Guiding principles
Purpose
(why we exist)
Mission
(what we do)
Vision
(where we’re going)
Empower people to make
Solve complex planning
Revolutionize planning.
confident planning decisions
problems in easy-to-understand
that maximize business
ways by combining human and
performance.
machine intelligence.
Financial highlights
22%
CAGR
155.0
24%
CAGR
26%
CAGR
133.3
116
91.3
70.1
122.0
100.8
81.8
65.2
51.1
Margin
23% 33% 25% 30% 26%
40.9
56.7
40.1
30
28.5
16.1
181.5
34%
CAGR
158.5
127.9
99.3
Total Revenue 2
Total Subscription Revenue 2
Adjusted EBITDA 1, 2
Cash, Cash Equivalents and
ST Investments - EOY 2
$US Millions
2014
2015
2016
2017
2018
1 Adjusted EBITDA” is a non-IFRS measure and is not a
recognized, defined or a standardized measure
under IFRS. This measure as well as other non-IFRS
financial measures reported by Kinaxis are defined
in the “Non-IFRS Measures” section of Kinaxis’
Management’s Discussion and Analysis for the year
ended December 31, 2018 dated February 28, 2019.
2 Based on IFRS standards applicable at the time. 2018
amounts are pre-IFRS 15/16 for comparability purposes.
i
The many benefits of Kinaxis
Happier customers
Better efficiency
Faster decision-making
Cut manufacturing
Trim finished goods
Shorten planning
lead times by
inventory by
cycles by
Improve on-time
delivery by
Shrink
expedites by
Speed up build plan change
analyzation by
Kinaxis customers
Kinaxis has over 100 customers globally across six vertical markets. Here is a small sample
of some of the marquee names that trust their supply chain planning to Kinaxis.
ii
Eliminating volatility in your supply chain is impossible, but managing it is not. Trusted by top brands, Kinaxis
(TSX:KXS) is the leading provider of cloud-based, software-as-a-service (SaaS) solutions that give people
the confidence to know they are making the best supply chain planning decisions to maximize business
performance. We solve complex business problems in easy-to-understand ways by combining human and
machine intelligence to plan for any future, monitor risks and opportunities and respond at the pace of change.
With the support of our community of supply chain experts and using our unique concurrent planning technique
and single integrated planning platform, customers can realize higher revenue, lower costs and fewer risks.
iii
REPORT CONTENTS
A letter from President and Chief Executive
Officer, John Sicard
1
Consolidated Financial Statements of Kinaxis Inc.
Years Ended December 31, 2018 and 2017 Kinaxis Inc. 9
Management’s Discussion and
Analysis for the Year Ended December 31, 2018
52
iv
JOHN SICARD
President and
Chief Executive Officer
To our shareholders
2018 financial results
I am pleased to report that 2018 was another very
Fiscal 2018 was a transition year for our financial
successful year for Kinaxis. We achieved significant
reporting, as we were required to adopt new
progress on our key strategies, made significant
accounting standards for certain revenue and
investments for our future, grew our already diverse
expense items. The most notable change impacted
talent pool, and reported another year of very strong
how we recognize revenue from the minority of our
financial results. Our significant investments in sales
customers that have deployed our RapidResponse
and marketing early in the year were instrumental in
platform on-premise. There was no corresponding
building the strongest and most diversified pipeline
change to the underlying contracts or our cash
in our history, spanning each of our six targeted
flow from these customers – just to the revenue
verticals throughout North America, Europe, and
recognition. As a result, throughout 2018 we
Asia Pacific. We strengthened and broadened our
reported our results under both the old standards
senior leadership team to enable Kinaxis to continue
(for ease of comparison to 2017 results) and the new.
to execute upon its global growth objectives.
All adjustments are noted in our financial statement
RapidResponse continues to lead our industry as
notes. We will only be reporting under the new
the most innovative supply chain system of record
standards going forward.
solution. I remain confident that our continued
investment in research and development will keep
us in the pole position.
On a comparative basis in 2018, prior to the
adoption of the new standards, we grew
subscription revenue by 21% to $122 million and
1
total revenue by 16% to $155 million. We also
During 2018 we welcomed several major new
reported adjusted EBITDA1 that was 26% of revenue.
customers including Unilever, Novartis, Lenovo, and
Under the new standards (for which there are no
Dyson. Our significant investments in a European
comparative 2017 results) our total revenue was
sales force supported this success as we saw
$150.7 million, total subscription revenue was $117.8
revenue from the region grow to 22% of the total,
million and adjusted EBITDA1 was 28% of revenue.
compared to 13% in 2017. We also launched data
Our cash and cash equivalents balance grew to
centres in Japan to support our growing customer
almost $182 million – up $23 million from the end
base in Asia. We expect to continue to recruit key
of 2017. Regardless of the accounting standard, I am
sales and support personnel in our core industry and
very pleased with these results.
geographic segments.
Strategic developments and
the year ahead
When developing and measuring strategy, our
management team focuses on five major themes:
y Dominate market segments
y Accelerate product innovation
y Leverage global partner network
y Continuous customer value
y Scale culture globally
Accelerate product investment
With a significantly stronger sales organization
already in the field, in 2019 we plan to focus
on enhancing our market innovation through
significant investment in our product team. We
believe that these investments will be key to
remaining ahead of our competition.
Kinaxis wins against much larger competitors
because our product better addresses the
fundamental business challenges facing the
extremely dynamic world of supply chain planners.
In 2018, we were proud to continue to be identified
We made notable progress on each of these
as leaders by industry analysts like Gartner, Nucleus
themes throughout 2018 and will continue with our
Research and Ventana Research. We are investing in
investments through 2019 to ensure continuous
2019 to continue to extend our leadership.
improvement and strengthening of our business.
Dominate market segments
Life sciences and pharmaceuticals, and high-tech
and electronics remain our two largest vertical
markets, each representing approximately 30% of
our total revenue. The automotive and consumer
packaged goods markets have developed into our
fastest growing markets and we expect to continue
to have a very strong presence amongst industrial
and aerospace and defense companies.
2
Throughout 2019 and beyond we will be building new
functionality to enhance our supply chain planning,
production planning, and sales and operations
planning capabilities, which will be leveraged in
both existing and new market verticals. We will also
expand the use of our machine learning and artificial
intelligence capabilities to help our customers more
accurately and automatically sense changes in
demand for their offerings, and to self-heal supply
chain design flaws that are detected when operating
in the real world. We will continue to enhance the
deployment services. This high level of partner
market-leading performance of our one-of-a-kind
engagement will be critical to help us scale the
in-memory versioning database. This key piece of
organization to continue to effectively deliver
Kinaxis intellectual property lies at the heart of our
our platform to customers and to accelerate
abilities to enable our unique end-to-end concurrent
subscription revenue over time. Throughout 2019,
planning approach and the limitless what-if scenario
we will continue to enhance our partners’ skills
analysis that empowers planners to manage the non-
for deploying and selling RapidResponse and will
stop volatility in modern supply chains.
continue to examine co-innovation opportunities to
Finally, and perhaps our most strategic product
investment, we will complete the evolution of
give our partners even greater incentive to develop
their Kinaxis practices.
RapidResponse into a formal development platform
Continuous customer value
allowing third parties (e.g. our strategic partners
and customers) to build industry-specific or
customer-specific extensions to RapidResponse.
I believe that providing this level of flexibility
will drive a significant increase in business for our
partners and provide Kinaxis an accelerated path
into new market verticals and new and exciting
adjacent solutions.
Delivering continuous customer value is the key to
sustained success for any SaaS company. Customers
consistently tell us that they realize significant
returns on their investment in RapidResponse – often
in under a year. Key savings are achieved in many
ways, including: improved inventory management;
higher order fulfillment; improved data quality;
instant end-to-end visibility; problem solving
We are focused on long-term success at Kinaxis and
through high speed, comprehensive simulations;
we fully expect these key product investments to
and generally improved business insight and
provide strong returns over time, as we launch the
decision making. We continue to hone our
related capabilities and introduce them to existing
focus on supporting our customers throughout
customers and prospects throughout the typical
their full supply chain transformation journey,
18-month sales cycle.
Leverage global partner network
ensuring that they are fully trained and leveraging
RapidResponse’s potential. In 2018, we continued
our investments in customer care and our centre
It is hard to imagine a better group of strategic
of excellence capabilities, to better measure and
partners in the supply chain space than Accenture,
monitor overall customer health and product
Deloitte, and Genpact (acquisition of Barkawi).
adoption. Our goal is to help customers maximize
However, during 2018 we continued to build this
their return on investment in Kinaxis through
partner network by adding EY and several other
full adoption of product capabilities and timely
industry- and geographic-focused partners. In
expansion into our new solution areas. We will
2018, the majority of our new customer wins were
continue to invest globally in these areas as our
influenced by our partners and as a result they
customer base grows.
are collectively delivering the majority of related
3
Scale culture globally
Kinaxis has become a truly global organization. In
2018, we grew our European and Asian operations
to stimulate and support growth in our customer
base in those regions. As a result, we hired more
people in Europe and Asia than within North
America. With our growing global operations, we
focus our attention and energy to ensure that all
employees understand our unique company culture
and values. We significantly strengthened our
management team in 2018 (and to date in 2019) to
enable this rapid global expansion. Most recently
we welcomed Andrew McDonald as Chief Product
Officer and Anne Robinson as Chief Strategy
Officer. One key factor in all our recruitment is
an assessment of fit with the very special culture
within Kinaxis. Over time we have been recognized
as a Top Employer in Canada by a variety of
organizations and strive to continue with our
this goal, and we will maintain this razor sharp focus
to deliver continued value to our shareholders.
I would like to take this opportunity to thank our
global employees for their unrelenting efforts, their
contribution to customer value, and their loyalty
to our culture. Their commitment to our cause
has been vital to our success and will continue to
be as we progress. I would also like to thank our
distinguished Board of Directors, led by Chair Ian
Giffen, who collaborate with our leadership team to
shape and support our mission for growth.
It is an honor and privilege to lead this exceptional
company and to work with inspiring and gifted
people each and every day. We are proud of what
Kinaxis has already become but remain fiercely
committed to driving even greater heights of
success. Thank you for your trust, and continued
support of Kinaxis.
successful formula. I am also committed to diversity
Sincerely,
in the workplace, as I firmly believe that diversity in
thought drives acceleration in innovation. Kinaxis
has long had strong diversity across the employee
base, and is also proud to support neuro diversity
with our Autism at Work program. As we enter into
2019, we have successfully hired and retained 1% of
our staff on the autism spectrum, and will continue
John Sicard
President and Chief Executive Officer
to support this key initiative moving forward.
