Dear Shareholders,
Kinaxis achieved a number of key milestones in 2016 including surpassing $100 million in annual revenue, ending the year at
$116 million which represents a 27% growth over 2015. Our consistent growth performance is driven by our core subscription
revenues which grew 26% to $81.8 million. Our long-term subscription revenue contracts provide us with great forward
visibility to the stability of our business through 2017 and beyond.
To support and sustain the level of high growth that we achieve, we continue to invest in scaling the business. I am pleased
to report that in spite of these important investments that we have again maintained strong Adjusted EBITDA margin of 25%
of total revenue and grew cash by 29% to $128 million at year end. At Kinaxis we take great pride in being one of only a few
companies who consistently provide investors with this unique combination of high top line revenue growth and strong bottom
line performance.
We have continued to grow our global customer base and were delighted to welcome Samsung
Electronics in 2016. In support of this emerging area of customer interest we have launched
the development of our South Korean operations. Two new South Korean data centers went
live during the year and we established a local support team to service our important clients in
the region. We will continue to expand our South Korean operations in 2017, complementing
our existing operations in Japan and Hong Kong. We believe investment in these three key
markets positions Kinaxis to target opportunities in this exciting and expanding region.
Another important milestone that we achieved was the addition of Deloitte into our Global Partner Alliance program, joining
Accenture. Subsequent to year end, we also formalized a relationship with BAIN & Company to assist them in delivering
Supply Chain assessments for their customers. Approximately 20% of our revenue is now influenced by our extensive partner
network, which includes the Global Alliance program. We continue to believe and invest in our partner alliances as a means
to accelerate our long-term growth.
The ability to manage our business growth through the success of our partners is closely tied to the investments we have
made in establishing our Knowledge Services organization. In 2016, we implemented accelerated investments to modernize
and formalize our education services to further support our customers, partners and growing employee base. Knowledge
Services coordinates a comprehensive certification program designed to recognize the capabilities of this expanding
community. Today, we have achieved another important milestone, having delivered over 500 RapidResponse certifications,
a number that continues grows with each passing quarter. I remain confident Knowledge Services will play a critical role in
supporting our growth for many years to come.
Through RapidResponse we are providing global enterprises with the tools to unite disparate business units and realize the
power of supply chain collaboration. Our view on collaborative supply chain planning is one of our strongest competitive
differentiators, and has helped to define what RapidResponse is today. Concurrent planning brings together the many people
who form your supply chain to simultaneously scenario plan various functions across multiple time horizons on one integrated
system.
Our success is fueled by an exceptionally differentiated product positioned during a time when supply chain excellence has
become a strategic need for the world’s largest and most complex manufacturers. We are well positioned to continue our drive
to revolutionize planning. On behalf of the entire Kinaxis team, I want to thank you for your ongoing support. I look forward to
updating you on our progress next 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, 2016
DATED: February 28, 2017
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, 2016. This MD&A has been prepared with an effective date of February 28, 2017.
This MD&A for the years ended December 31, 2016 and 2015 should be read in conjunction with our annual
consolidated financial statements and the related notes thereto as at and for the year ended December 31, 2016. The
financial information presented in this MD&A is derived from our 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 and the related notes thereto as at and for the
year ended December 31, 2016. Readers should not place 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 management’s 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;
our plans for and timing of expansion of our solutions and services;
our future growth plans;
2
Management's Discussion and Analysis
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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. Expected future developments include growth in our target market, an increase in our
subscription revenue and decrease in maintenance & support revenue based on trends in customer behaviour,
increasing sales and marketing expenses, research and development expenses and general and administrative
expenses based on our business plans and our continued ability to realize on the benefits of tax credits in the near
term. Although we believe that the assumptions underlying the forward-looking 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 the future expectations 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 events 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 contracts are 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, delays or security breaches 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 our financial condition and results of operations
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 global 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. Our subscription and total annual revenues have grown at a compound annual growth rate
(CAGR) of 27% and 24% respectively for the three years ended December 31, 2016. 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 three months and year ended December 31, 2016 our Adjusted EBITDA was 21% and 25% of revenue
respectively and ending cash balances stand at $127.9 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, financial
services 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, 2016, our ten largest customers accounted for approximately 47% of our total
revenues with one customer accounting for 12.3% 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.
We continue to drive growth in our business through new customer acquisition and expansion of existing
customers through our land and expand strategy. Over the last several years, approximately 65% of subscription
growth has been derived from new customers. 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 July 2016, we released version 2016.2 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. In May 2016, we announced an alliance with Deloitte Consulting
LLP in the U.S. to develop supply chain solutions designed to improve the end-to-end supply chain for large
enterprises.
We are headquartered in Ottawa, Ontario. We have subsidiaries located in the United States, the Netherlands,
South Korea and Hong Kong and a subsidiary and office in Tokyo, Japan. We continue to expand our operations
internationally. In the year ended December 31, 2016, 89% of our revenues were derived from North American
5
Management's Discussion and Analysis
based customer contracts and our remaining revenues were derived principally from Asian and European based
contracts.
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”).
We believe 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 remain 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, approximately 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, we enter into arrangements for professional services on a fixed price basis; in
these cases, revenue is recognized by reference to the stage of completion of the contract.
6
Management's Discussion and Analysis
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.
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, partner programs support and
training, 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, developing partners, 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 information system
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.
Foreign exchange
Our presentation and functional currency is U.S. dollars with the exception of our subsidiaries in, South Korea
(South Korean Won), Japan (Japanese Yen) and the Netherlands (Euro). 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
approximately a third of our expenses are incurred in Canadian dollars.
7
Management's Discussion and Analysis
Results of Operations
The following table sets forth a summary of our results of operations for the three and nine months ended
December 31, 2016 and 2015:
Three months ended
December 31
Years ended
December 31
2015
2016
2015
2016
(In thousands of U.S. dollars, except earnings (loss) per share)
2014
Statement of Operations
Revenue............................................................................. $ 30,264
9,493
Cost of revenue..................................................................
20,771
Gross profit........................................................................
17,031
Operating expenses............................................................
$ 24,191
6,789
17,402
11,984
$ 115,951
35,777
80,174
62,280
$ 91,271
25,743
65,528
41,721
$ 70,054
20,745
49,309
37,039
3,740
5,418
17,894
23,807
12,270
Loss due to change in fair value of redeemable
preferred shares .................................................................
Foreign exchange loss .......................................................
Net finance income (expense) ...........................................
Profit before income taxes.................................................
Income tax expense ...........................................................
(223)
78
3,595
1,884
(18)
32
5,432
4,146
(198)
307
18,003
7,258
(1,041)
128
22,894
10,216
(6,760)
(599)
(490)
4,421
4,642
Profit (Loss)....................................................................... $ 1,711
$ 1,286
$ 10,745
$ 12,678
$
(221)
Adjusted profit(1)................................................................ $ 3,661
$ 2,515
$ 18,885
$ 17,130
$ 9,197
Adjusted EBITDA(1).......................................................... $ 6,438
Basic earnings (loss) per share .......................................... $ 0.07
Diluted earnings (loss) per share ....................................... $ 0.07
Adjusted diluted earnings per share(1)................................ $ 0.14
$ 7,146
$ 0.05
$ 0.05
$ 0.10
$ 28,528
$ 0.44
$ 0.41
$ 0.73
$ 29,985
$ 0.53
$ 0.50
$ 0.67
$ 16,079
$ (0.01)
$ (0.01)
$ 0.41
As at
December 31,
2016
December 31,
2015
December 31,
2014
(In thousands of U.S. dollars)
Total assets ....................................................................... $ 168,292
Deferred revenue ..............................................................
Other non-current liabilities..............................................
68,656
1,430
$ 128,096
54,633
1,065
$ 91,209
37,518
109
Note:
(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
(cid:2163)
(cid:2163)
(cid:2163)
(cid:2163)
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 our equity 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 better align with our results and improve
comparability against our peers.
Adjusted EBITDA
Adjusted EBITDA represents profit adjusted to exclude our equity compensation plans, income tax expense,
depreciation, foreign exchange loss (gain) and net financing (income) expense. We use Adjusted EBITDA to
provide readers with a supplemental measure of our operating performance and thus highlight trends in our core
business that may not otherwise be apparent when relying solely on IFRS financial measures.
We believe that securities analysts, investors and other interested parties frequently use non-IFRS measures in
the evaluation of issuers. Management also uses non-IFRS measures in order to facilitate operating performance
comparisons from period to period, prepare annual operating budgets and assess our ability to meet our capital
expenditure and working capital requirements.
