$
14,912
921
$
16,387
636
$
15,833
$
17,023
There have been no balances written off for the years ended December 31, 2015 and December
31, 2014 or any allowance for doubtful accounts recorded as at December 31, 2015 (2014 - $Nil).
17
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
5. Property and equipment:
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Cost
Balance, December
31, 2013
$
3,881
$
677
$
882
$
2,174
$
7,614
Additions
Balance, December
3,171
282
12
22
3,487
31, 2014
$
7,052
$
959
$
894
$
2,196
$
11,101
Additions
4,334
Dispositions (1,757) (298) (782) (6) (2,843)
Balance, December
4,062
221
39
12
31, 2015
$
9,357
$
700
$
124
$
2,411
$
12,592
Accumulated
depreciation
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Balance, December
31, 2013
$
2,001
$
354
$
795
$
2,056
$
5,206
Depreciation
Balance, December
914
155
51
31
1,151
31, 2014
$
2,915
$
509
$
846
$
2,087
$
6,357
Depreciation
1,726
Dispositions (1,757) (298) (782) (6) (2,843)
Balance, December
1,519
139
51
17
31, 2015
$
2,677
$
350
$
81
$
2,132
$
5,240
Carrying
value
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
December 31, 2014 $
December 31, 2015
4,137
6,680
$
450
350
$
$
48
43
109
279
$
4,744
7,352
There were no proceeds associated with the asset dispositions in 2015.
18
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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. Trade payables and accrued liabilities:
$
2015
1,139
2
324
261
$
2014
591
5
280
275
$
1,726
$
1,151
2015
2014
721
Trade accounts payable
Accrued liabilities
5,569
Taxes payable 504
$
$
637
6,176
132
$
6,794
$
6,945
7. Credit facility:
On October 30, 2015, the Company’s revolving demand facility was increased to CAD$20,000.
The revolving demand facility bears interest at bank prime plus 0.50% per annum and has not
been drawn at December 31, 2015.
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,
2015 and continues to be at the time of approval of these consolidated financial statements.
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;
19
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
8. Capital reorganization (continued):
•
•
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;
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.
20
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
9. Redeemable preferred shares:
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
during fiscal 2015 and 2014 were 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 December 31, 2013
Increase in fair value
Conversion to Common Shares (note 8)
Fair value of
redeemable
preferred shares
54,135
6,760
(60,895)
Balance, December 31, 2014
$
̶
21
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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:
Shares outstanding at
January 1, 2014
Shares issued for cash
Shares issued from
exercised options
Shares issued from
vested restricted share units
Conversion of non-voting common
Common shares
Non-voting
common shares
Shares
Amount
Shares
Amount
7,674,049
4,252
5,332,504
5,650
̶
137,801
26,667
̶
398
318
60,000
396,471
̶
585
406
̶
to Common Shares (note 8)
5,788,975
6,641
(5,788,975)
(6,641)
Fractional shares cancelled
upon conversion (note 8)
Conversion of preferred shares
(67)
̶
to Common Shares (note 8 and 9) 5,111,917
̶
5,000,000
Reduction of share capital (note 8)
Shares issued per offering (note 8)
Share issuance costs
60,895
(41,010)
59,562
net of tax (note 8)
̶
(3,837)
̶
̶
̶
̶
̶
23,739,342
$
87,219
̶
$
Shares outstanding at
December 31, 2014
Shares issued from
exercised options
Shares issued from
622,328
2,721
vested restricted share units
58,334
868
Shares outstanding at
December 31, 2015
Stock option plans
24,420,004
$
90,808
̶
̶
̶
$
The Company has outstanding stock options issued under its 2000, 2010 and 2012 stock option
plans. No further options may be granted under the 2000 and 2010 stock option plans. In January
2014, the aggregate pool of options to purchase common stock that could be granted under the
2012 plan was increased by 400,000 to 1,500,000. In June 2015, the option pool was increased
by 715,698 to 2,215,698. 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.