Kinaxis Inc.
In closing
Kinaxis is committed to a subscription growth
strategy while taking great care to ensure
predictable profitability and business sustainability.
We have a strong and mature leadership team in
place dedicated to maximizing our full potential and
driving towards accelerated organic growth. Every
investment, and every initiative is measured against
4
1 Adjusted EBITDA” is a non-IFRS measure and is not a recognized,
defined or a standardized measure under IFRS. This measure as
well as other non-IFRS financial measures reported by Kinaxis
are defined in the “Non-IFRS Measures” section of Kinaxis’
Management’s Discussion and Analysis for the year ended
December 31, 2018 dated February 28, 2019.
ANOTHER GREAT YEAR #KINAXISLIFE
@Kinaxis
@Kinaxis
@Kinaxis is proud to conclude our first “Kin-
Inspiring women make an impact at
Hack-This” #security training event to raise
Kinaxis each and every day. Today, on
awareness on common app vulnerabilities!
#internationalwomensday2018, our
Special thanks to the Kinaxis R&D team for
male colleagues show their support to
making it a success and congratulations to
honor and celebrate them. #IWD2018
the winning team. #JustWorkHere #KinaxisLife
#PressforProgress #KinaxisLife
@KinaxisCEO
Kinaxis has been named one of Canada’s
@Kinaxis
Best Employers for Young People 2018!
What better way to celebrate than throwing
We look foward to welcoming the best
axes? Meet some of the team behind the
new talent to our great team. Check out
success of the Kinaxis Knowledge Network
our website for a full listing of available
launch @badaxethrowing ! #KinaxisLife
positions today! #KinaxisLife #JustWorkHere
#JustWorkHere
5
@JayMuelhoefer
The power of supply chain = the success of the Kinaxis users and customers! #Kinaxis #supplychain
#digitaltransformation #kinexions
@Kinaxis
@LisaCarter12
Fun company outing at the Ottawa
Happy Mother’s Day from the folks
@ Senators hockey game! #kinaxislife
here at Kinaxis #flowerarrangements
#justworkhere
#mothersdaygift #kinaxislife
6
@Kinaxis
Know sooner, act faster. When your
corporate tagline also applies to your team
building event! #KinaxisLife #JustWorkHere
@ ArcheryGamesOtt
@Kinaxis
@Kinaxis
Music. Yoga. Food! All the essential
A view from the top via @Kinaxis Chief
elements to power innovation on day two
Revenue Officer Paul Carreiro, who took
of the @Kinaxis #hackathon #justworkhere
#RapidResponse to new heights. Well done!
#kinaxislife
#montblanc #beadventurous #kinaxislife
7
@LisaCarter12
Autism on the hill! Kinaxis #kinaxislife
#autismawareness #showyoursupport
@Kinaxis
Meet our awesome team at our annual
#careerfair tonight at the Kanata Holiday
Inn & Suites to learn more about what we
have to offer! It’s time to love where you
work! #kinaxislife #ottjob #justworkhere
@Alexa_Cheater
The impossible is a call to action. @ Kinaxis
responded to it 20 years ago with
@Kinaxis
#RapidResponse and we’re continuing to
Congratulations to Kinaxis founder Duncan
answer that call by challenging trends. So
Klett for becoming the first Kinaxis Certified
proud to work for this company! #kinaxislife
RapidResponse Master! Learn how to get
#kinexions
8
certified today #kinaxislife #kinaxiscert
Consolidated Financial Statements of
Kinaxis Inc.
Years ended December 31, 2018 and 2017
9
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.
Opinion
We have audited the consolidated financial statements of Kinaxis Inc. (the Entity), which
comprise:
(cid:120)
(cid:120)
(cid:120)
(cid:120)
(cid:120)
the consolidated statements of financial position as at December 31, 2018 and
December 31, 2017
the consolidated statements of comprehensive income for the years then ended
the consolidated statements of changes in shareholders’ equity for the years then ended
the consolidated statements of cash flows for the years then ended
and notes to the consolidated financial statements, including a summary of significant
accounting policies
(Hereinafter referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects,
the consolidated financial position of the Entity as at December 31, 2018 and December 31,
2017, and its consolidated financial performance and its consolidated cash flows for the years
then ended in accordance with International Financial Reporting Standards (IFRS).
Basis for Opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards.
Our responsibilities under those standards are further described in the “Auditors’
Responsibilities for the Audit of the Financial Statements” section of our auditors’ report.
We are independent of the Entity in accordance with the ethical requirements that are relevant
to our audit of the financial statements in Canada and we have fulfilled our other ethical
responsibilities in accordance with these requirements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide
a basis for our opinion.
10
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.
Page 2
Other Information
Management is responsible for the other information. Other information comprises:
(cid:120)
(cid:120)
the information included in Management’s Discussion and Analysis filed with the relevant
Canadian Securities Commissions.
the information, other than the financial statements and the auditors’ report
thereon, included in a document likely to be entitled “Annual Report”.
Our opinion on the financial statements does not cover the other information and we do not
and will not express any form of assurance conclusion thereon.
In connection with our audit of the financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is
materially inconsistent with the financial statements or our knowledge obtained in the audit and
remain alert for indications that the other information appears to be materially misstated.
We obtained the information included in Management’s Discussion and Analysis filed with the
relevant Canadian Securities Commissions as at the date of this auditors’ report. If, based on
the work we have performed on this other information, we conclude that there is a material
misstatement of this other information, we are required to report that fact in the auditors’ report.
We have nothing to report in this regard.
The information, other than the financial statements and the auditors’ report thereon, included
in a document likely to be entitled “Annual Report” is expected to be made available to us after
the date of this auditors’ report. If, based on the work we will perform on this other information,
we conclude that there is a material misstatement of this other information, we are required to
report that fact to those charged with governance.
Responsibilities of Management and Those Charged with Governance
for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements
in accordance with International Financial Reporting Standards (IFRS), and for such internal
control as management determines is necessary to enable the preparation of financial
statements that are free from material misstatement, whether due to fraud or error.
In preparing the financial statements, management is responsible for assessing the Entity’s
ability to continue as a going concern, disclosing as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends
to liquidate the Entity or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Entity’s financial reporting
process.
11
Page 3
Auditors’ Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an
auditors’ report that includes our opinion.
Reasonable assurance is a high level of assurance, but is not a guarantee that an audit
conducted in accordance with Canadian generally accepted auditing standards will always
detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually or in
the aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.
As part of an audit in accordance with Canadian general accepted auditing standards, we
exercise professional judgment and maintain professional skepticism throughout the audit.
We also:
(cid:120)
Identify and assess the risks of material misstatement of the financial statements, whether
due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.
The risk of not detecting a material misstatement resulting from fraud is higher than for
one resulting from error, as fraud may involve collusion, forgery, intentional omissions,
misrepresentations, or the override of internal control.
(cid:120) Obtain an understanding of internal control relevant to the audit 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.
(cid:120) Evaluate the appropriateness of accounting policies used and the reasonableness of
accounting estimates and related disclosures made by management.
(cid:120) Conclude on the appropriateness of management's use of the going concern basis of
accounting and, based on the audit evidence obtained, whether a material uncertainty
exists related to events or conditions that may cast significant doubt on the Entity's ability
to continue as a going concern. If we conclude that a material uncertainty exists, we are
required to draw attention in our auditors’ report to the related disclosures in the financial
statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our auditors’ report. However,
future events or conditions may cause the Entity to cease to continue as a going concern.
(cid:120) Evaluate the overall presentation, structure and content of the financial statements,
including the disclosures, and whether the financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
12
Page 4
(cid:120) Communicate with those charged with governance regarding, among other matters, the
planned scope and timing of the audit and significant audit findings, including any
significant deficiencies in internal control that we identify during our audit.
(cid:120) Provide those charged with governance with a statement that we have complied with
relevant ethical requirements regarding independence, and communicate with them all
relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, related safeguards.
(cid:120) Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the group Entity to express an opinion on the financial
statements. We are responsible for the direction, supervision and performance of the
group audit. We remain solely responsible for our audit opinion.
Chartered Professional Accountants, Licensed Public Accountants
The engagement partner on the audit resulting in this auditors’ report is Mahesh Mani.
Ottawa, Canada
February 28, 2019
13
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(b) Revenue recognition (continued):
Professional services are provided for implementation and configuration of software licenses and
SaaS, as well as ongoing technical services and training. Professional services are typically billed
on a time and material basis and revenue is recognized over time as the services are performed.
For professional services contracts billed on a fixed price basis, revenue is recognized over time
based on the proportion of services performed.
Maintenance and support services provided to customers on legacy perpetual software licenses
is recognized ratably over the term of the maintenance and support services.
The Company recognizes an asset for the incremental costs of obtaining a contract with a
customer if it expect the costs to be recoverable, and has determined that certain sales incentive
programs meet the requirements to be capitalized. Capitalized contract acquisition costs are
amortized consistent with the pattern of transfer to the customer for the goods and services to
which the asset relates. The amortization period includes specifically identifiable contract
renewals where there is no substantive renewal commission. The expected customer renewal
period is estimated based on the historical life of our customers, which the Company has
determined to be six years. The Company applies the practical expedient available under IFRS
15 and does not capitalize incremental costs of obtaining contracts if the amortization period is
one year or less.
The timing of revenue recognition often differs from contract payment schedules, resulting in
revenue that has been earned but not billed. These amounts are included in unbilled receivables.
Amounts billed in accordance with customer contracts, but not yet earned, are recorded and
presented as part of deferred revenue.
The Company has elected to apply the practical expedient to not adjust the total consideration
over the contract term for the effect of a financing component if the period between the transfer of
services to the customer and the customer’s payment for these services is expected to be one
year or less.
(c) Financial instruments:
Financial assets and financial liabilities are recognized when the Company becomes a party to
the contractual provisions of the instrument.
Trade receivables without a significant financing component are initially measured at the
transaction price. All other 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.
14
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments (continued):
Financial assets
All financial assets are recognized and de-recognized on trade date.
The Company determines the classification of its financial assets on the basis of both the
business model for managing the financial assets and the contractual cash flow characteristics of
the financial asset. Financial assets are not reclassified subsequent to their initial recognition
unless the Company changes its business model for managing financial assets.
A financial asset is measured at amortized cost if it is held within a business model whose
objective is to hold assets to collect contractual cash flows, and its contractual terms give rise on
specified dates to cash flows that are solely payments of principal and interest on the principal
amount outstanding.