We have reconciled Adjusted profit and Adjusted EBITDA to the most comparable IFRS financial measure as
follows:
Three months ended
December 31,
2016
2015
Years ended
December 31
2015
2016
(In thousands of U.S. dollars)
2014
Profit (Loss) ...................................................................... $ 1,711
$ 1,286
$ 10,745
$ 12,678
$ (221)
Loss due to change in fair value of redeemable
preferred shares .................................................................
Share-based compensation ................................................
1,950
1,950
Adjusted profit .................................................................. $ 3,661
1,884
Income tax expense ...........................................................
748
Depreciation ......................................................................
223
Foreign exchange loss ......................................................
(78)
Net finance (income) expense ...........................................
1,229
1,229
$ 2,515
4,146
499
18
(32)
8,140
8,140
4,452
4,452
6,760
2,658
9,418
$ 18,885
7,258
2,494
198
(307)
$ 17,130
10,216
1,726
1,041
(128)
$ 9,197
4,642
1,151
599
490
Adjusted EBITDA............................................................. $ 6,438
$ 7,146
$ 28,528
$
29,985
$ 16,079
Adjusted EBITDA as a percentage of revenue..................
21%
30%
25%
33%
23%
2,777
4,631
9,643
12,855
6,882
9
(cid:2163)
(cid:2163)
(cid:2163)
(cid:2163)
Management's Discussion and Analysis
Revenue
The following table displays the breakdown of our revenue according to revenue type:
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31,
2016
2015
2015 to
2016
%
(In thousands of U.S. dollars, except percentages)
Revenue
Subscription............................ $ 22,660
7,355
Professional services ..............
249
Maintenance & Support .........
$ 16,963
6,977
251
Total revenue ................................
30,264
24,191
34%
5%
(1%)
25%
$ 81,838
33,115
998
$ 65,199
25,002
1,070
115,951
91,271
26%
32%
(7%)
27%
Total revenue for the fourth quarter of 2016 was $30.3 million or an increase of 25% compared to the same
period in 2015. For fiscal 2016, total revenue was $116.0 million compared to $91.3 million for the same period in
2015, representing an increase of 27%.
Subscription Revenue
Subscription revenue for the three months ended December 31, 2016 was $22.7 million, up from $17.0 million
for the same period in 2015, for an increase of 34% or $5.7 million. For fiscal 2016, subscription revenue was $81.8
million or 26% higher than the same period in 2015. The increase was driven by contracts secured with new
customers in the last twelve months, as well as expansion of existing customer subscriptions.
Professional services revenue
Professional services revenue varies quarter to quarter due to the size, timing and scheduling of customer
engagements and the level of partner engagement. Professional services revenue for the fourth quarter of 2016
increased $0.4 million or 5% to $7.4 million from $7.0 million for the same period in 2015. For the year ended
December 31 2016, professional services revenue was $33.1 million compared to $25.0 million for the same period
in 2015, representing an increase of 32%. Professional services revenue growth was driven primarily by deployment
projects for new customers acquired in fiscal 2015 and 2016 as well as supporting the expansion of existing
customer configurations.
Maintenance & support revenue
Maintenance & support revenue for the three months ended December 31, 2016 was $0.2 million, down from
$0.3 million for the same period in 2015. For fiscal 2016, maintenance & support revenue was $1.0 million
compared to $1.1 million for the same period in 2015, representing a decrease of 7%. We expect to see a decrease
over time in support revenue from contracts with legacy customers with perpetual licenses as customers convert to
subscription contracts or choose to let their support contracts lapse.
Cost of Revenue
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31
2016
2015
(In thousands of U.S. dollars, except percentages)
Cost of revenue ............................. $ 9,493
20,771
Gross profit ...................................
$ 6,789
17,402
40%
19%
$ 35,777
80,174
$ 25,743
65,528
As a percentage of revenue ..........
69%
72%
69%
72%
2015 to
2016
%
39%
22%
10
Management's Discussion and Analysis
Cost of revenue for the fourth quarter of 2016 increased $2.7 million, or 40%, to $9.5 million from $6.8 million
for the same period in 2015. For fiscal 2016, cost of revenue increased 39% to $35.8 million from $25.7 million for
the same period in 2015. The increase in costs was due to an increase in headcount related compensation costs
which was driven by our customer growth. An increase in professional services activities also 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 2015. Higher depreciation and operating costs
associated with the expansion of data center capacity to support new and ongoing customer engagements were also
incurred for the fourth quarter and fiscal 2016 compared to the same periods in 2015. Cost of revenue also reflects
costs associated with the commencement of the Korea datacenters and operations.
Gross profit for the three months and year ended December 31, 2016 was $20.8 million and $80.2 million
respectively compared to $17.4 million and $65.5 million for the same periods in 2015. Gross profit as a percentage
of revenue for both the three months and the year ended December 31, 2016 decreased to 69% from 72% for the
same periods of 2015. The percentage decrease was due to the increase in cost of revenue during the period from
investments in additional headcount, the use of third party providers and the expansion of datacenter capability
compared to the same periods in 2015.
Selling and Marketing Expenses
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31
2016
2015
2015 to
2016
%
(In thousands of U.S. dollars, except percentages)
Selling and marketing ................... $ 8,503
$ 6,175
38%
$ 30,350
$ 18,264
66%
As a percentage of revenue ...........
28%
26%
26%
20%
Selling and marketing expenses for the fourth quarter of 2016 increased $2.3 million, or 38%, to $8.5 million
from $6.2 million for the fourth quarter of 2015. For the year ended December 31, 2016 selling and marketing
expenses increased $12.1 million or 66%, to $30.4 million from $18.3 million for the same period in 2015. A
significant component of selling and marketing expenses is variable compensation related to the closure of new
customer arrangements and expansion of existing customer accounts. Our policy is to fully expense sales costs
related to this business growth upon commencement of the related revenue. The increase in selling and marketing
costs, for the current quarter and year-to-date, are primarily due to increased sales compensation and commission
expenses relating to contracts secured with new customers closed in the second half of 2016. Selling and marketing
expenses also increased due to our strategic partner investments as well as higher headcount-related compensation to
support our investment in our knowledge services and customer success organizations. Higher marketing program
costs were also incurred in the fourth quarter of 2016 compared to the same period in 2015 due to the continued
success and growing attendance at our annual user conference. As a percentage of revenue, selling and marketing
expenses increased by 2% to 28% in the fourth quarter of 2016 and increased by 6% to 26% for the year ended
December 31, 2016, reflecting the higher growth in costs in the period. Selling and marketing expenses will vary
from quarter to quarter due to the timing of marketing programs and events and the timing of closing customer
contracts and related variable compensation.
11
Management's Discussion and Analysis
Research and Development Expenses
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31
2016
2015
2015 to
2016
%
(In thousands of U.S. dollars, except percentages)
Research and development -
gross.............................................. $ 5,866
(371)
Less: Investment tax credits..........
5,495
Research and development ...........
As a percentage of revenue ...........
$ 4,280
(585)
3,695
37%
(37%)
49%
$ 22,116
(1,464)
20,652
$ 16,786
(1,589)
15,197
32%
(8%)
36%
Gross.......................................
Net ..........................................
19%
18%
18%
15%
19%
18%
18%
17%
Gross research and development expenses for the fourth quarter of 2016 increased $1.6 million to $5.9 million
or 37%, and for the year ended December 31, 2016 increased $5.3 million to $22.1 million, or 32%, compared to the
same periods in 2015. The increase in research and development expenses was due to an increase in headcount and
related 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. For the fourth quarter of 2016,
investment tax credits earned on research and development activity in Canada decreased $0.2 million, or 37%, to
$0.4 million from $0.6 million for the same period in 2015. For the year ended December 31, 2016, investment tax
credits earned decreased $0.1 million, or 8%, to $1.5 million from $1.6 million for the fourth quarter of 2015. The
investment tax credits earned reflect the foreign exchange impact of credits denominated in Canadian dollars and a
decrease in the tax credit rate. As a percentage of revenues, gross research and development expenses were 19% for
both the fourth quarter and the year to date of 2016 compared to 18% for the same periods in 2015, reflecting the
lower growth in revenue in the current period. Net research and development as a percentage of revenue for both the
fourth quarter and fiscal 2016 were 18% compared to 15% and 17% for the same periods in 2015. This was due to
higher product development expenses compared to the same period in the previous year.