22
̶
̶
̶
̶
̶
̶
̶
̶
̶
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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, 2015
Weighted
average
Shares exercise price
December 31, 2014
Weighted
average
exercise price
Shares
2,170,802
1,048,000
(622,328)
(24,818)
(450)
$
5.74
29.71
2.99
9.26
0.87
1,945,580
865,000
(534,272)
(102,506)
(3,000)
$ 2.21
10.91
1.25
5.58
3.20
2,571,206
$ 15.62
2,170,802
$ 5.74
787,393
$
3.97
880,642
$ 2.26
Options outstanding,
beginning of year
Granted
Exercised
Forfeited
Expired
Options outstanding,
end of year
Options exercisable,
end of year
The following table summarizes information about stock options outstanding at December 31,
2015:
Options outstanding
Options exercisable
Range
of exercise
prices
Number
outstanding
at 12/31/15
Weighted
average Weighted
average
exercise
price
remaining
contractual
life
$ 0.95 to 3.20
6.60 to 9.75
10.50 to 15.35
15.70 to 22.65
27.39 to 32.90
736,056
654,150
135,000
261,000
785,000
6.06
8.09
8.86
9.30
9.96
$ 2.51
9.57
12.61
19.76
32.10
Number
exercisable
at 12/31/15
620,743
144,150
22,500
‒
‒
Weighted
average
exercise
price
$ 2.38
9.45
12.57
‒
‒
2,571,206
8.24
$ 15.62
787,393
$ 3.97
23
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
10. Share capital (continued):
Stock option plans (continued):
At December 31, 2015, there were 72,698 (2014 -384,250) stock options available for grant under
the Plan. In 2015, the Company granted 1,048,000 (2014 - 865,000) options and recorded share-
based compensation expense of $2,997 (2014 - $2,144) related to the vesting of options granted
in 2015 and previous years. The per share weighted-average fair value of stock options granted
in 2015 was $9.84 (2014 - $5.73) 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 1.64% (2014 - 1.98%), an
expected life of 3 to 8 years (2014 - 8 years), and estimated volatility of 40% (2014 - 46%).
Volatility is estimated based on Kinaxis’ historical volatility and also by benchmarking to
comparable publicly traded companies operating in a similar market segment. The forfeiture rate
was estimated at 10% (2014 - 5%). In 2015, optionholders that had options with U.S. dollar strike
prices were given the option to convert them to Canadian dollar strike prices based on the
exchange rate that would be in effect on the date of the election, being May 7, 2015. The
conversion was accounted for as a modification. As the fair value of the options was the same
immediately prior to and after the conversion there was no accounting impact resulting from the
modification.
Share Unit Plan
At December 31, 2015, there were 566,000 (2014 – 670,000) share units available for grant
under the Plan. In 2015, the Company granted 95,000 (2014 – 80,000) restricted share units
(“RSU”). There were 89,999 (2014 – 53,333) RSUs outstanding at December 31, 2015. 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 in 2015 was $17.35 (2014 -
$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, 2015 of $1,299 (2014 -
$514) related to the RSUs. On December 10, 2015, 58,334 of the RSUs granted in 2015 and
prior years vested and were released.
In 2015, the Company granted 9,000 deferred share units (“DSU”). There were 9,000 DSUs
outstanding at December 31, 2015. Each DSU entitles the participant to receive one Common
Share. The DSUs vest immediately as the participants are entitled to the shares upon termination
of their service. The fair value of the DSUs granted was $17.35 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, 2015 of $156 (2014 - $NIL) related to the DSUs.
24
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
10. Share capital (continued):
Stock option plans (continued):
The following table presents the share-based payments expense by function:
Cost of revenue
Selling and marketing
Research and development
General and administrative
11. Earnings (loss) per share:
$
2015
854
863
995
1,740
$
2014
331
621
533
1,173
$
4,452
$
2,658
The following table summarizes the calculation of the weighted average number of basic and
diluted common shares.