The Company’s financial assets are classified as follows:
Financial asset
Cash and cash equivalents
Short-term investments
Trade and other receivables
Unbilled receivables
Amortized cost
Classification under IFRS 9
Amortized cost
Amortized cost
Amortized cost
Amortized cost
Subsequent to initial recognition, financial assets at amortized cost are measured 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. Interest income, foreign exchange gains and losses, impairment, and any gain or loss
on de-recognition are recognized in profit or loss.
Impairment of financial assets
The Company measures a loss allowance based on the lifetime expected credit losses. Lifetime
expected credit losses are estimated based on factors such as the Company’s past experience of
collecting payments, the number of delayed payments in the portfolio past the average credit
period, observable changes in national or local economic conditions that correlate with default on
receivables, financial difficulty of the borrower, and it becoming probable that the borrower will
enter bankruptcy or financial re-organization.
Financial assets are written off when there is no reasonable expectation of recovery.
15
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments (continued):
Financial liabilities
The Company determines the classification of its financial liabilities at initial recognition. The
Company’s financial liabilities are classified as follows:
Financial liability
Classification under IFRS 9
Trade payables and accrued liabilities
Amortized cost
Amortized cost
Financial liabilities at amortized cost are measured using the effective interest rate method.
De-recognition of financial liabilities
The Company de-recognizes financial liabilities 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 and term
deposits which can readily be redeemed for cash without penalty or are issued for terms of three
months or less from the date of acquisition. At December 31, 2017, $55,138 of term deposits and
guaranteed investment certificates previously reported within cash and cash equivalents have
been classified as short-term investments as the terms to maturity exceeded ninety days.
(e) Short-term investments:
Short-term investments consist of term deposits and guaranteed income certificates held with
Schedule 1 Canadian banks for maturity terms of three to six months from the date of acquisition.
Investments are measured at amortized cost. The carrying amount of investments approximates
fair market value due to the short-term maturity of these instruments.
(f) Property and equipment:
Property and equipment are measured at cost less accumulated depreciation and accumulated
impairment losses. Property and equipment under finance leases are stated at the present value
of minimum future 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
5 years
3 to 5 years
3 to 5 years
Shorter of useful life or remaining term of lease
16
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(f) Property and equipment (continued):
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.
(g) Leases:
At inception of a contract, the Company assesses whether a contract is, or contains, a lease
based on whether the contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.
The Company has elected to apply the practical expedient to account for each lease component
and any non-lease components as a single lease component.
The Company recognizes a right-of-use asset and a lease liability at the lease commencement
date. The right-of-use asset is initially measured based on the initial amount of the lease liability
adjusted for any lease payments made at or before the commencement date, plus any initial
direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to
restore the underlying asset or the site on which it is located, less any lease incentives received.
The assets are depreciated to the earlier of the end of the useful life of the right-of-use asset or
the lease term using the straight-line method as this most closely reflects the expected pattern of
consumption of the future economic benefits. The lease term includes periods covered by an
option to extend if the Company is reasonably certain to exercise that option. Lease terms range
from 2 to 6 years for offices and data centres. In addition, the right-of-use asset is periodically
reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease
liability.
17
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(g) Leases (continued):
The lease liability is initially measured at the present value of the lease payments that are not
paid at the commencement date, discounted using the interest rate implicit in the lease or, if that
rate cannot be readily determined, the Company’s incremental borrowing rate. Generally, the
Company uses its incremental borrowing rate as the discount rate. Variable lease payments that
do not depend on an index or rate are not included in the measurement of the lease liability.
The lease liability is measured at amortized cost using the effective interest method. It is
remeasured when there is a change in future lease payments arising from a change in an index
or rate, if there is a change in the Company’s estimate of the amount expected to be payable
under a residual value guarantee, or if the Company changes its assessment of whether it will
exercise a purchase, extension or termination option.
When the lease liability is remeasured in this way, a corresponding adjustment is made to the
carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of
the right-of-use asset has been reduced to zero.
The Company has elected to apply the practical expedient not to recognize right-of-use assets
and lease liabilities for short-term leases that have a lease term of 12 months or less and leases
of low-value assets. The lease payments associated with these leases are recognized as an
expense on a straight-line basis over the lease term.
(h) 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.
(i) 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.
18
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(j) 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.
(k) 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.
19
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(k) Income taxes (continued):
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.
(l) 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.
(m) 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.
20
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
4. Changes in significant accounting policies:
(a) IFRS 15: Revenue from Contracts with Customers (“IFRS 15”):
IFRS 15 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 contract acquisition and fulfilment costs.
Effective January 1, 2018, the Company adopted IFRS 15 using the cumulative effect method,
with the effect of adopting this standard recognized on January 1, 2018, the date of initial
application. Accordingly, the information presented for 2017 has not been restated. It remains as
previously reported under IAS 18, IAS 11 and related interpretations.
Adoption of IFRS 15 has not impacted the accounting for the Company’s SaaS, professional
services or maintenance and support arrangements for the Company’s legacy perpetual software
licenses. However, adoption has impacted the accounting for the Company’s on-premise and
hybrid subscription license arrangements, its accounting for contract acquisition costs as well as
requiring expanded disclosure on revenue, performance obligations and contract balances.
Prior to adopting IFRS 15, subscription fees for licenses and coterminous maintenance and
support and hosting services were combined and recognized ratably over the term of the
subscription contract. Under IFRS 15, the fees for on-premise and hybrid subscriptions are
separately allocated to each distinct performance obligation. Revenue attributable to the distinct
software license component is recognized upfront upon term commencement and revenue
allocated to maintenance and support and hosting components is recognized ratably over the
term. This results in earlier recognition of revenue for these subscription arrangements.
Prior to adopting IFRS 15, contract acquisition costs, including commissions paid to employees
and referral fees to third parties, were expensed upon commencement of the related contract
revenue.
Effective January 1, 2018, revenue from SaaS arrangements is reported as SaaS and
subscription revenue. Revenue for maintenance and support from on-premise and hybrid
arrangements and hosting services from hybrid arrangements is separately reported as
subscription term license support revenue. Revenue for the software license component from on-
premise arrangements is separately reported as subscription term license revenue. Professional
services revenue and revenue from maintenance and support on legacy perpetual license
arrangements continue to be reported separately.
In its adoption of IFRS 15, the Company has elected to apply the requirements of the new
standard only to contracts that are incomplete at the date of initial application. The Company has
also elected to apply the contract modification practical expedient and reflect the aggregate effect
of all contract modifications prior to the transition date.
21
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
4. Changes in significant accounting policies (continued):
(a) IFRS 15: Revenue from Contracts with Customers (“IFRS 15”) (continued):
The following table summarizes the impact of transition to IFRS 15 on the Company’s retained
earnings as at January 1, 2018:
Impact of adopting
IFRS 15 at January 1, 2018
Accelerated recognition of on-premise software component
Capitalization of previously expensed contract acquisition costs
Related income tax impact
Impact at January 1, 2018
$
20,919
11,514
(8,600)
$
23,833
The following table summarizes the impact of transition to IFRS 15 on the Company’s statement
of financial position as at January 1, 2018:
Assets
Cash and cash equivalents
Short-term investments
Trade and other receivables
Investment tax credits recoverable
Prepaid expenses
Property and equipment
Contract acquisition costs
Deferred tax assets
Liabilities and Shareholders’ Equity
Trade payables and accrued liabilities
Current deferred revenue
Non-current deferred revenue
Deferred tax liabilities
Share capital
Contributed surplus
Accumulated other comprehensive loss
Retained earnings (deficit)
Balance at
December 31,
2017
Impact of
adopting
IFRS 15
$ 103,392
55,138
31,651
911
4,196
17,350
–
55
$ 212,693
$
11,176
67,040
7,745
1,944
108,253
19,294
(284)
(2,475)
$
$
$
–
–
9,773
–
–
–
11,514
–
21,287
5,601
(11,146)
–
2,999
–
–
–
23,833
Adjusted
balance at
January 1,
2018
$ 103,392
55,138
41,424
911
4,196
17,350
11,514
55
$ 233,980
$
16,777
55,894
7,745
4,943
108,253
19,294
(284)
21,358
$ 212,693
$
21,287
$ 233,980
22
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
4. Changes in significant accounting policies (continued):
(b) IFRS 16: Leases (“IFRS 16”):
IFRS 16 specifies how to recognize, measure, present and disclose leases. The standard
provides a single lessee accounting model, requiring lessees to recognize assets and liabilities
for all major leases.
Effective January 1, 2018, the Company early adopted IFRS 16 using the modified retrospective
approach and accordingly the information presented for 2017 has not been restated. It remains
as previously reported under IAS 17 and related interpretations.
On initial application, the Company has elected to record right-of-use assets based on the
corresponding lease liability. Right-of-use assets and lease obligations of $7,234 were recorded
as of January 1, 2018, with no net impact on retained earnings. When measuring lease liabilities,
the Company discounted lease payments using its incremental borrowing rate at January 1,
2018. The weighted-average rate applied is 5.5%.
The Company has elected to apply the practical expedient to account for leases for which the
lease term ends within 12 months of the date of initial application as short-term leases.
The Company has elected to apply the practical expedient to grandfather the assessment of
which transactions are leases on the date of initial application, as previously assessed under IAS
17 and IFRIC 4. The Company applied the definition of a lease under IFRS 16 to contracts
entered into or changed on or after January 1, 2018.
The following table reconciles the Company’s operating lease obligations at December 31, 2017,
as previously disclosed in the Company’s consolidated financial statements, to the lease
obligations recognized on initial application of IFRS 16 at January 1, 2018:
Operating lease commitments at December 31, 2017
Discounted using the incremental borrowing rate at January 1, 2018
Variable lease payments that do not depend on an index or rate
Recognition exemption for short-term leases
Extension options reasonably certain to be exercised
Lease obligations recognized at January 1, 2018
$
11,847
10,515
(3,588)
(23)
330
$
7,234
(c) IFRS 9: Financial Instruments (“IFRS 9”):
Effective January 1, 2018, the Company adopted IFRS 9, which sets out requirements for
recognition and measurement, impairment, derecognition and general hedge accounting. 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.
23
Kinaxis Inc.