General and Administrative Expenses
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31
2016
2015
2015 to
2016
%
(In thousands of U.S. dollars, except percentages)
General and administrative ........... $ 3,033
$ 2,114
43%
$ 11,278
$ 8,260
37%
As a percentage of revenue ...........
10%
9%
10%
9%
For the fourth quarter of 2016, general and administrative expenses increased $0.9 million, or 43%, to $3.0
million from $2.1 million for the same period in 2015. For the year ended December 31, 2016, general and
administrative expenses increased $3.0 million, or 37%, to $11.3 million from $8.3 million for the same period in
2015. The increase was primarily due to an increase in share-based payments. As a percentage of revenue, general
and administrative expenses were 10% for both the fourth quarter and the year to date of 2016 compared to 9% for
the same periods in 2015, reflecting the growth in share-based payments.
12
Management's Discussion and Analysis
Other Income and Expense
The following table provides a breakdown of other income and expense by type:
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31
2016
2015
2015 to
2016
%
(In thousands of U.S. dollars, except percentages)
Other income (expense)
Foreign exchange loss ...........
Finance income …...............
$ (223)
78
$ (18)
32
Total other income (expense)........
(145)
14
(cid:2163) (1)
144%
(cid:2163) (1)
$ (198)
307
$ (1,041)
128
109
(913)
(81%)
140%
(cid:2163) (1)
Note:
(1) The percentage change has been excluded as it is not meaningful.
For the three months ended December 31, 2016, total other expense was $0.1 million compared to a nominal
amount for the fourth quarter of 2015. This is due to foreign exchange losses incurred in 2016 from the revaluation
of Canadian dollar denominated assets against a strengthening U.S. dollar. This was partially offset by interest
income earned on an increased cash position during the year. For the year ended December 31, 2016 total other
income was $0.1 million compared to a total other expense of $0.9 million for the same period in 2015. The
decrease is due to foreign exchange losses incurred in fiscal year 2015 due to the revaluation of Canadian dollar
denominated assets against a weakening U.S. dollar net of an increase in interest income due to the increased cash
position.
Income Taxes
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31
2016
2015
(In thousands of U.S. dollars, except percentages)
Income tax expense
Current ................................... $ 1,573
311
Deferred .................................
1,884
Total income tax expense .............
$ 3,143
1,003
4,146
(50%)
(69%)
(55%)
$ 7,088
170
7,258
$ 3,487
6,729
10,216
2015 to
2016
%
103%
(97%)
(29%)
For the three months and year ended December 31, 2016, income tax expense of $1.9 million and $7.3 million
was recognized compared to $4.1 million and $10.2 million for the same periods in 2015. The decrease in income
tax expense for fiscal 2016 compared to 2015 was due to lower profit before income taxes as well as the inclusion in
2015 of taxable foreign exchange gains that were included in Canadian taxable income realized upon the revaluation
of U.S dollar denominated monetary assets to the Canadian dollar. As a percentage of profit before income taxes,
income tax expense for the year ended December 31, 2016 was 41% compared to 45% for the year ended December
31, 2015. The decrease was due to the taxable foreign exchange gains in 2015. The percentage of profit before
income taxes is higher than the statutory income tax rates in Canada due primarily to share-based payments expense
incurred which is not deductible for income tax purposes in Canada.
13
Management's Discussion and Analysis
Profit
Three months ended
December 31,
2016
2015
2015 to
2016
%
Years ended
December 31
2016
2015
(In thousands of U.S. dollars, except percentages)
Profit ............................................ $ 1,711
Adjusted profit(1)...........................
Adjusted EBITDA(1) .....................
6,438
3,661
Basic earnings per share ..............
Diluted earnings per share ............
Adjusted diluted earnings per
share(1)...........................................
Note:
$ 1,286
2,515
7,146
0.05
0.05
0.07
0.07
0.14
0.10
33%
46%
(10%)
$ 10,745
$ 12,678
18,885
28,528
0.44
0.41
0.73
17,130
29,985
0.53
0.50
0.67
2015 to
2016
%
(15%)
10%
(5%)
(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.
Profit for the three months ended December 31, 2016 increased $0.4 million to $1.7 million or $0.07 per basic
and diluted share, from $1.3 million or $0.05 per basic and diluted share for the same period in 2015. For the year
ended December 31, 2016, profit decreased $2.0 million to $10.7 million or $0.44 per basic share and $0.41 per
diluted share from $12.7 million or $0.53 per basic and $0.50 per diluted share in the same period in 2015. The
decrease in profit was driven primarily by our increased sales and marketing costs, our investment in research and
development and an increase in share-based payments. For the three months and year ended December 31, 2016,
Adjusted EBITDA decreased $0.7 million and $1.5 million to $6.4 million and $28.5 million respectively from $7.1
million and $30.0 million for the same periods in 2015 due to a decrease in profit driven by an increase in sales and
marketing and product development costs.
Key Balance Sheet Items
Total assets............................................................................... $ 168,292
80,581
Total liabilities .........................................................................
$ 128,096
62,492
An analysis of the key balance sheet items driving the change in total assets and liabilities is as follows:
As at December
31, 2016
As at December
31, 2015
(In thousands of U.S. dollars)
Trade and other receivables
As at December
31, 2016
As at December
31, 2015
(In thousands of U.S. dollars)
Trade and other receivables...................................................... $ 23,820
$ 15,833
Trade and other receivables were $23.8 million at December 31, 2016, an increase of $8.0 million compared to
$15.8 million at December 31, 2015. The change in trade and other receivables was due to contracts secured with
new customers and expansion of existing customer subscriptions. The change is also 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 timing
of the annual subscription billing cycle for each customer and when new customer contracts are secured. The aging
of trade receivables is generally current. We recorded an allowance for doubtful account of $0.2 million as at
December 31, 2016.
14
Management's Discussion and Analysis
Investment tax credits
Investment tax credits receivable .............................................
Investment tax credits recoverable ...........................................
$ 1,583
755
$ 1,532
2,083
As at December
31, 2016
As at December
31, 2015
(In thousands of U.S. dollars)
Investment tax credits receivable of $1.6 million at December 31, 2016 were $0.1 million higher compared to
$1.5 million at December 31, 2015. The increase is due to foreign exchange gains on the refundable investment tax
credits denominated in Canadian dollars revalued against a weakening 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 remain outstanding. Investment tax credits recoverable are the non-refundable portion of
investment tax credits earned. The balance decreased $1.3 million to $0.8 million at December 31, 2016 from $2.1
million at December 31, 2015 due to utilization of investment tax credits against current income taxes payable. This
decrease was partially offset by estimated non-refundable credits earned in fiscal 2016.
Deferred revenue
Current ..................................................................................... $ 55,458
13,198
Non-current..............................................................................
68,656
$ 40,442
14,191
54,633
As at December
31, 2016
As at December
31, 2015
(In thousands of U.S. dollars)
Deferred revenue at December 31, 2016 was $68.7 million, an increase of $14.1 million compared to $54.6
million at December 31, 2015. We generally bill our customers annually in advance for subscriptions resulting in the
amount billed being initially recorded as deferred revenue and drawn down to revenue over the term. Deferred
revenue increased due to contracts secured with new customers and expansion of existing customer subscriptions.
Deferred revenue also varies depending upon the timing of billings for existing and new customer contracts.
Deferred revenue relating to subscription term periods beyond one year totaled $13.2 million at December 31, 2016
compared to $14.2 million at December 31, 2015.
15
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, 2016.
December
31, 2016
September
30, 2016
June 30,
2016
March 31,
2016
December
31, 2015
September
30, 2015
June
30, 2015
March
31, 2015
Three months ended
Revenue:
Subscription........................................ $ 22,660
Professional services...........................
7,355
Maintenance & support ......................
249
30,264
9,493
20,771
Cost of revenue .......................................
Gross profit .............................................
$ 20,753
8,918
250
29,921
9,466
20,455
$ 19,935
8,538
261
28,734
8,713
20,021
Operating expenses .................................
Foreign exchange gain (loss)...................
Net finance income (expense) .................
Profit before income taxes.......................
Income tax expense.................................
17,031
3,740
(223)
78
3,595
1,884
16,386
4,069
(53)
96
4,112
1,687
15,142
4,879
(188)
59
4,750
1,510
$ 18,490
8,304
238
27,032
8,105
18,927
13,721
5,206
266
74
5,546
2,177
$ 16,963
6,977
251
24,191
6,789
17,402
11,984
5,418
(18)
32
5,432
4,146
$ 16,544
6,870
251
23,665
6,862
16,803
10,402
6,401
(497)
30
5,934
2,128
$ 16,284
7,137
283
23,704
6,287
17,417
$ 15,408
4,018
285
19,711
5,805
13,906
9,677
7,740
(47)
42
7,735
2,537
9,658
4,248
(479)
24
3,793
1,405
Profit ....................................................... $ 1,711
$ 2,425
$ 3,240
$ 3,369
$ 1,286
$ 3,806
$ 5,198
$ 2,388
1,405
354
479
(24)
2,214
Share-based compensation ......................