Issued common shares at beginning of period
23,739,342
13,006,553
2015
2014
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
‒
50,440
‒ 2,802,198
‒
2,864,921
‒
210,911
(37)
350,851
3,356
1,538
Weighted average number of basic common
shares at December 31
23,953,609
19,076,464
Effect of share options on issue 1,401,382
Effect of share units on issue 110,641
Weighted average number of diluted common
‒
‒
shares at December 31 25,465,632
19,076,464
For the year ended December 31, 2015, 841,000 options were excluded from the weighted
average number of diluted common shares as their effect would have been anti-dilutive. Due to
the loss in December 31, 2014 all outstanding options, restricted share units and redeemable
preferred shares were excluded from the diluted weighted average number of shares as their
effect would have been anti-dilutive.
25
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
12. Revenue:
Subscription
Professional services
Maintenance and support
13. Research and development:
Research and development expenses
Investment tax credits
2015
2014
$
$
65,199
25,002
1,070
51,119
17,755
1,180
$
91,271
$
70,054
2015
2014
$ 16,786
(1,589)
$
15,422
(1,993)
$
15,197
$
13,429
14. Personnel expenses:
The following table presents the personnel expenses incurred by the Company for the years
ended December 31, 2015, and 2014:
Salaries including bonuses
Benefits
Commissions
Share-based payments
2015
2014
$
33,099
5,334
5,718
4,452
$
31,028
4,555
5,783
2,658
$
48,603
$
44,024
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 long term debt
2015
2014
$
128
$
40
‒
(530)
$
128
$
(490)
26
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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
Deferred tax expense (recovery):
Origination and reversal of temporary differences
2015
2014
$
3,487
3,487
$
819
819
6,729
6,729
3,823
3,823
$
10,216
$
4,642
A reconciliation of the income tax expense to the expected amount using the Company’s
Canadian tax rate is as follows:
Canadian tax rate
2015
2014
26.50%
26.50%
Expected Canadian income tax expense
$
6,067
$
1,172
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 (149)
Foreign tax rate differences
Permanent difference of share-based payments
Foreign exchange differences
214
1,180
2,904
1,791
(5)
221
704
759
$
10,216
$
4,642
Taxable foreign exchange differences arise upon conversion of the financial statements of
Kinaxis Inc. from U.S. dollars, its functional currency, to Canadian dollars, the currency used for
tax filing purposes.
27
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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
2015
2014
$ ‒ $
2,509
‒
(948)
732
(827)
2,013
(867)
1,138
863
40 70
$
(1,003)
$
5,726
The movements in the deferred tax balances were as follows:
Balance at
January 1,
2015
Recognized
in profit
and loss
Balance at
Recognized December 31
2015
in equity
Non-capital loss carry-forwards
Unclaimed scientific research and
experimental development
Tax effect of investment tax credits
Share issuance costs
Property and equipment
Other
$
2,509
$
(2,509)
$
2,013
(867)
1,138
863
70
(2,013)
(81)
(406)
(1,690)
(30)
‒
‒
‒
‒
‒
‒
$ ‒
‒
(948)
732
(827)
40
$
5,726
$
(6,729)
$
‒
$
(1,003)
28
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
16. Income taxes (continued):
Non-capital loss carry-forwards
Unclaimed scientific research and
experimental development
Tax effect of investment tax credits
Share issuance costs
Property and equipment
Other
Balance at
January 1,
2014
Recognized
in profit
and loss
Balance at
Recognized December 31
2014
in equity
$
6,349
$
(3,840)
$
‒
$
2,509
1,828
(1,480)
‒
1,407
62
185
613
(245)
(544)
8
‒
‒
1,383
‒
‒
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 $Nil as at December
31, 2015 (2014 - $9,470). The Company has investment tax credits available to reduce federal
income taxes payable in Canada of $2,083 as at December 31, 2015 (2014 - $2,643) which begin
to expire in 2033 and provincial income taxes payable in Ontario of $Nil as at December 31, 2015
(2014 - $448).
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.
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, 2015
was $4,660 (2014 - $3,860).