Consolidated Statements of Financial Position
As at December 31
(Expressed in thousands of USD)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trade and other receivables (note 5)
Investment tax credits recoverable
Prepaid expenses
Non-current assets:
Property and equipment (note 6)
Right-of-use assets (note 7)
Contract acquisition costs (note 8)
Unbilled receivables
Deferred tax assets (note 17)
2018
2017*
$
126,144
55,404
64,330
–
5,815
251,693
22,785
8,873
13,902
457
49
$
103,392
55,138
31,651
911
4,196
195,288
17,350
–
–
–
55
$
297,759
$
212,693
Liabilities and Shareholders’ Equity
Current liabilities:
Trade payables and accrued liabilities (note 9)
Deferred revenue (note 10)
Lease obligations (note 11)
$
Non-current liabilities:
Deferred revenue
Lease obligations (note11)
Deferred tax liabilities (note 17)
Shareholders’ equity:
Share capital (note 12)
Contributed surplus
Accumulated other comprehensive loss
Retained earnings (deficit)
Contingencies (note 24)
21,623
78,496
2,572
102,691
–
6,311
4,075
10,386
124,951
24,284
(319)
35,766
184,682
$
11,176
67,040
–
78,216
7,745
–
1,944
9,689
108,253
19,294
(284)
(2,475)
124,788
$
297,759
$
212,693
See accompanying notes to consolidated financial statements.
* The Company adopted IFRS 15 and 16 as described in Note 4. Under this adoption, the comparative
information is not restated.
On behalf of the Board of Directors:
(signed) John (Ian) Giffen Director
(signed) John Sicard Director
24
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
4. Changes in significant accounting policies (continued):
(c) IFRS 9: Financial Instruments (“IFRS 9”) (continued):
Trade and other receivables that were classified as loans and receivables under IAS 39 are
classified as financial assets measured at amortized cost. There is no change to the initial
measurement of the Company’s financial assets. Impairment of financial assets is based on an
expected credit loss (“ECL”) model under IFRS 9, rather than the incurred loss model under IAS
39. ECLs are a probability-weighted estimate of credit losses. The Company calculated ECLs
based on consideration of customer-specific factors and actual credit loss experience over the
past five years. As a percentage of revenue, the Company’s actual credit loss experience has not
been material.
The adoption of IFRS 9 has not had an effect on the Company’s accounting policies related to
financial liabilities.
There was no material impact of transition to IFRS 9 on the Company’s statement of financial
position at January 1, 2018 .
(d) Impact of adopting IFRS 15 and 16:
The following tables summarize the impact of adopting IFRS 15 and IFRS 16 on the Company’s
consolidated statements of financial position as at December 31, 2018 and its consolidated
statements of comprehensive income for the year ended December 31, 2018. There was no
material impact on the Company’s consolidated statements of cash flows for the year ended
December 31, 2018 with the exception of lease payments being classified under financing cash
flows instead of operating.
25
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
4. Changes in significant accounting policies (continued):
(d) Impact of adopting IFRS 15 and 16 (continued):
Impact on the consolidated statements of financial position as at December 31, 2018:
As reported
IFRS 15
Adjustment
IFRS 16 Amount prior to
IFRS 15 and 16
Adjustment
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Trade and other receivables
Prepaid expenses
$
Non-current assets:
Property and equipment
Right-of-use assets
Contract acquisition costs
Unbilled receivables
Deferred tax assets
$
126,144
55,404
64,330
5,815
251,693
22,785
8,873
13,902
457
49
–
–
(4,847)
–
(4,847)
–
–
(13,902)
(457)
104
$
$
–
–
(63)
–
(63)
–
(8,873)
–
–
7
126,144
55,404
59,420
5,815
246,783
22,785
–
–
–
160
$
297,759
$
(19,102)
$
(8,929)
$
269,728
Liabilities and Shareholders’ Equity
Current liabilities:
Trade payables and accrued
liabilities
Deferred revenue
Lease obligations
Non-current liabilities:
Lease obligations
Deferred tax liabilities
Shareholders’ equity:
Share capital
Contributed surplus
Accumulated other comprehensive
loss
Retained earnings
$
$
21,623
78,496
2,572
102,691
$
(5,193)
11,435
–
6,242
6,311
4,075
10,386
124,951
24,284
(319)
35,766
184,682
–
(2,691)
(2,691)
–
–
(73)
(22,580)
(22,653)
(190)
–
(2,572)
(2,762)
(6,311)
(41)
(6,352)
–
–
–
185
185
$
16,240
89,931
–
106,171
–
1,343
1,343
124,951
24,284
(392)
13,371
162,214
$
297,759
$
(19,102)
$
(8,929)
$
269,728
26
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
4. Changes in significant accounting policies (continued):
(d) Impact of adopting IFRS 15 and 16 (continued):
Impact on the consolidated statements of comprehensive income for the year ended December
31, 2018:
As reported
IFRS 15
Adjustment
IFRS 16 Amount prior to
IFRS 15 and 16
Adjustment
Revenue:
Subscription services:
SaaS and subscription
Subscription term license support
$
Professional services
Subscription term license
Maintenance and support
Cost of revenue
Gross profit
Operating expenses:
Selling and marketing
Research and development
General and administrative
Other income (expense):
Foreign exchange loss
Net finance income
Profit before income taxes
Income tax expense
Profit
97,157
10,730
107,887
31,854
9,935
1,051
150,727
47,032
$
$
24,889
(10,730)
14,159
–
(9,935)
–
4,224
–
–
–
–
–
–
–
$
122,046
–
122,046
31,854
–
1,051
154,951
–
136
47,168
103,695
4,224
(136)
107,783
35,055
27,626
20,167
82,848
20,847
(181)
1,810
1,629
22,476
8,068
14,408
2,418
–
(70)
2,348
1,876
–
272
272
2,148
895
1,253
12
48
(31)
29
37,485
27,674
20,066
85,225
(165)
22,558
(326)
501
175
10
(175)
185
(507)
2,583
2,076
24,634
8,788
15,846
Other comprehensive loss:
Items that are or may be reclassified
subsequently to profit or loss:
Foreign currency translation
differences – foreign operations
(35)
Total comprehensive income
Basic earnings per share
Diluted earnings per share
$
$
$
14,287
0.56
0.54
$
$
$
(73)
1,180
0.05
0.05
$
$
$
–
185
0.01
0.01
$
$
$
(108)
15,738
0.61
0.59
27
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
5. Trade and other receivables:
The following table presents the trade and other receivables for the Company:
Trade accounts receivable
Unbilled receivables
Taxes receivable
Other
Loss allowance
$
2018
56,618
6,408
566
738
64,330
–
$
2017
28,136
1,507
665
1,834
32,142
(491)
$
64,330
$
31,651
Trade accounts receivable of $561 were written off in 2018 (2017 – none). The Company has
determined that lifetime expected credit losses are not material as at December 31, 2018. Trade and
other receivables as at December 31, 2018 and 2017 include the $2,532 referenced under
Contingencies in Note 24(a).
28
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
6. Property and equipment:
The following table presents the property and equipment for the Company:
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Cost
Balance, December 31,
2016
$ 14,505
$
803
$
129
$
2,949
$ 18,386
Additions
Dispositions
Effects of movement in
exchange rates
Balance, December 31,
9,207
(84)
199
116
–
–
206
–
–
620
–
–
10,149
(84)
199
2017
$ 23,827
$
919
$
335
$
3,569
$ 28,650
Additions
Effects of movement in
exchange rates
Balance, December 31,
9,713
(172)
1,179
–
158
–
1,260
12,310
(10)
(182)
2018
$ 33,368
$
2,098
$
493
$
4,819
$ 40,778
Accumulated depreciation
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Balance, December
31, 2016
Depreciation
Dispositions
Effects of movement in
exchange rates
Balance, December 31,
$
4,893
$
503
$
3,267
(84)
32
161
–
–
97
26
–
–
$
2,241
$
7,734
164
–
–
3,618
(84)
32
2017
$
8,108
$
664
$
123
$
2,405
$ 11,300
Depreciation
Effects of movement in
exchange rates
Balance, December 31,
5,694
(35)
395
–
101
–
538
–
6,728
(35)
2018
$ 13,767
$
1,059
$
224
$
2,943
$ 17,993
Carrying value
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
December 31, 2017
December 31, 2018
$ 15,719
$ 19,601
$
$
255
1,039
$
$
212
269
$
$
1,164
1,876
$ 17,350
$ 22,785
There were no asset dispositions in 2018 (2017 – no proceeds associated with asset dispositions).
29
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
7. Right-of-use assets:
The following table presents the right-of-use assets for the Company:
Offices
Data centres
Total
right-of-use
assets
Balance, January 1, 2018 (note 4(b))
$
3,927
$
3,307
$
7,234
Additions
Depreciation
Effects of movement in exchange rates
–
(959)
(14)
4,245
(1,585)
(48)
4,245
(2,544)
(62)
Balance, December 31, 2018
$
2,954
$
5,919
$
8,873
8. Contract acquisition costs:
The following table presents changes in the contract acquisition costs balance:
Balance, January 1, 2018 (note 4(a))
Additions
Amortization
Balance, December 31, 2018
$
11,514
6,088
(3,700)
$
13,902
Amortization of contract acquisition costs is recorded in selling and marketing expense.
9. Trade payables and accrued liabilities:
The following table presents the trade payables and accrued liabilities for the Company:
Trade accounts payable
Accrued liabilities
Taxes payable
$
2018
1,406
9,141
11,076
$
2017
3,307
5,516
2,353
$
21,623
$
11,176
30
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
10. Deferred revenue:
The following table presents changes in the deferred revenue balance:
Balance, December 31, 2017
Adjustment on initial application of IFRS 15 (note 4(a))
Adjusted balance, January 1, 2018
Amounts invoiced and revenue deferred as at December 31, 2018
Recognition of deferred revenue included in the adjusted balance
at the beginning of the period
Balance, December 31, 2018
11. Lease obligations:
$
74,785
(11,146)
63,639
73,192
(58,335)
$
78,496
The Company’s leases are for office space and data centers. These leases contain no renewal option
or a renewal option for one or two years. The Company has included renewal options in the
measurement of lease obligations when it is reasonably certain to exercise the renewal option.
The following table presents lease obligations for the Company:
Current
Non-current
Total lease obligations
2018
2,572
6,311
8,883
$
$
The following table presents the contractual undiscounted cash flows for lease obligations as at
December 31, 2018:
Less than one year
One to five years
More than five years
Total undiscounted lease obligations
$
2,942
6,912
119
$
9,973
Interest expense on lease obligations for the year ended December 31, 2018 was $501. The expense
relating to variable lease payments not included in the measurement of lease obligations was $739.
This consists of variable lease payments for operating costs, property taxes, and insurance.
Expenses relating to short-term leases were $256 and expenses relating to leases of low value
assets were not material. Total cash outflow for leases was $3,656, including $2,160 of principal
payments on lease obligations.
31
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
12. Share capital:
Authorized
The Company is authorized to issue an unlimited number of Common Shares.