Adjusted profit(1) ..................................... $ 3,661
1,884
Income tax expense.................................
1,950
Depreciation............................................
Foreign exchange (gain) loss...................
Net finance (income) expense .................
748
223
(78)
2,060
1,850
2,280
1,229
1,176
1,083
964
$ 4,485
$ 5,090
$ 5,649
$ 2,515
$ 4,982
$ 6,281
$ 3,352
1,687
1,510
683
53
(96)
543
188
(59)
2,177
520
(266)
(74)
4,146
2,128
2,537
499
18
(32)
461
497
(30)
412
47
(42)
2,777
2,327
2,182
2,357
4,631
3,056
2,954
Adjusted EBITDA(1)................................ $ 6,438
$ 6,812
$ 7,272
$ 8,006
$ 7,146
$ 8,038
$ 9,235
$ 5,566
Basic earnings per share.......................... $ 0.07
Diluted earnings per share....................... $ 0.07
Adjusted diluted earnings per share(1)...... $ 0.14
$ 0.13
$ 0.14
$ 0.05
$ 0.16
$ 0.22
$ 0.10
$ 0.02
$ 0.13
$ 0.13
$ 0.05
$ 0.15
$ 0.20
$ 0.10
$ 0.02
$ 0.20
$ 0.22
$ 0.10
$ 0.20
$ 0.25
$ 0.13
$ 0.06
Note:
(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 last eight 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 68% to 73% of revenue. Operating expenses have increased as we
invest in sales, marketing, and product development. In addition to increased investment, our quarterly operating
expenses are impacted by timing of sales commissions and marketing events. 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 since fiscal 2015.
16
Management's Discussion and Analysis
Liquidity and Capital Resources
Our primary source of cash flow is sales of subscriptions for our software and sales of services. Our approach to
managing liquidity is to ensure, to the extent possible, that we always have sufficient liquidity to meet our liabilities
as they come due. We do so by continuously monitoring cash flow and actual operating expenses compared to
budget.
As at December
31, 2016
As at December
31, 2015
(In thousands of U.S. dollars)
Cash and cash equivalents........................................................ $ 127,910
$ 99,390
Cash and cash equivalents increased $28.5 million to $127.9 million at December 31, 2016, from $99.4 million
at December 31, 2015.
In addition to the cash balances, we have a Cdn. $20.0 million revolving demand facility available to be drawn
to meet ongoing working capital requirements. Our principal cash requirements are for working capital and capital
expenditures. Excluding deferred revenue, working capital at December 31, 2016 was $146.9 million. Given the
ongoing cash generated from operations and our existing cash and credit facilities, we believe there is sufficient
liquidity to meet our planned growth and current financial obligations of $19.0 million.
The following table provides a summary of cash inflows and outflows by activity:
Three months ended
December 31,
Years ended
December 31
2016
2015
2016
2015
(In thousands of U.S. dollars)
(In thousands of U.S. dollars)
Cash Inflow (Outflows) by activity
Operating activities.............................. $ 17,089
Investing activities ...............................
(669)
Financing activities..............................
300
Effects of exchange rates .....................
(471)
$ 8,522
(573)
868
(53)
$ 31,126
(5,794)
3,267
(79)
$ 45,248
(4,334)
1,858
(107)
Net cash inflows (outflows) .................
16,249
8,764
28,520
42,665
Cash provided by operating activities
Cash provided by operating activities for the three months ended December 31, 2016 was $17.1 million, up
from $8.5 million generated for the same period in 2015. The increase was due to a decrease in accounts receivable
coupled with an increase in deferred revenue. These were partially offset by an increase in share-based payments,
depreciation and income tax expense. For fiscal 2016, cash generated by operating activities was $31.1 million
compared to $45.2 million for the same period in 2015. The decrease in cash provided by operating activities of
$13.8 million was due primarily to the receipt of a prepayment of an approximately $20.0 million multi-year
subscription arrangement in the first quarter of 2015, lower profit and higher income taxes paid for the year ended
December 31, 2016 compared to the same period in 2015. This was partially offset by an increase in depreciation
and share-based payments.
Cash used in investing activities
Cash used in investing activities is driven by purchases of property and equipment primarily related to computer
equipment for use in our hosting facilities and to support research and development requirements and leasehold
improvements. Cash used in the purchase of property and equipment for the three months ended December 31, 2016
was $0.7 million, an increase of $0.1 million from $0.6 million in 2015. For the year ended December 31, 2016,
cash used in the purchase of property and equipment was $5.8 million, an increase of $1.5 million from $4.3 million
in 2015. Purchases will fluctuate from period over period due to timing but we expect to continue to invest in
17
Management's Discussion and Analysis
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 $0.3 million and $3.3 million for the three months and year ended
December 31, 2016, respectively, compared to $0.9 million and $1.9 million for the same periods in 2015. These
amounts represent proceeds received upon exercise of stock options.
Revolving Credit Facility and Term Loan
We have a Cdn. $20.0 million revolving demand credit facility (the “Revolving Facility”). As of December 31,
2016, 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.
Contractual Obligations
Our operating lease commitments are primarily for office premises and secure data center facilities with expiry
dates that range from March 2017 to May 2023. The majority of the lease commitments relate to our head office in
Ottawa, Canada, the lease of which expires in May 2023. Given the ongoing cash generated from operations and our
existing cash and credit facilities, we believe there is sufficient liquidity to meet our contractual obligations.
The following table summarizes our contractual obligations as at December 31, 2016, including commitments
relating to leasing contracts:
Less than 1
year
1 to
3 years
4 to
5 years
(In thousands of U.S. dollars)
More than 5
years
Total amount
Commitments
Operating lease agreements ...................... $ 1,902
Financial Obligations
Trade payables and accrued liabilities ......
10,496
$ 3,637
$ 2,424
$ 501 $ 8,464
10,496
Total Contractual Obligations
$ 12,398
$ 3,637
$ 2,424
$ 501
$ 18,960
The following table summarizes our contractual obligations as at December 31, 2015, including commitments
relating to leasing contracts:
Less than 1
year
1 to
3 years
4 to
5 years
(In thousands of U.S. dollars)
More than 5
years
Total amount
Commitments
Operating lease agreements ...................... $ 1,462
Financial Obligations
Trade payables and accrued liabilities ......
6,794
$ 3,157
$ 1,940
$ 1,374 $ 7,933
6,794
Total Contractual Obligations
$ 8,256
$ 3,157
$ 1,940
$ 1,374
$ 14,727
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.
18
(cid:2163)
(cid:2163)
(cid:2163)
(cid:2163)
Management's Discussion and Analysis
Transactions with Related Parties
We did not have any transactions during the three months and years ended December 31, 2016 and 2015 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
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, South Korean Won 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 our 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 not engage in hedging activities. We manage currency risk 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 shareholders’ equity which includes our common shares. 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
19
Management's Discussion and Analysis
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
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.
20
Management's Discussion and Analysis
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.
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 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 became effective for annual periods beginning on or after January 1, 2016. The adoption
of these amendments did not have a material impact on the consolidated financial statements.
Other Amendments to IFRS standards
The following new or amended standards had no material impact on the Company’s consolidated financial
statements.
-
-
-
-
-
IFRS 14 Regulatory Deferral Accounts
Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
Equity Method in Separate Financial Statements (Amendments to IAS 27)
Investments entities: Applying the Consolidation Exception (Amendment to IFRS 10, IFRS 12 and IAS 28)
Changes to standards and interpretations
IFRS 15: Revenue from Contracts with Customers (“IFRS 15”)
In May 2014, the IASB issued IFRS 15, which provides a single, principles-based five-step model for revenue
recognition to be applied to all customer contracts, and requires enhanced disclosures. The standard also provides
guidance relating to recognition of customer acquisition costs. In April 2016, the IASB issued Clarifications to IFRS
15 in relation to the identification of performance obligations, principal versus agent considerations, as well as
21
Management's Discussion and Analysis
licensing application guidance. This standard will be effective January 1, 2018 and allows early adoption. We do not
intend to adopt this standard early. We are currently evaluating the impact of adopting this standard and accordingly
cannot yet reasonably estimate its effect on the consolidated financial statements.