29
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
17. Statement of cash flows:
Changes in operating assets and liabilities:
2015
2014
Trade and other receivables
Investment tax credits receivable
Prepaid expenses
Trade payables and accrued liabilities
Deferred revenue
$
1,141
442
18
(2,737)
17,236
$
(4,696)
(644)
(729)
651
13,218
$
16,100
$
7,800
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
2015
Fair
value
Carrying
value
2014
Fair
value
Financial assets
Loans and receivables, measured
at amortized cost:
Cash and cash equivalents
Trade and other receivables
Investment tax credits receivable
$
99,390
15,833
1,532
$
99,390
15,833
1,532
$
56,725
17,023
1,974
$
56,725
17,023
1,974
$ 116,755
$ 116,755
$
75,722
$
75,722
Carrying
value
2015
Fair
value
Carrying
value
2014
Fair
value
Financial liabilities
Other financial liabilities, measured
at amortized cost:
Accounts payables and accrued
liabilities $
6,794
6,794
6,945
6,945
$
6,794
$
6,794
$
6,945
$
6,945
30
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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.
31
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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, 2015, two customers accounted for
greater than 10% of total trade receivables (2014 - one customer - 10%). For the year ended
December 31, 2015, one customer individually accounted for 10.6% of revenue (2014 - no
customer accounted for greater than 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
$
2015
265
14,056
591
$
2014
430
15,049
908
$
14,912
$
16,387
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
2015
2014
$
10,096
$
13,757
$
4,440
235
141
$
2,250
195
185
$
14,912
$
16,387
32
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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, 2015,
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, 2015 (2014 - $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:
$
2015
99,390
15,833
1,532
$
2014
56,725
17,023
1,974
$ 116,755
$
75,722
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, 2015, the Company had cash and cash equivalents totaling $99,390 (2014 -
$56,725). Further, the Company has a credit facility as disclosed in note 7.
33
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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,
2015 and 2014:
December 31, 2015
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
$
6,794
$
6,794
$ 6,794
$
6,794
$
6,794
$ 6,794
$
$
‒
‒
$
$
‒
$
‒
‒
$
‒
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
$
6,945
$ 6,945
$
$
‒
‒
$
$
‒
$
‒
‒
$
‒
December 31, 2014
Trade payables and
accrued liabilities
(c) Market risk:
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.
34
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(Expressed in thousands of U.S. dollars, except share and per share amounts)
18. Financial instruments (continued):
(c) Market risk (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, 2015, 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 $1,099 lower (2014 - $984 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, 2015
In thousands of (local currency)
USD
CAD
JPY
EUR
HKD
Trade receivables
Other receivables
Trade payables
Accrued liabilities
14,321
587
(86)
(3,198)
–
253
(301)
(3,337)
27,986
3,891
(46,872)
(33,092)
329
152
22
(105)
–
–
(43)
(278)
11,624
(3,385)
(48,087)
398
(321)
December 31, 2014
In thousands of (local currency)
USD
CAD
JPY
EUR
HKD
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)
332
4
–
(95)
–
–
(18)
(528)
11,717
(1,968)
8,088
241
(546)
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, 2015, the Company has not drawn on the revolving demand facility.
35
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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
$
2015
75,864
7,923
2,955
4,403
126
$
2014
56,317
5,829
4,077
3,693
138
$
91,271
$
70,054
Total property and equipment on a geographic basis are as follows:
2015
2014
Canada
United States 2,084
5
Japan
$
5,263 $
3,453
1,284
7
$
7,352
$
4,744
20. 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
$
1,462
5,097
1,374
$
7,933
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, 2015 was $961 (2014 - $898).
36
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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, 2015 and 2014 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
2015
100%
100%
100%
100%
2014
100%
100%
100%
100%
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 did not enter into any related party transactions.
Compensation of key management personnel
The Company defines key management personnel as being the Board of Directors, 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
2015
$
3,206
2,456
$
2014
2,772
1,309
$
5,662
$
4,081
37
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2015 and 2014
(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 0.50%
per annum which has not been drawn as at December 31, 2015. 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.
38