Issued
Common shares
Shares
Amount
Shares outstanding at December 31, 2016
24,940,114
$
97,164
Shares issued from exercised options
Shares issued from vested restricted share units
512,874
54,934
9,437
1,652
Shares outstanding at December 31, 2017
25,507,922
$ 108,253
Shares issued from exercised options
Shares issued from vested restricted share units
Shares issued from exercised deferred share units
511,862
37,565
20,832
14,012
1,834
852
Shares outstanding at December 31, 2018
26,078,181
$ 124,951
Stock options plans
The following table presents the status of the stock option plans:
2018
Weighted
average
Shares exercise price
2017
Weighted
average
Shares exercise price
Options outstanding, beginning of
period
Granted
Exercised
Forfeited
2,232,735
522,000
(511,862)
(153,000)
$
31.92
63.65
19.77
53.96
2,459,872
493,300
(512,874)
(207,563)
$
21.42
56.25
13.07
29.74
Options outstanding, end of period
2,089,873
$
38.32
2,232,735
$
31.92
Options exercisable, end of period
851,622
$
22.16
774,685
$
14.58
32
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
12. Share capital (continued):
The following table presents information about stock options outstanding at December 31, 2018:
$
Range
of exercise
prices
1.50 to 3.50
8.50 to 13.50
18.50 to 21.00
27.50 to 34.00
44.00 to 50.50
50.50 to 56.00
59.50 to 63.50
69.50 to 70.50
Options outstanding
Weighted
average
remaining
outstanding contractual life
Number
250,159
185,100
41,250
531,425
339,337
390,602
279,000
73,000
2,089,873
2.67
5.27
6.23
6.96
6.34
5.44
4.23
4.61
5.45
Weighted
average
exercise
price
$
1.76
10.50
19.55
32.59
47.19
54.02
62.25
69.64
Options exercisable
Number
exercisable
250,159
182,600
7,500
235,925
87,237
88,201
–
–
Weighted
average
exercise
price
$
1.76
10.46
18.72
32.43
45.46
53.99
–
–
$
38.32
851,622
$
22.16
The Company has outstanding stock options issued under its 2010 and 2012 stock option plans. No
further options may be granted under the 2010 and 2012 stock option plans. In June 2017, the
Company adopted a new Canadian Resident Plan and a new Non-Canadian Resident Plan. Stock
options granted under the new plans will have 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
these options will be five years. Options are granted periodically and typically vest over four years.
At December 31, 2018, there were 1,549,200 stock options available for grant under the Plans. In
2018, the Company granted 522,000 (2017 – 493,300) options and recorded share-based
compensation expense of $8,232 (2017 – $6,930) related to the vesting of options granted in 2018
and previous years. The per share weighted-average fair value of stock options granted in 2018 was
$17.34 (2017 – $17.15) 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 of 0%, risk-free interest rate of 2.65% (2017 – 1.81%), an expected life of 2 to
5 years (2017 – 2 to 6 years), estimated volatility of 38% (2017 – 42%). The forfeiture rate was
estimated at 10% (2017 – 10%). The forfeiture rate is estimated based upon an analysis of actual
forfeitures.
Share Unit Plan
At December 31, 2018, there were 354,133 share units available for grant under the Plan. In 2018,
the Company granted 58,200 (2017 – 45,500) restricted share units (“RSU”) and 13,098 were
forfeited (2017 – nil). There were 52,634 (2017 – 45,097) RSUs outstanding at December 31, 2018.
Each RSU entitles the participant to receive one Common Share. The RSUs vest over time in three
equal annual tranches. The weighted-average grant date fair value of the RSUs granted in 2018 was
$66.16 (2017 – $55.71) per unit using the fair value of a Common Share at time of grant. The
33
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
12. Share capital (continued):
Company recorded share-based compensation expense of $2,436 (2017 – $1,916) related to the
RSUs.
In 2018, the Company granted 13,800 (2017 – 16,194) deferred share units (“DSU”). There were
30,830 (2017 – 37,862) DSUs outstanding at December 31, 2018. 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 2018 was $65.23
(2017 – $55.71) per unit using the fair value of a Common Share at time of grant. The Company
recorded share-based compensation of $900 (2017 – $900) related to the DSUs.
The following table presents the share-based payments expense by function:
Cost of revenue
Selling and marketing
Research and development
General and administrative
13. Earnings per share:
$
2018
844
4,644
1,053
5,027
$
2017
1,183
2,813
1,110
4,640
$
11,568
$
9,746
The following table summarizes the calculation of the weighted average number of basic and diluted
common shares:
2018
2017
Issued Common Shares at beginning of period
25,507,922
24,940,114
Effect of shares issued from exercise of options
Effect of shares issued from vesting of restricted share units
Effect of shares issued from vesting of deferred share units
300,799
2,161
9,636
370,967
3,010
–
Weighted average number of basic Common Shares
at end of period
Effect of share options on issue
Effect of share units on issue
25,820,518
25,314,091
890,135
113,782
1,043,105
122,425
Weighted average number of diluted Common Shares
at end of period
26,824,435
26,479,621
For the year ended December 31, 2018, 352,000 (2017 – 736,106) options were excluded from the
weighted average number of diluted common shares as their effect would have been anti-dilutive.
34
Kinaxis Inc.
Consolidated Statements of Comprehensive Income
For the years ended December 31
(Expressed in thousands of USD, except share and per share data)
Revenue (note 14)
Cost of revenue
Gross profit
Operating expenses:
Selling and marketing
Research and development
General and administrative
Other income (expense):
Foreign exchange loss
Net finance income
Profit before income taxes
Income tax expense (recovery) (note 17):
Current
Deferred
Profit
Other comprehensive income (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
Weighted average number of basic
Common Shares (note 13)
Diluted earnings per share
Weighted average number of diluted
Common Shares (note 13)
2018
2017*
$
150,727
$
133,317
47,032
103,695
35,055
27,626
20,167
82,848
20,847
(181)
1,810
1,629
22,476
8,930
(862)
8,068
14,408
39,780
93,537
29,280
23,691
13,855
66,826
26,711
(84)
1,131
1,047
27,758
6,659
716
7,375
20,383
$
$
$
(35)
14,373
0.56
$
$
235
20,618
0.81
25,820,518
25,314,091
0.54
$
0.77
26,824,435
26,479,621
See accompanying notes to consolidated financial statements.
* The Company adopted IFRS 15 and 16 as described in Note 4. Under this adoption, the comparative
information is not restated.
35
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
14. Revenue:
The following table presents the revenue of the Company:
Subscription services:
SaaS and subscription
Subscription term license support
Professional services
Subscription term license
Maintenance and support
2018
2017*
$
97,157
10,730
107,887
$ 100,813
–
100,813
31,854
9,935
1,051
31,469
–
1,035
$ 150,727
$ 133,317
* The Company adopted IFRS 15 as described in Note 4. Under this adoption, the comparative
information is not restated.
The following table presents revenue expected to be recognized in the future related to performance
obligations that are unsatisfied (or partially unsatisfied) at December 31, 2018:
2019
2020
2021 and
thereafter
Total
SaaS
Subscription term license support
Subscription term license
Maintenance and support
$ 100,462
8,382
176
908
$
62,066
3,207
–
167
$
59,768
2,174
–
167
$ 222,296
13,763
176
1,242
$ 109,928
$
65,440
$
62,109
$ 237,477
15. Personnel expenses:
The following table presents the personnel expenses of the Company:
Salaries including bonuses
Benefits
Commissions
Share-based payments
36
$
2018
59,538
9,355
5,329
11,568
$
2017
49,106
7,627
5,293
9,746
$
85,790
$
71,772
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
16. Depreciation:
The following table presents the total depreciation expense by function:
Cost of revenue
Selling and marketing
Research and development
General and administrative
$
2018
6,299
4
1,282
1,687
$
2017
2,745
4
593
276
$
9,272
$
3,618
17. Income tax expense:
The income tax amounts recognized in profit and loss are as follows:
Current tax expense
Current income tax
Deferred tax (recovery) expense
2018
2017
$
8,930
$
6,659
Origination and reversal of temporary differences
(862)
716
$
8,068
$
7,375
A reconciliation of the income tax expense to the expected amount using the Company’s Canadian
tax rate is as follows:
Canadian tax rate
2018
2017
26.50%
26.50%
Expected Canadian income tax expense
$
5,956
$
7,356
Increase (reduction) in income taxes resulting from:
Difference between current and future tax rates and other
Foreign tax rate differences
Permanent difference of share-based payments
Foreign exchange differences
13
60
2,045
(6)
(776)
400
2,004
(1,609)
$
8,068
$
7,375
Foreign exchange differences during 2017 arose upon conversion of the financial statements of
Kinaxis Inc. from USD, its functional currency, to Canadian dollars, the currency used for tax filing
purposes. For 2018 and subsequent years, the Company filed an election to report in USD for
Canadian tax purposes.
37
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
17. Income tax expense (continued):
The following table summarizes the impact of transition to IFRS 15 on the Company’s deferred tax
balances as at January 1, 2018:
Balance, December 31, 2017
Contract acquisition costs
Other
Adjusted balance, January 1, 2018
Impact of adopting
IFRS 15 at January 1, 2018
$
(1,889)
(3,051)
52
$
(4,888)
The following tables present the tax effects of temporary differences and carry-forwards, as well as
movements in the deferred tax balances:
Deferred tax assets (liabilities):
Tax effect of investment tax credits
Share issuance costs
Property and equipment
Contract acquisition costs
Stock based compensation
Net operating loss carryforwards
Other
Deferred tax assets (liabilities):
Tax effect of investment tax credits
Share issuance costs
Property and equipment
Other
Balance at
January 1,
2018
Recognized
in profit
and loss
Balance at
December 31,
2018
$
(1,202)
336
(1,448)
(3,051)
–
–
477
$
807
(240)
(749)
(309)
1,070
658
(375)
$
(395)
96
(2,197)
(3,360)
1,070
658
102
$
(4,888)
$
862
$
(4,026)
Balance at
January 1,
2017
Recognized
in profit
and loss
Balance at
December 31,
2017
$
$
(937)
540
(1,056)
280
$
(1,173)
$
(265)
(204)
(392)
145
(716)
$
(1,202)
336
(1,448)
425
$
(1,889)
The Company does not have investment tax credits available to reduce federal income taxes payable
in Canada as at December 31, 2018 (2017 – $911).
The company has foreign net operating loss carryforwards of $2,520 as at December 31, 2018 (2017
– $nil). These carryforwards are not currently subject to expiration dates and primarily relate to
operations in the United States, United Kingdom and Hong Kong.
38
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
17. Income tax expense (continued):
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, 2018 was
$10,714 (2017 – $8,491).