Amendments to IFRS 2: Share-based Payments (“IFRS 2”)
In June 2016, the IASB issued amendments to IFRS 2. The amendments, which were developed through the IFRS
Interpretations Committee, provide requirements for accounting for the effects of vesting and non-vesting conditions
on the measurement of cash-settled share-based payments. They also provide guidance on the accounting for share-
based payment transactions with a net settlement feature for withholding tax obligations; and a modification to the
terms and conditions of a share-based payment that changes the classification of the transaction from cash-settled to
equity-settled. These amendments are to be applied prospectively for annual periods beginning on or after January 1,
2018. Early adoption is allowed and specific transitional provisions apply. We do not intend to adopt these
amendments early. We are currently evaluating the impact of adopting these amendments and accordingly cannot
yet reasonably estimate their effect on the consolidated financial statements.
Amendments to IAS 12 Income Taxes (“IAS 12”)
In January 2016, the IASB issued amendments to IAS 12. The amendments clarify the accounting for deferred tax
assets for unrealised losses on debt instruments measured at fair value. These amendments are to be applied
retrospectively for annual periods beginning on or after January 1, 2017. Early adoption is allowed. We do not
intend to adopt these amendments early. We are currently evaluating the impact of adopting these amendments and
accordingly cannot yet reasonably estimate their effect on the consolidated financial statements.
Amendments to IAS 7 Statement of Cash Flows (“IAS 7”)
In January 2016, the IASB issued amendments to IAS 7. These amendments require entities to provide disclosures
that help users of the financial statements to better understand changes in liabilities that arise from financing
activities, including both changes arising from cash flow and non-cash changes. These amendments are to be applied
prospectively for annual periods beginning on or after January 1, 2017. Early adoption is allowed. We do not intend
to adopt these amendments early. We are currently evaluating the impact of adopting these amendments and
accordingly cannot yet reasonably estimate their effect on the consolidated financial statements.
IFRS 16: Leases (“IFRS 16”)
In January 2016, the IASB issued IFRS 16, 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 have 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 has also been applied. We do not intend to adopt this standard early. We are currently
evaluating the impact of adopting this standard and accordingly cannot yet reasonably estimate its effect on the
consolidated financial statements.
IFRS 9: Financial Instruments (“IFRS 9”)
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. We do not intend to adopt this standard early. We are currently evaluating the impact
of adopting this standard and accordingly cannot yet reasonably estimate its effect on the consolidated financial
statements.
22
Management's Discussion and Analysis
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 our disclosure controls and procedures. We maintain 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. Our 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, our CEO and CFO have concluded that the disclosure controls and procedures are effective.
Internal Controls over Financial Reporting
Our 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. Our management is responsible for establishing and maintaining adequate ICFR. Management, including
our CEO and CFO, does not expect that our 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 our CEO and CFO to certify that
they are responsible for establishing and maintaining ICFR 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. Our CEO and CFO are also responsible for disclosing any changes to
our internal controls during the most recent period that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting. Our management under the supervision of our CEO
and CFO has evaluated the design of our 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, 2016,
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. Effective
January 1, 2016, we changed our accounting system, and in order to accommodate the new system, certain of our
internal controls and processes were updated. The changes did not have a material effect on, and are not reasonably
likely to materially affect, our internal control over financial reporting.
Outstanding Share Information
As of December 31, 2016, 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 share units
outstanding for the year ended December 31, 2016 and as of February 28, 2017 are summarized as follows:
Class of Security
Common shares
Stock Options
Restricted Share Units
Deferred Share Units
Number
outstanding at
December 31,
2015
24,420,004
2,571,206
89,999
9,000
Number
outstanding at
December 31,
2016
24,940,114
2,459,872
70,728
21,668
Net issued
109,650
(245,150)
(16,197)
-
Number
outstanding at
February 28,
2017
25,049,764
2,214,722
54,531
21,668
Net issued
520,110
(111,334)
(19,271)
12,668
Our outstanding common shares increased by 520,110 shares in 2016 due to 435,334 options exercised, the
vesting of 77,859 restricted share units and 6,917 deferred share units.
Our outstanding stock options decreased by 111,334 options in 2016 due to the grant of 336,000 options less
435,334 options exercised and 12,000 options forfeited. Each option is exercisable for one common share.
23
Management's Discussion and Analysis
Our outstanding restricted share units decreased by 19,271 in 2016 due to the grant of 58,588 restricted share
units and the vesting of 77,859 such restricted share units which were settled by the issuance of common shares. Our
outstanding deferred share units increased by 12,668 during fiscal 2016 due to the grant of 19,585 deferred share
units less 6,917 deferred share units vested. Upon vesting, each restricted share unit and deferred share unit can be
paid out or settled in cash, an equivalent number of common shares, or a combination thereof, as elected by the
Compensation Committee of the Board of Directors.
24
Consolidated Financial Statements of
Kinaxis Inc.
Years ended December 31, 2016 and 2015
KPMG LLP
150 Elgin Street, Suite 1800
Ottawa ON K2P 2P8
Canada
Telephone 613-212-5764
Fax 613-212-2896
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,
2016 and December 31, 2015, the consolidated statements of comprehensive income,
changes in shareholders’ equity and cash flows for the years ended December 31,
2016, and December 2015, 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, 2016
and December 31, 2015, and its consolidated
its
consolidated cash flows for the years ended December 31, 2016 and December 31,
2015 in accordance with International Financial Reporting Standards.
financial performance and
Chartered Professional Accountants, Licensed Public Accountants
February 28, 2017
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 5)
Investment tax credits receivable (note 13)
Investment tax credits recoverable (note 13)
Prepaid expenses
Non-current assets:
Property and equipment (note 4)
Deferred tax assets (note 13)
2016
2015
$
127,910
23,820
1,583
755
3,333
157,401
10,652
239
$
99,390
15,833
1,532
2,083
1,906
120,744
7,352
(cid:3013)
$
168,292
$
128,096
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 13)
Shareholders’ equity
Share capital (note 8)
Contributed surplus
Accumulated other comprehensive loss
Deficit
Commitments (note 17)
Contingencies (note 20)
10,495
55,458
65,953
18
13,198
1,412
14,628
97,164
13,924
(519)
(22,858)
87,711
$
6,794
40,442
47,236
62
14,191
1,003
15,256
90,808
8,873
(474)
(33,603)
65,604
See accompanying notes to consolidated financial statements.
On behalf of the Board of Directors:
(signed) Douglas Colbeth Director (signed) John (Ian) Giffen Director
$
168,292
$
128,096
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 10)
Cost of revenue
Gross profit
Operating expenses:
Selling and marketing
Research and development (note 11)
General and administrative
Other income (expense):
Foreign exchange loss
Finance income
Profit before income taxes
Income tax expense (note 13):
Current
Deferred
Profit
Other comprehensive loss:
Items that are or may be reclassified subsequently
to profit or loss:
Foreign currency translation differences -
foreign operations
Total comprehensive income
Basic earnings per share
2016
2015
$
115,951
$
91,271
35,777
80,174
30,350
20,652
11,278
62,280
17,894
(198)
307
109
25,743
65,528
18,264
15,197
8,260
41,721
23,807
(1,041)
128
(913)
18,003
22,894
7,088
170
7,258
10,745
3,487
6,729
10,216
12,678
(45)
(21)
$
$
10,700
0.44
$
$
12,657
0.53
Weighted average number of basic common shares (note 9)
24,654,369
23,953,609
Diluted earnings per share
0.41
0.50
Weighted average number of diluted common shares (note 9)
25,977,615
25,465,632
See accompanying notes to consolidated financial statements
2
Kinaxis Inc.