18. Statement of cash flow:
The following table presents the changes in operating assets and liabilities:
Trade and other receivables
Investment tax credit receivable
Prepaid expenses
Contract acquisition costs
Trade payables and accrued liabilities
Deferred revenue
19. Credit facility:
$
2018
(23,302)
–
(1,633)
(2,429)
(1,118)
15,267
$
2017
(6,835)
1,583
(838)
–
(2,296)
5,757
$
(13,215)
$
(2,629)
The Company has a CAD$20.0 million revolving demand credit facility which bears interest at bank
prime plus 0.50% per annum and has not been drawn as at December 31, 2018.
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, 2018 and
continues to be at the time of approval of these consolidated financial statements. In the event that
the Company’s aggregate borrowings under the revolving facility exceed CAD$2.5 million, a
borrowing limit applies that is based principally on the Company’s accounts receivable.
20. Financial instruments:
The carrying amounts of investments, trade and other receivables, unbilled receivables, and trade
payables and accrued liabilities approximate fair market value due to the short-term maturity of these
instruments.
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.
39
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
20. Financial instruments (continued):
(a) Credit risk (continued):
The maximum exposure to credit risk for trade receivables by geographic region was as follows:
United States
Europe
Asia
Canada
$
2018
36,684
16,397
2,827
710
$
2017
23,790
1,335
2,520
–
$
56,618
$
27,645
The aging of the net trade receivables at December 31 was as follows:
Current
Past due:
0 – 30 days
31 – 60 days
Greater than 60 days
2018
2017
$
40,321
$
23,158
13,269
746
2,282
2,609
13
1,865
$
56,618
$
27,645
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, 2018, no customers individually accounted for greater than
10% of total trade receivables (December 31, 2017 – three customers). For the year ended
December 31, 2018, no customers individually accounted for more than 10% of revenue (2017 –
no customers).
The Company measures a loss allowance based on the lifetime expected credit losses. Lifetime
expected credit losses are estimated based on factors such as the Company’s past experience of
collecting payments, the number of delayed payments in the portfolio past the average credit
period, observable changes in national or local economic conditions that correlate with default on
receivables, financial difficulty of the borrower, and it becoming probable that the borrower will
enter bankruptcy or financial re-organization. Financial assets are written off when there is no
reasonable expectation of recovery. During the year ended December 31, 2018, the Company
wrote off $561 of trade receivables that were deemed not collectible (2017 – no balances written
off). As at December 31, 2018, the Company has not recorded a loss allowance (2017 –
allowance of $491).
40
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
20. Financial instruments (continued):
(a) Credit risk (continued):
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.
(b) Liquidity risk:
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, 2018, the Company had cash and cash equivalents and short-term investments
totaling $181,548 (2017 – $158,530). Further, the Company has a credit facility as disclosed in
Note 19. The Company’s trade payables and accrued liabilities are due within 3 months or less.
(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, Japanese Yen, Euro, Great British Pound, 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.
41
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
20. 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, 2018, 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
$2,953 lower (2017 – $1,764 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, 2018
In thousands of local currency
Trade receivables
Unbilled receivables
Other receivables
Trade payables
Accrued liabilities
USD
CAD
JPY
EUR
GBP
KRW
51,590
3,798
317
(173)
(4,046)
57
68,887
113 328,685
24,796
214
(36,125)
(1,083)
(37,127)
(5,080)
3,556
–
20
(41)
(198)
–
–
12
(4)
(600)
331,472
–
–
(53,684)
(9,479)
51,486
(5,779) 349,116
3,337
(592)
268,309
December 31, 2017
In thousands of local currency
USD
CAD
JPY
EUR
HKD
KRW
Trade receivables
Other receivables
Trade payables
Accrued liabilities
Interest rate risk
26,547
2,350
(1,774)
(2,934)
–
747
(713)
(2,701)
49,250
44,104
(96,992)
(9,159)
551
107
(34)
(261)
–
2
(27)
–
–
5,181
(24,742)
(18,913)
24,189
(2,667)
(12,797)
363
(25)
(38,474)
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. As of December 31, 2018,
the Company has not drawn on the revolving demand facility.
42
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
21. 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
To better represent the source of the underlying business, the following table presents revenue for
2018 and 2017 attributed to geographic areas based on the primary business location of the
customer, rather than the location of the customer’s contracting entity as reported in prior periods.
United States
Europe
Asia
Canada
2018
2017*
$ 103,060
33,226
12,373
2,068
$ 103,392
17,230
10,419
2,276
$ 150,727
$ 133,317
* The Company adopted IFRS 15 as described in Note 4. Under this adoption, the comparative
information is not restated.
The following table presents total property and equipment on a geographic basis:
Canada
Asia
United States
Europe
$
2018
12,547
4,616
3,422
2,200
$
2017
10,895
1,374
2,876
2,205
$
22,785
$
17,350
The following table presents total right-of-use assets on a geographic basis:
Canada
Asia
Europe
United States
43
$
2018
4,214
2,966
1,085
608
$
8,873
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
22. Related party transactions:
Details of the Company’s subsidiaries at December 31, 2018 and 2017 are as follows:
Name of subsidiary
Principal Place of incorporation
activity
and operation
Proportion of ownership interest
and voting power held
Kinaxis Asia Limited
Kinaxis Corp.
Kinaxis Europe B.V.
Kinaxis Japan K.K.
Kinaxis Korea Limited
Kinaxis UK Limited
Sales
Sales
Sales
Sales
Sales
Sales
Hong Kong
State of Delaware, USA
The Netherlands
Japan
South Korea
United Kingdom
2018
100%
100%
100%
100%
100%
100%
2017
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 transactions with related parties other than key
management personnel, as described below.
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 key management personnel during the year were as follows:
Salary and other short-term benefits
Share-based payments
23. Capital management:
2018
4,063
8,002
$
$
12,065
2017
3,225
5,949
9,174
$
$
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, 2018. The terms of the facility require the
Company to meet certain financial covenants which are monitored by senior management to ensure
compliance.
44
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
24. Contingencies:
a) During the second quarter of 2017, an Asian-based customer did not make certain scheduled
payments under its contract. During the third quarter of 2017, the Company terminated the
contract, the Company ceased providing services to this customer, and, as per the dispute
resolution procedures in its contract with the customer, the Company has initiated confidential,
binding arbitration proceedings for payment of all amounts due under the contract and damages.
The customer has denied the Company’s claims, alleges breach by the Company, and has
asserted its own counterclaims. The Company has not recorded any liability for the customer’s
counterclaims as it believes the customer’s positions and assertions are without merit. While the
Company did not recognize revenue for this customer effective with the second quarter of 2017,
as at December 31, 2018, trade and other receivables from this customer totaled $2,532. The
Company believes the receivables recorded are collectible and it will be successful in asserting
its claims.
b) 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.
c) 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.
45
Kinaxis Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31
(Expressed in thousands of USD)
Accumulated
other
Contributed comprehensive
income (loss)
surplus
Share
capital
Retained
earnings
(deficit)
Total equity*
Balance, December 31, 2016 $
97,164
$
13,924
$
(519)
$
(22,858)
$
87,711
Profit
Other comprehensive income
Total comprehensive income
–
–
–
Share options exercised
Restricted share units vested
Share based payments (note 12)
Total shareholder transactions
9,437
1,652
–
11,089
–
–
–
(2,724)
(1,652)
9,746
5,370
–
235
235
–
–
–
–
20,383
–
20,383
–
–
–
–
20,383
235
20,618
6,713
–
9,746
16,459
Balance, December 31, 2017 $
108,253
$
19,294
$
(284)
$
(2,475)
$
124,788
Adjustment on initial application
of IFRS 15 (note 4)
Balance, January 1, 2018
–
108,253
–
19,294
Profit
Other comprehensive loss
Total comprehensive income (loss)
–
–
–
Share options exercised
Restricted share units vested
Deferred share units exercised
Share based payments (note 12)
Total shareholder transactions
14,012
1,834
852
–
16,698
–
–
–
(3,892)
(1,834)
(852)
11,568
4,990
–
(284)
–
(35)
(35)
–
–
–
–
–
23,833
21,358
14,408
–
14,408
–
–
–
–
–
23,833
148,621
14,408
(35)
14,373
10,120
–
–
11,568
21,688
Balance, December 31, 2018 $
124,951
$
24,284
$
(319)
$
35,766
$
184,682
See accompanying notes to consolidated financial statements.
* The Company adopted IFRS 15 and 16 as described in Note 4. Under this adoption, the comparative
information is not restated.
46
Kinaxis Inc.
Consolidated Statements of Cash Flows
For the years ended December 31
(Expressed in thousands of USD)
Cash flows from operating activities:
Profit
Items not affecting cash:
Depreciation of property and equipment (note 16)
Share-based payments (note 12)
Amortization of lease inducement
Investment tax credits recoverable
Net finance income
Income tax expense (note 17)
Change in operating assets and liabilities (note 18)
Interest received
Interest paid
Income taxes paid
Cash flows used in investing activities:
Purchase of property and equipment (note 6)
Purchase of short-term investments
Redemption of short-term investments
Cash flows from financing activities:
Payment of lease obligations (note 11)
Common shares issued on exercise of stock options
Increase in cash and cash equivalents
Cash and cash equivalents, beginning of year
Effects of exchange rates on cash and cash equivalents
2018
2017*
$
14,408
$
20,383
9,272
11,568
–
911
(1,810)
8,068
(13,215)
2,413
(773)
(2,927)
27,915
(12,310)
(112,684)
112,588
(12,406)
(2,160)
10,120
7,960
23,469
103,392
(717)
3,618
9,746
(18)
(156)
(1,131)
7,375
(2,629)
999
–
(4,624)
33,563
(10,149)
(80,006)
25,000
(65,155)
–
6,713
6,713
(24,879)
127,910
361
Cash and cash equivalents, end of year
$
126,144
$
103,392
See accompanying notes to consolidated financial statements.
* The Company adopted IFRS 15 and 16 as described in Note 4. Under this adoption, the comparative
information is not restated.
47
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, 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, 2018 and 2017 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; Hong Kong, China; Tokyo, Japan; Seoul,
South Korea; Eindhoven, The Netherlands; London, United Kingdom; 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 six wholly-owned subsidiaries,
Kinaxis Corp., Kinaxis Asia Limited, Kinaxis Japan K.K., Kinaxis Korea Limited, Kinaxis Europe
B.V., and Kinaxis UK Limited.
The consolidated financial statements were authorized for issue by the Board of Directors on
February 28, 2019.
(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.
(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, Kinaxis Europe B.V., and Kinaxis UK Limited), are measured
using USD as the functional currency. Transactions in currencies other than USD 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
48
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
2. Basis of preparation (continued):
(d) Foreign currency (continued):
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, Kinaxis Europe B.V., and Kinaxis UK Limited
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; the financial statements of Kinaxis
Europe B.V. are measured using the European Euro as its functional currency; and the financial
statements of Kinaxis UK Limited are measured using the British Pound as its functional
currency. Assets and liabilities have been translated into USD 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 trade and
other receivables, 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.
Allocation of consideration to multiple elements of a revenue arrangement
Contracts with customers often include promises to deliver multiple products and services.
Determining whether such bundled products and services are considered i) distinct performance
obligations that should be separately recognized, or ii) non-distinct and therefore should be
combined with another good or service and recognized as a combined unit of accounting may
require significant judgment. In general, the Company’s professional services are capable of
being distinct as they could be performed by third party service providers and do not involve
significant customization of the licensed software.
49
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
2. Basis of preparation (continued):
(e) Use of estimates and judgments (continued):
The determination of the standalone selling prices (“SSP”) for distinct performance obligations
can also require judgment and estimates. The Company uses a single amount to estimate SSP
for bundled items such as subscription licenses and maintenance and support in subscription
arrangements that are not sold separately. The Company uses a range of amounts to estimate
SSP when it sells each of the products and services separately and needs to determine whether
there is a discount that needs to be allocated based on the relative SSP of the various products
and services. In general, SSP for maintenance and support bundled in on-premise and hybrid
subscription arrangements is established as a percentage of the subscription license fee as
supported by third party evidence and internal analysis of similar vendor contracts. SSP for
hosting and professional services is established based on observable prices for the same or
similar services when sold separately, or estimated using a cost plus margin approach.
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.
Trade and other receivables
The recognition of trade and other receivables and loss allowances requires the Company to
assess credit risk and collectability. The Company considers historical trends and any available
information indicating a customer could be experiencing liquidity or going concern problems and
the status of any contractual or legal disputes with customers in performing this assessment.
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.
50
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and 2017
(Expressed in thousands of USD, except share and per share amounts)
2. Basis of preparation (continued):
(e) Use of estimates and judgments (continued):
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 12.
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:
Revenue is recognized upon transfer of control of products or services to customers at an amount
that reflects the consideration the Company expects to receive in exchange for the products or
services. The Company’s contracts often include multiple products and services, which are
generally capable of being distinct and accounted for as separate performance obligations.
The Company’s hosted software-as-a-service (“SaaS”) application, which allows customers to
use hosted software over the contract period without taking possession of the software, is
provided on a subscription basis, and recognized ratably over the contract period, commencing
on the date an executed contract exists and the customer has the right-to-use and access to the
platform.
On-premise, fixed term subscription licenses and hybrid software subscriptions (where the
customer has the option to take the hosted software on-premise) provide the customer with a
right-to-use the software as it exists when made available to the customer. Revenue from distinct
on-premise subscription licenses is recognized upfront at the point in time when the software is
made available to the customer and the right to use the software has commenced. On-premise
subscription licenses and hybrid subscriptions are bundled with software maintenance and
support services and/or hosting for a term. The license component and maintenance and
support/hosting components are each allocated revenue using their relative estimated SSP.
Revenue allocated to the bundled maintenance and support and hosting is recognized ratably
over the term of the maintenance and support services.
51
KINAXIS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2018
DATED: February 28, 2019
52
Management's Discussion and Analysis
As at
December 31,
2018
As at
December 31,
2018
Pre-IFRS 15/16
As at
December 31,
2017
As at
December 31,
2016
(In thousands of USD)
Total assets ......................................
$ 297,759
$ 269,728
$ 212,693
$ 168,292
Total non-current liabilities .............
10,386
1,343
9,689
14,628
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 performance. 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,
Year ended December 31,
2018
Pre-IFRS 15/16
2017
2018
2018
2018
(In thousands of USD)
Pre-IFRS 15/16
2017
2016
Profit ...................................................
Share-based compensation ..................
Adjusted profit ....................................
Income tax expense .............................
Depreciation ........................................
Foreign exchange loss (gain) ...............
Net finance income ..............................
Adjusted EBITDA ...............................
Adjusted EBITDA as a percentage
of revenue ............................................
$ 2,925
2,924
$ 5,849
1,796
2,571
(22)
(1,208)
3,137
$ 8,986
$ 2,978
2,924
$ 5,902
2,028
1,894
117
(1,270)
2,769
$ 8,671
$ 5,485
2,334
$ 7,819
2,584
1,101
31
(378)
3,338
$ 11,157
$ 14,408
11,568
$ 25,976
8,068
9,272
181
(1,810)
15,711
$ 41,687
$ 15,846
11,568
$ 27,414
8,788
6,728
507
(2,583)
13,440
$ 40,854
$ 20,383
9,746
$ 30,129
7,375
3,618
84
(1,131)
9,946
$ 40,075
$ 10,745
8,140
$ 18,885
7,258
2,494
198
(307)
9,643
$ 28,528
23%
22%
32%
28%
26%
30%
25%
53
Management's Discussion and Analysis
Revenue
Three months ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Three months ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Subscription services:
SaaS and subscription ..................
Subscription term license support
Professional services .......................
Subscription term license ................
Maintenance and support.................
$ 25,492
2,707
28,199
$ 26,961
–
26,961
7,447
2,390
263
38,299
7,202
–
260
34,423
(5%)
–
5%
3%
–
1%
11%
$ 31,750
–
31,750
$ 26,961
–
26,961
7,447
–
263
39,460
7,202
–
260
34,423
18%
–
18%
3%
–
1%
15%
Year ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Year ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Subscription services:
SaaS and subscription ..................
Subscription term license support
Professional services .......................
Subscription term license ................
Maintenance and support.................
$ 97,157
10,730
107,887
$ 100,813
–
100,813
31,854
9,935
1,051
150,727
31,469
–
1,035
133,317
(4%)
–
7%
1%
–
2%
13%
$ 122,046
–
122,046
$ 100,813
–
100,813
31,854
–
1,051
154,951
31,469
–
1,035
133,317
21%
–
21%
1%
–
2%
16%
Prior to applying IFRS 15, total revenue for the three months ended December 31, 2018 was $39.5 million, an
increase of $5.0 million compared to the same period in 2017. This increase was due to an 18% increase in SaaS and
subscription revenue. Prior to applying IFRS 15, total revenue for the year ended December 31, 2018 was $155.0
million, an increase of $21.6 million compared to the same period in 2017. This increase was due to a 21% increase
in SaaS and subscription revenue.
Under IFRS 15, total revenue for the three months ended December 31, 2018 was $38.3 million, $1.2 million
lower than total revenue prior to applying IFRS 15. Under IFRS 15, total revenue for the year ended December 31,
2018 was $150.7 million, $4.2 million lower than total revenue prior to applying IFRS 15. These differences were due
to earlier recognition of subscription revenue in the current and prior periods for the software license component of
on-premise and hybrid subscriptions under IFRS 15.
SaaS and subscription revenue
Prior to applying IFRS 15, SaaS and subscription revenue for the three months ended December 31, 2018 was
$31.8 million, an increase of $4.8 million compared to the same period in 2017. Prior to applying IFRS 15, SaaS and
subscription revenue for the year ended December 31, 2018 was $122.0 million, an increase of $21.2 million compared
to the same period in 2017. These increases were due to contracts secured with new customers, as well as expansion
of existing customer subscriptions.
Under IFRS 15, SaaS and subscription revenue for the three months ended December 31, 2018 was $25.5 million,
$6.3 million lower than SaaS and subscription revenue prior to applying IFRS 15. Under IFRS 15, SaaS and
54
Management's Discussion and Analysis
subscription revenue for the year ended December 31, 2018 was $97.2 million, $24.9 million lower than SaaS and
subscription revenue prior to applying IFRS 15. SaaS and subscription revenue is lower under IFRS 15 due to separate
recognition of revenue for the support component of on-premise subscription arrangements, in addition to earlier and
separate recognition of revenue for the software license component of on-premise subscriptions.
Subscription term license support revenue
Under IFRS 15, subscription term license support revenue for the three months and year ended December 31,
2018 was $2.7 million and $10.7 million respectively. This represents the support component of on-premise and hybrid
subscription arrangements being recognized separately from the subscription term license revenue.
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 led engagements. Professional services revenue for the three months ended
December 31, 2018 was $7.4 million, an increase of $0.2 million compared to the same period in 2017. Professional
services revenue for the year ended December 31, 2018 was $31.9 million, an increase of $0.4 million compared to
the same period in 2017. The increases were due to deployments for new name accounts.
Subscription term license revenue
Under IFRS 15, subscription term license revenue for the three months and year ended December 31, 2018 was
$2.4 million and $9.9 million respectively. We expect subscription term license revenue to vary quarter to quarter
based upon timing of new engagements, expansions and renewals for on-premise and hybrid subscription
arrangements.
Maintenance and support revenue
Maintenance and support revenue was consistent at $0.3 million for the three months ended December 31, 2018
and 2017. Maintenance and support revenue was $1.1 million for the year ended December 31, 2018, comparable to
the same period in 2017. We expect maintenance and support revenue to continue to account for less than 1% of total
revenue.
55
Management's Discussion and Analysis
Cost of Revenue
Three months ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Three months ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Cost of revenue ...............................
Gross profit .....................................
Gross profit percentage ...................
$ 12,390
25,909
68%
$ 9,737
24,686
72%
27%
5%
$ 12,450
27,010
68%
$ 9,737
24,686
72%
28%
9%
Year ended
December 31,
2018
2017
2017 to
2018
%
2018
(In thousands of USD)
Pre-IFRS 15/16
Year ended
December 31,
2017
2017 to
2018
%
Cost of revenue ...............................
Gross profit .....................................
Gross profit percentage ...................
$ 47,032
103,695
69%
$ 39,780
93,537
70%
18%
11%
$ 47,168
107,783
70%
$ 39,780
93,537
70%
19%
15%
Cost of revenue for the three months ended December 31, 2018 was $12.4 million, an increase of $2.7 million
compared to the same period in 2017. Cost of revenue for the year ended December 31, 2018 was $47.0 million, an
increase of $7.3 million compared to the same period in 2017. Cost of revenue increased due to an increase in
headcount and related compensation costs as well as higher depreciation costs associated with the expansion of data
center capacity. We expanded existing data centers and launched new data centers in Japan to support new and
ongoing customer engagements as well as global expansion. The adoption of IFRS 16 had a nominal impact on cost
of revenue.
Prior to applying IFRS 15 and 16, gross profit for the three months and year ended December 31, 2018 was $27.0
million and $107.8 million respectively, compared to $24.7 million and $93.5 million for the same periods in 2017.