Consolidated Statements of Changes in Shareholders’ Equity
Years ended December 31
(Expressed in thousands of U.S. dollars)
Accumulated
other
Contributed comprehensive
loss
surplus
Share
capital
Total
equity
Deficit
Balance, December 31, 2014
$
87,219
$
6,152
$
(453)
$
(46,281)
$
46,637
Profit
Other comprehensive loss
Total comprehensive income
Share options exercised
Restricted share units vested
Share-based payments
Total shareholder transactions
(cid:3013)
(cid:3013)
(cid:3013)
2,721
868
3,589
(cid:3013)
(cid:3013)
(cid:3013)
(863)
(868)
4,452
2,721
(cid:3013)
(21)
(21)
(cid:3013)
(cid:3013)
(cid:3013)
(cid:3013)
12,678
12,678
(cid:3013)
(cid:3013)
(cid:3013)
(cid:3013)
12,678
(21)
12,657
1,858
(cid:3013)
4,452
6,310
Balance, December 31, 2015
$
90,808
$
8,873
$
(474)
$
(33,603)
$
65,604
Profit
Other comprehensive loss
Total comprehensive income
Share options exercised
Restricted share units vested
Deferred share units vested
Share-based payments
Total shareholder transactions
(cid:3013)
(cid:3013)
(cid:3013)
4,845
1,360
151
6,356
(cid:3013)
(cid:3013)
(cid:3013)
(1,578)
(1,360)
(151)
8,140
5,051
(cid:3013)
(45)
(45)
(cid:3013)
(cid:3013)
(cid:3013)
(cid:3013)
(cid:3013)
10,745
10,745
(cid:3013)
(cid:3013)
(cid:3013)
(cid:3013)
(cid:3013)
10,745
(45)
10,700
3,267
(cid:3013)
(cid:3013)
8,140
11,407
Balance, December 31, 2016
$
97,164
$
13,924
$
(519)
$
(22,858)
$
87,711
See accompanying notes to consolidated financial statements
3
(cid:2163)
(cid:2163)
(cid:2163)
(cid:2163)
Kinaxis Inc.
Consolidated Statements of Cash Flows
Years ended December 31
(Expressed in thousands of U.S. dollars)
Cash flows from operating activities:
Profit
Items not affecting cash:
Depreciation of property and equipment (note 4)
Share-based payments (note 8)
Amortization of lease inducement
Investment tax credits recoverable
Income tax expense (note 13)
Changes in operating assets and liabilities (note 14)
Income taxes paid
Cash flows used in investing activities:
Purchase of property and equipment (note 4)
Cash flows from financing activities:
Common shares issued
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
2016
2015
$
10,745
$
12,678
2,494
8,140
(44)
1,328
7,258
3,408
(2,203)
31,126
1,726
4,452
(47)
1,008
10,216
16,100
(885)
45,248
(5,794)
(4,334)
3,267
28,599
99,390
1,858
42,772
56,725
Effects of exchange rates on cash and cash equivalents
(79)
(107)
Cash and cash equivalents, end of the year
$
127,910
$
99,390
See accompanying notes to consolidated financial statements.
4
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(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 years ended December 31, 2016 and 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; Seoul, South Korea; 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 five wholly-owned
subsidiaries, Kinaxis Corp., Kinaxis Asia Limited, Kinaxis Japan K.K., Kinaxis Korea Limited
and Kinaxis Europe B.V.
The consolidated financial statements were authorized for issue by the Board of Directors on
February 28, 2017.
(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, 2016 and 2015
(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., Kinaxis Korea Limited 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., Kinaxis Korea Limited 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; the financial statements of Kinaxis Korea Limited
are measured using the Korean Won 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.
(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 are not limited to, 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, 2016 and 2015
(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):
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.
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 8.
7
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
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
including
Company derives
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
The Company commences revenue recognition when all of the following conditions are met:
(cid:120)
(cid:120)
(cid:120)
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.
8
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(b) Revenue recognition (continued):
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.
(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
Classification under IAS 39
Loans and receivables – amortized cost
Loans and receivables – amortized cost
Loans and receivables – amortized cost
9
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments (continued):
Loans and receivables
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.
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.
10
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments (continued):
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
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.
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.
11
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(e) Property and equipment:
less accumulated depreciation and
Property and equipment are measured at cost
accumulated impairment losses. Property and equipment under finance leases are stated at
the present value of minimum lease payments. Cost includes expenditures that are directly
attributable to the acquisition of the asset. The assets are depreciated over their estimated
useful lives using the straight-line method as this most closely reflects the expected pattern of
consumption of the future economic benefits.
Property and equipment
Computer equipment
Computer software
Office furniture and equipment
Leasehold improvements
Rate
3 - 5 years
1 - 5 years
3 - 5 years
Shorter of useful life or term of lease
Depreciation methods, useful lives and residual values are reviewed at each financial year
end and adjusted prospectively 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.
Assets to be disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.
12
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
3. Significant accounting policies (continued):
(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, 2016 and 2015
(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, 2016 and 2015
(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. Options 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, 2016 and 2015
(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 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 became effective for annual periods
beginning on or after January 1, 2016. The adoption of these amendments did not have a
material impact on the consolidated financial statements.
Other Amendments to IFRS standards
The following new or amended standards had no material impact on the Company’s
consolidated financial statements.
-
-
-
-
-
IFRS 14 Regulatory Deferral Accounts
Accounting for Acquisitions of Interests in Joint Operations (Amendments to IFRS 11)
Agriculture: Bearer Plants (Amendments to IAS 16 and IAS 41)
Equity Method in Separate Financial Statements (Amendments to IAS 27)
Investments entities: Applying the Consolidation Exception (Amendment to IFRS 10,
IFRS 12 and IAS 28)
16
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(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:
The following is a list of standards and amendments that have been issued but not yet
adopted by the Company.
IFRS 9: Financial Instruments (“IFRS 9”)
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 and
accordingly cannot yet reasonably estimate its effect on the consolidated financial
statements.
IFRS 15: Revenue from Contracts with Customers (“IFRS 15”)
In May 2014, the IASB issued IFRS 15, which provides a single, principles-based five-step
model for revenue recognition to be applied to all customer contracts, and requires enhanced
disclosures. The standard also provides guidance relating to recognition of customer
acquisition costs. In April 2016, the IASB issued Clarifications to IFRS 15 in relation to the
identification of performance obligations, principal versus agent considerations, as well as
licensing application guidance. This standard will 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 and accordingly cannot yet reasonably
estimate its effect on the consolidated financial statements.
IFRS 16: Leases (“IFRS 16”)
In January 2016, the IASB issued IFRS 16, 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 has also been applied. The
Company does not intend to adopt this standard early and is currently evaluating the impact
of adopting this standard and accordingly cannot yet reasonably estimate its effect on the
consolidated financial statements.
17
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(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):
Amendments to IAS 7: Statement of Cash Flows (“IAS 7”)
In January 2016, the IASB issued amendments to IAS 7. These amendments require entities
to provide disclosures that help users of the financial statements to better understand
changes in liabilities that arise from financing activities, including both changes arising from
cash flow and non-cash changes. These amendments are to be applied prospectively for
annual periods beginning on or after January 1, 2017. Early adoption is allowed. The
Company does not intend to adopt these amendments early and is currently evaluating the
impact of adopting these amendments and accordingly cannot yet reasonably estimate their
effect on the consolidated financial statements.
Amendments to IAS 12: Income Taxes (“IAS 12”)
In January 2016, the IASB issued amendments to IAS 12. The amendments clarify the
accounting for deferred tax assets for unrealized losses on debt instruments measured at fair
value. These amendments are to be applied retrospectively for annual periods beginning on
or after January 1, 2017. Early adoption is allowed. The Company does not intend to adopt
these amendments early and is currently evaluating the impact of adopting these
amendments and accordingly cannot yet reasonably estimate their effect on the consolidated
financial statements.
Amendments to IFRS 2: Share Based Payments (“IFRS 2”)
In June 2016, the IASB issued amendments to IFRS 2. The amendments, which were
developed through the IFRS Interpretations Committee, provide requirements for accounting
for the effects of vesting and non-vesting conditions on the measurement of cash-settled
share-based payments. They also provide guidance on the accounting for share-based
payment transactions with a net settlement feature for withholding tax obligations; and a
modification to the terms and conditions of a share-based payment that changes the
classification of the transaction from cash-settled to equity-settled. These amendments are to
be applied prospectively for annual periods beginning on or after January 1, 2018. Early
adoption is allowed and specific transitional provisions apply. The Company does not intend
to adopt these amendments early and is currently evaluating the impact of adopting these
amendments and accordingly cannot yet reasonably estimate their effect on the consolidated
financial statements.
18
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
4. Property and equipment:
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Cost
Balance, December
31, 2014
$
7,052
$
959
$
894
$
2,196
$
11,101
Additions
221
Dispositions (1,757) (298) (782) (6)
Balance, December
4,062
12
39
4,334
(2,843)
31, 2015
Additions
Balance, December
31, 2016
$
$
9,357
$
700
$
124
$
2,411
$
12,592
5,148
103
5
538
5,794
14,505
$
803
$
129
$
2,949
$
18,386
Accumulated
depreciation
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Balance, December
31, 2014
$
2,915
$
509
$
846
$
2,087
$
6,357
Depreciation
51
Dispositions (1,757) (298) (782) (6)
Balance, December
1,519
139
17
1,726
(2,843)
31, 2015
Depreciation
Balance, December
31, 2016
$
$
2,677
$
350
$
2,216
153
4,893
$
503
$
81
16
97
$
$
2,132
$
5,240
109
2,494
2,241
$
7,734
Carrying
value
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
December 31, 2015
December 31, 2016
$
6,680
9,612
$
350
300
$
$
43
32
279
708
$
7,352
10,652
There were no asset dispositions in 2016 and there were no proceeds associated with the asset
dispositions in 2015.
19
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
4. Property and equipment (continued):
The following table presents the depreciation expense by function for the years ended
December 31:
Cost of revenue
Selling and marketing
Research and development
General and administrative
$
2016
1,864
2
414
214
$
2015
1,139
2
324
261
$
2,494
$
1,726
5. Trade and other receivables:
The following table presents the trade and other receivables for the Company as at December 31:
Trade accounts receivable
Other
Allowance for doubtful accounts
$
2016
20,362
3,696
24,058
(238)
$
2015
14,912
921
15,833
(cid:237)
$
23,820
$
15,833
There have been no balances written off for the years ended December 31, 2016 and December
31, 2015.
6. Trade payables and accrued liabilities:
The following table presents the trade payables and accrued liabilities for the Company as at
December 31:
2016
2015
721
Trade accounts payable
Accrued liabilities
5,569
Taxes payable 2,462 504
2,201
5,832
$
$
$
10,495
$
6,794
20
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
7. Credit facility:
On October 30, 2015, the Company’s revolving demand facility was increased to CAD$20.0
million. The revolving demand facility bears interest at bank prime plus 0.50% per annum and has
not been drawn at December 31, 2016.
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,
2016 and continues to be at the time of approval of these consolidated financial statements.
In
the event our aggregate borrowings under the Revolving Facility exceed CAD$2.5 million a
borrowing limit applies that is based principally on our accounts receivable.
8. Share capital:
Issued:
Authorized
The Company is authorized to issue an unlimited number of Common Shares.
Issued:
Common shares
Shares Amount
Shares outstanding at December 31, 2014
23,739,342
$
87,219
Shares issued from exercised options
Shares issued from vested restricted share units
622,328
58,334
2,721
868
Shares outstanding at December 31, 2015 24,420,004
$
90,808
Shares issued from exercised options
Shares issued from vested restricted share units
Shares issued from exercised deferred share units
435,334
77,859
6,917
4,845
1,360
151
Shares outstanding at December 31, 2016
24,940,114 $
97,164
Stock option plans
The Company has outstanding stock options issued under its 2010 and 2012 stock option plans.
No further options may be granted under the 2010 stock option plan. In June 2015, the option
pool was increased by 715,698 to 2,215,698. In June 2016, the option pool was increased by
739,566 to 2,955,264. 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.
21
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
8. Share capital (continued):
Stock option plans (continued):
A summary of the status of the plan is as follows:
December 31, 2016
Weighted
average
Shares exercise price
2,571,206
336,000
(435,334)
(12,000)
(cid:3013)
$ 15.62
44.64
7.53
13.20
(cid:3013)
December 31, 2015
Shares
2,170,802
1,048,000
(622,328)
(24,818)
(450)
Weighted
average
exercise price
$ 5.74
29.71
2.99
9.26
0.87
2,459,872
$ 21.42
2,571,206
$ 15.62
926,372
$ 11.16
787,393
$ 3.97
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,
2016:
Options outstanding
Options exercisable
Range
of exercise
prices
Number
outstanding
at 12/31/16
$ 1.60 to 3.20
6.60 to 9.95
10.00 to 14.50
18.00 to 24.50
28.00 to 30.50
33.00 to 35.50
37.00 to 47.50
481,941
538,000
121,900
201,250
116,031
704,750
296,000
Weighted
average
remaining
contractual
life
4.94
7.09
7.87
8.29
8.84
9.00
9.70
Weighted
average
exercise
price
$ 2.25
9.64
13.08
20.38
28.69
33.75
45.98
Number
exercisable
at 12/31/16
466,941
203,000
46,900
17,500
16,781
175,250
(cid:3013)
Weighted
average
exercise
price
$ 2.22
9.62
13.13
19.62
28.34
33.75
(cid:3013)
2,459,872
7.75
$ 21.42
926,372
$ 11.16
22
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
8. Share capital (continued):
Stock option plans (continued):
At December 31, 2016, there were 488,264 (2015 – 566,000) stock options available for grant
under the Plan. In 2016, the Company granted 336,000 (2015 – 1,048,000) options and recorded
share-based compensation expense of $6,329 (2015 - $2,997) related to the vesting of options
granted in 2016 and previous years. The per share weighted-average fair value of stock options
granted in 2016 was $14.14 (2015 - $9.84) 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 1.16% (2015 -
1.64%), an expected life of 3 to 6 years (2015 – 3 to 8 years), and estimated volatility of 41%
(2015 - 40%). Volatility is estimated by benchmarking to comparable publicly traded companies
operating in a similar market segment. The forfeiture rate was estimated at 10% (2015 - 10%).
The forfeiture rate is estimated based upon an analysis of actual forfeitures. 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, 2016, there were 516,412 share units available for grant under the Plan. In
2016, the Company granted 58,588 (2015 – 95,000) restricted share units (“RSU”). There were
70,728 (2015 – 89,999) RSUs outstanding at December 31, 2016. Each RSU entitles the
participant to receive one Common Share. The RSUs vest based over time in three equal annual
tranches. The grant date fair value of the RSUs granted in 2016 was $25.27 (2015 - $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, 2016 of $1,316 (2015 - $1,299)
related to the RSUs.
In 2016, the Company granted 19,585 (2015 – 9,000) deferred share units (“DSU”). There were
21,668 (2015 – 9,000) DSUs outstanding at December 31, 2016. 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 in
2016 was $25.27 (2015 – $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, 2016 of $495 (2015 - $156) related to the DSUs.
23
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
8. 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
9. Earnings (loss) per share:
2016
$ 1,251
1,471
1,254
4,164
$
2015
854
863
995
1,740
$
8,140
$
4,452
The following table summarizes the calculation of the weighted average number of basic and
diluted common shares.
2016
2015
Issued common shares at beginning of period
24,420,004
23,739,342
Effect of shares issued from exercise of options
Effect of shares issued from vesting of restricted
227,639
210,911
share units
4,042 3,356
Effect of shares issued from vesting of deferred
share units 2,684 (cid:3013)
Weighted average number of basic common
shares at December 31
24,654,369
23,953,609
Effect of share options on issue 1,172,787
Effect of share units on issue 150,459
Weighted average number of diluted common
1,401,382
110,641
shares at December 31 25,977,615
25,465,632
For the year ended December 31, 2016, 1,000,750 (2015 – 841,000) options were excluded from
the weighted average number of diluted common shares as their effect would have been anti-
dilutive.
24
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
10. Revenue:
The following table presents the revenue of the Company for the years ended December 31:
Subscription
Professional services
Maintenance and support
2016
2015
$
81,838
33,115
998
$
65,199
25,002
1,070
$
115,951
$
91,271
11. Research and development:
The following table presents the research and development expenses of the Company for the
years ended December 31:
Research and development expenses
Investment tax credits
2016
2015
$
$
22,116
(1,464)
20,652
$
$
16,786
(1,589)
15,197
12. Personnel expenses:
The following table presents the personnel expenses incurred by the Company for the years
ended December 31:
Salaries including bonuses
Benefits
Commissions
Share-based payments
2016
2015
$
43,849
6,639
8,866
8,140
$
33,099
5,334
5,718
4,452
$
67,494
$
48,603
25
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
13. Income taxes:
The income tax amounts recognized in profit and loss are as follows:
Current tax expense
Current income tax
Deferred tax expense:
Origination and reversal of temporary differences
2016
2015
7,088
$
7,088
$
3,487
3,487
170
170
6,729
6,729
$
7,258
$
10,216
A reconciliation of the income tax expense to the expected amount using the Company’s
Canadian tax rate is as follows:
2016
2015
Canadian tax rate 26.50%
26.50%
Expected Canadian income tax expense
$
4,771
$
6,067
Increase (reduction) in income taxes resulting from:
512
Difference between current and future tax rates and other
Foreign tax rate differences
260
Permanent difference of share-based payments 2,157
(442)
Foreign exchange differences
(149)
214
1,180
2,904
$
7,258
$
10,216
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.
The deferred tax assets and liabilities are as follows:
Deferred tax assets
Deferred tax liabilities
239 (cid:3013)
(1,412)
(1,003)
$
(1,173)
$
(1,003)
2016
2015
26
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
13. Income taxes (continued):
The tax effects of temporary differences and carry-forwards are as follows:
Deferred tax assets (liabilities):
Tax effect of investment tax credits
Share issuance costs
Property and equipment
Other
$
2016
2015
$
(937)
540
(1,056)
(948)
732
(827)
280 40
The movements in the deferred tax balances were as follows:
$
(1,173)
$
(1,003)
Balance at
January 1,
2016
Recognized
Balance at
in profit December 31
2016
and loss
Tax effect of investment tax credits
Share issuance costs
Property and equipment
Other
$
$
(948)
11
732 (192)
(827) (229)
40 240
$
(937)
540
(1,056)
280
$
(1,003)
$
(170)
$
(1,173)
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,
2015
Recognized
Balance at
in profit December 31
2015
and loss
$
2,509
$
(2,509)
$
(cid:3013)
2,013
(867)
1,138
863
70
(2,013)
(81)
(406)
(1,690)
(30)
(cid:3013)
(948)
732
(827)
40
$
5,726
$
(6,729)
$
(1,003)
27
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
13. Income taxes (continued):
The Company has investment tax credits available to reduce federal income taxes payable in
Canada of $755 as at December 31, 2016 (2015 - $2,083) which begin to expire in 2029. The
Company has investment tax credits receivable of $1,583 as at December 31, 2016 (2015 -
$1,532) relating to refundable investment tax credits filed.
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, 2016
was $7,271 (2015 - $4,660).
14. Statement of cash flows:
Changes in operating assets and liabilities:
2016
2015
Trade and other receivables
Investment tax credits receivable
Prepaid expenses
Trade payables and accrued liabilities
Deferred revenue
$
(7,968)
(51)
(1,429)
(1,183)
14,039
$
1,141
442
18
(2,737)
17,236
$
3,408
$
16,100
28
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
15. 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
2016
Fair
value
Carrying
value
2015
Fair
value
Financial assets
Loans and receivables, measured
at amortized cost:
Cash and cash equivalents
Trade and other receivables
Investment tax credits receivable
$
127,910
23,820
1,583
$
127,910
23,820
1,583
$
99,390
15,833
1,532
$
99,390
15,833
1,532
$
153,313
$
153,313
$
116,755
$
116,755
Carrying
value
2016
Fair
value
Carrying
value
2015
Fair
value
Financial liabilities
Other financial liabilities, measured
at amortized cost:
Trade payables and accrued
liabilities $
10,495
10,495
6,794
6,794
$
10,495
$
10,495
$
6,794
$
6,794
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.
29
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
15. Financial instruments (continued):
Measurement of fair value (continued)
The fair value of financial assets and liabilities are determined as follows:
(cid:120)
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.
During the year ended December 31, 2016, there were no transfers between level 1, level 2 and
level 3 classified assets and liabilities. The fair values of the Company’s financial instruments are
considered to approximate the carrying amounts.
The following tables provide the disclosures of the fair value and the level in the hierarchy:
As at December 31, 2016
Level 1
Level 2
Level 3
Financial assets classified as loans and receivables:
Cash and cash equivalents
Trade and other receivables
Investment tax credits receivable
$
127,910
(cid:237)
(cid:237)(cid:3)
$
(cid:237)(cid:3)
23,820
1,583
$
Financial liabilities at amortized cost:
Trade payables and accrued liabilities $
(cid:237)
$
10,495
$
(cid:237)(cid:3)
(cid:237)
(cid:237)
(cid:237)(cid:3)
As at December 31, 2015
Level 1
Level 2
Level 3
Financial assets classified as loans and receivables:
Cash and cash equivalents
Trade and other receivables
Investment tax credits receivable
$
99,390
(cid:237)
(cid:237)(cid:3)
$
(cid:237)(cid:3)
15,833
1,532
$
Financial liabilities at amortized cost:
Trade payables and accrued liabilities $
(cid:237)
$
6,794
$
(cid:237)(cid:3)
(cid:237)
(cid:237)
(cid:237)(cid:3)
30
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
15. 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, 2016, two customers accounted for
greater than 10% of total trade receivables (2015 - two customers - 10%). For the year ended
December 31, 2016, one customer individually accounted for 12.3% of revenue (2015 - one
customer accounted for 10.6%). 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
$
2016
1,164
17,969
991
$
2015
265
14,056
591
$
20,124
$
14,912
The aging of the trade receivables that were not impaired at the reporting date was as
follows:
Current
Past due:
0 – 30 days
31 – 60 days
Greater than 60 days
$
$
2016
11,806
5,746
1,603
969
$
$
2015
10,096
4,440
235
141
$
20,124
$
14,912
31
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
15. 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. Amounts considered uncollectible are
written off. During the year ended December 31, 2016, the Company did not write off any
trade receivables that were deemed not collectible. The Company recorded an allowance for
doubtful accounts of $238 as at December 31, 2016 (2015 - $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:
2016
$
127,910
23,820
1,583
$
2015
99,390
15,833
1,532
$
153,313
$
116,755
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 is to 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, 2016, the Company had cash and cash equivalents totaling $127,910 (2015
- $99,390). Further, the Company has a credit facility as disclosed in note 7.
32
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
15. Financial instruments (continued):
(b) Liquidity risk (continued):
The following are the remaining contractual maturities of financial liabilities at December 31,
2016 and 2015:
December 31, 2016
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
$ 10,495
$ 10,495
$ 10,495
$ 10,495
$ 10,495
$ 10,495
$
$
(cid:3013)
(cid:3013)
$
$
(cid:3013)
(cid:3013)
$
$
(cid:3013)
(cid:3013)
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
$
$
(cid:3013)
(cid:3013)
$
$
(cid:3013)
(cid:3013)
$
$
(cid:3013)
(cid:3013)
December 31, 2015
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, Japanese
Yen and Korean Won. As a result, the Company is exposed to currency risk on these
transactions. 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. The Company is also subject to currency risk on its income tax
expense due to foreign exchange impacts resulting from translating financial results to local
currency for Canadian tax reporting purposes.
33
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
15. 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, 2016, 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 $1,652 lower (2014 - $1,099 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, 2016
In thousands of (local currency)
USD
CAD JPY EUR HKD KRW
Trade receivables
Other receivables
Trade payables
Accrued liabilities
20,035
–
2,547 1,348
(214)
(1,413)
(4,313)
(4,594)
–
84
7,591 1
(40)
(186)
(42,164)
(14,426)
–
–
(146)
(265)
–
62,897
(252,648)
(62,800)
16,575
(3,179)
(48,999)
(141)
(411)
(252.551)
December 31, 2015
In thousands of (local currency)
USD CAD JPY EUR HKD KRW
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)
–
–
–
–
–
Trade receivables
Other receivables
Trade payables
Accrued 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. The Company believes that interest rate
risk is low as the majority of investments are made in fixed rate instruments. At December 31,
2016, the Company has not drawn on the revolving demand facility.
34
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
16. 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
Asia
Europe
$
2016
99,167
4,593
9,549
2,642
$
2015
75,864
7,923
4,529
2,955
$
115,951
$
91,271
Total property and equipment on a geographic basis are as follows:
2016
Canada
United States 1,741
1,501
Asia
$
7,410 $
2015
5,263
2,084
5
$
10,652
$
7,352
17. Commitments:
The Company’s minimum payments required under operating leases are as follows:
Less than one year
Between one and three years
Between four and five years
More than five years
$
1,902
3,637
2,424
501
$
8,464
The Company’s operating leases are primarily for office space. These leases generally contain
no renewal options 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, 2016
was $1,138 (2015 - $961).
35
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
18. Related party transactions:
Details of the Company’s subsidiaries at December 31, 2016 and 2015 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 Limited
Sales
Hong Kong
Kinaxis Korea Limited Sales
South Korea
2016
100%
100%
100%
100%
100%
2015
100%
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
2016
4,260
5,646
9,906
$
$
2015
3,206
2,456
5,662
$
$
36
Kinaxis Inc.
Notes to Consolidated Financial Statements
Years ended December 31, 2016 and 2015
(Expressed in thousands of U.S. dollars, except share and per share amounts)
19. 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, 2016. The terms of the facility require
the Company to meet certain financial covenants which are monitored by senior management to
ensure compliance.
20. 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.
37