Gross profit increased for the three months and year ended December 31, 2018 due to an increase in SaaS and
subscription revenue, partly offset by the increase in cost of revenue. As a percentage of revenue, gross profit was
68% and 70% for the three months and year ended December 31, 2018, compared to 72% and 70% for the same
periods in 2017.
Under IFRS 15 and 16, gross profit for the three months ended December 31, 2018 was $26.0 million, compared
to $27.0 million prior to applying IFRS 15 and 16. Gross profit for the year ended December 31, 2018 was $103.7
million, compared to $107.8 million prior to applying IFRS 15 and 16. The lower gross profit under IFRS 15 and 16
was due to lower SaaS and subscription revenue recorded under IFRS 15. The adoption of IFRS 16 had a nominal
impact on gross profit.
56
Management's Discussion and Analysis
Selling and Marketing Expenses
Three months ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Three months ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Selling and marketing ......................
As a percentage of revenue .............
$ 10,285
27%
$ 7,882
23%
30%
$ 11,119
28%
$ 7,882
23%
41%
Year ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Year ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Selling and marketing ......................
As a percentage of revenue .............
$ 35,055
23%
$ 29,280
22%
20%
$ 37,485
24%
$ 29,280
22%
28%
Prior to applying IFRS 15 and 16, selling and marketing expenses for the three months ended December 31, 2018
were $11.1 million, an increase of $3.2 million compared to the same period in 2017. Selling and marketing expenses
for the year ended December 31, 2018 were $37.5 million, an increase of $8.2 million compared to the same period
in 2017. Selling and marketing expenses increased due to an increase in headcount and related compensation costs,
travel costs, and marketing programs to support global expansion.
Under IFRS 15 and 16, selling and marketing expenses for the three months ended December 31, 2018 were $10.3
million, $0.8 million lower than selling and marketing expenses prior to application of IFRS 15 and 16. For the year
ended December 31, 2018, selling and marketing expenses were $35.1 million, $2.4 million lower than selling and
marketing expenses prior to application of IFRS 15 and 16. Selling and marketing expenses were lower under IFRS
15 due to capitalization of customer acquisition costs incurred in the period net of the amortization of customer
acquisition costs. The adoption of IFRS 16 had a nominal impact on selling and marketing expenses.
As a percentage of revenue, selling and marketing expenses were 27% and 23% for the three months and year
ended December 31, 2018 respectively, compared to 23% and 22% for the same periods in 2017. Selling and marketing
expenses are traditionally higher in the fourth quarter due to the timing of significant marketing events, including our
annual user conference.
57
Management's Discussion and Analysis
Research and Development Expenses
Three months ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Three months ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Research and development ..............
As a percentage of revenue .............
$ 7,105
19%
$ 5,608
16%
27%
$ 7,078
18%
$ 5,608
16%
26%
Year ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Year ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Research and development ..............
As a percentage of revenue .............
$ 27,626
18%
$ 23,691
18%
17%
$ 27,674
18%
$ 23,691
18%
17%
Research and development expenses for the three months ended December 31, 2018 were $7.1 million, an
increase of $1.5 million compared to the same period in 2017. Research and development expenses for the year ended
December 31, 2018 were $27.6 million, an increase of $3.9 million compared to the same period in 2017. The increase
in research and development expenses was due to an increase in headcount and related compensation costs. The
investment in headcount supports ongoing programs to develop the RapidResponse product and solution offering and
our knowledge solutions for new and existing customers. As a percentage of revenue, research and development
expenses were 19% and 18% for the three months and year ended December 31, 2018, compared to 16% and 18% for
the same periods in 2017.
The adoption of IFRS 15 did not have an impact on research and development expenses. The adoption of IFRS
16 had a nominal impact on research and development expenses.
58
Management's Discussion and Analysis
General and Administrative Expenses
Three months ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Three months ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
General and administrative ..............
As a percentage of revenue .............
$ 5,028
13%
$ 3,474
10%
45%
$ 4,960
13%
$ 3,474
10%
43%
Year ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Year ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
General and administrative ..............
As a percentage of revenue .............
$ 20,167
13%
$ 13,855
10%
46%
$ 20,066 $ 13,855
45%
13%
10%
General and administrative expenses for the three months ended December 31, 2018 were $5.0 million, an
increase of $1.6 million compared to the same period in 2017. General and administrative expenses for the year ended
December 31, 2018 were $20.2 million, an increase of $6.3 million compared to the same period in 2017. The increase
in general and administrative expenses was due to an increase in headcount and related compensation costs, legal fees,
office and depreciation costs, and IT expenditures. The increase in headcount reflects investments in corporate
infrastructure and capability to support our global expansion and growth strategy. As a percentage of revenue, general
and administrative expenses were 13% for the three months and year ended December 31, 2018, compared to 10% for
the same periods in 2017.
The adoption of IFRS 15 and 16 had a nominal impact on general and administrative expenses.
59
Management's Discussion and Analysis
Other Income and Expense
Three months ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Three months ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Other income (expense):
Foreign exchange gain (loss) ...
Net finance income ..................
Total other income ..........................
$ 22
1,208
1,230
$ (31)
378
347
–(1)
220%
254%
$ (117)
1,270
1,153
$ (31)
378
347
277%
236%
232%
Note:
(1)
The percentage change has been excluded as it is not meaningful.
Year ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Year ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Other income (expense):
Foreign exchange loss .............
Net finance income ..................
Total other income ..........................
$ (181)
1,810
1,629
$ (84)
1,131
1,047
115%
60%
56%
$ (507)
2,583
2,076
$ (84)
1,131
1,047
504%
128%
98%
Prior to applying IFRS 15 and 16, total other income for the three months ended December 31, 2018 was $1.2
million, compared to $0.3 million for the same period in 2017. For the year ended December 31, 2018, total other
income was $2.1 million compared to $1.0 million for the same period in 2017. The increase for the three months and
year was due to an increase in interest earned on higher balances of cash and cash equivalents and short-term
investments, partly offset by higher foreign exchange losses caused by USD exchange rate changes during the year,
which had an impact on foreign-denominated cash and working capital balances.
Under IFRS 15 and 16, total other income for the three months ended December 31, 2018 was $1.2 million,
comparable to total other income prior to the application of IFRS 15 and 16. For the year ended December 31, 2018,
total other income was $1.6 million, $0.4 million lower than total other income prior to the application of IFRS 15
and 16. The lower total other income was due to finance expenses associated with operating lease obligations under
IFRS 16 and advance payment on certain arrangements under IFRS 15.
60
Management's Discussion and Analysis
Income Taxes
Three months ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Three months ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Income tax expense .........................
As a percentage of profit before
income taxes ....................................
$ 1,796
$ 2,584
(30%)
$ 2,028
$ 2,584
(22%)
38%
32%
41%
32%
Year ended
December 31,
2018
2017
2017 to
2018
%
Pre-IFRS 15/16
Year ended
December 31,
2017 to
2018
%
2018
(In thousands of USD)
2017
Income tax expense .........................
As a percentage of profit before
income taxes ....................................
$ 8,068
$ 7,375
9%
$ 8,788
$ 7,375
19%
36%
27%
36%
27%
Prior to applying IFRS 15 and 16, income tax expense for the three months ended December 31, 2018 was $2.0
million, compared to $2.6 million for the same period in 2017. Income tax expense for the year ended December 31,
2018 was $8.8 million, compared to $7.4 million for the same period in 2017. For the three months and year ended
December 31 2018, income tax expense as a percentage of profit before income taxes increased from 32% to 41% and
from 27% to 36%. The increase in income tax expense as a percentage was due to one-time credit adjustments recorded
for changes in estimates included in the 2017 tax provisions as well as foreign exchange losses incurred in 2017 upon
converting results to Canadian dollars for Canadian tax purposes.
Under IFRS 15 and 16, income tax expense for the three months ended December 31, 2018 was $1.8 million,
$0.2 million lower than income tax expense prior to applying IFRS 15 and 16. Income tax expense for the year ended
December 31, 2018 was $8.1 million, $0.7 million lower than income tax expense prior to applying IFRS 15 and 16.
The change in income tax expense was due to the impact on profit before incomes taxes and the income tax effect of
the IFRS 15 and 16 adjustments for the three months and year ended December 31, 2018.
The percentage of profit before income taxes is generally higher than statutory income tax rates in Canada due
primarily to share-based payments expense incurred not considered deductible for income tax purposes in Canada.
61
Profit
Three months ended
December 31,
2018
2017
Management's Discussion and Analysis
Pre-IFRS 15/16
Three months ended
December 31,
2017 to 2018
%
2017
2017 to 2018
%
2018
(In thousands of USD)
Profit ..................................................
Adjusted profit(1) ................................
Adjusted EBITDA(1) ..........................
Basic earnings per share ....................
Diluted earnings per share .................
Adjusted diluted earnings per share(1)
$ 2,925
5,849
8,986
$ 0.11
$ 0.11
$ 0.22
$ 5,485
7,819
11,157
$ 0.22
$ 0.21
$ 0.30
(47%)
(25%)
(19%)
$ 2,978
5,902
8,671
$ 0.11
$ 0.11
$ 0.22
$ 5,485
7,819
11,157
$ 0.22
$ 0.21
$ 0.30
(46%)
(25%)
(22%)
Pre-IFRS 15/16
Year ended
December 31,
2018
2017
2017 to 2018
%
2018
(In thousands of USD)
Year ended
December 31,
2017 to 2018
%
2017
Profit ..................................................
Adjusted profit(1) ................................
Adjusted EBITDA(1) ..........................
Basic earnings per share ....................
Diluted earnings per share .................
Adjusted diluted earnings per share(1)
$ 14,408
25,976
41,687
$ 0.56
$ 0.54
$ 0.97
$ 20,383
30,129
40,075
$ 0.81
$ 0.77
$ 1.14
(29%)
(14%)
4%
$ 15,846
27,414
40,854
$ 0.61
$ 0.59
$ 1.02
$ 20,383
30,129
40,075
$ 0.81
$ 0.77
$ 1.14
(22%)
(9%)
2%
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.
Prior to applying IFRS 15 and 16, profit for the three months ended December 31, 2018 was $3.0 million or $0.11
per basic and diluted share, compared to $5.5 million or $0.22 per basic share and $0.21 per diluted share for the same
period in 2017. Profit for the year ended December 31, 2018 was $15.8 million or $0.61 per basic share and $0.59 per
diluted share, compared to $20.4 million or $0.81 per basic share and $0.77 per diluted share for the same period in
2017. The decrease in profit for the three months and year was due to an increase in operating expenses net of an
increase in revenue and gross profit.
Prior to applying IFRS 15, Adjusted EBITDA for the three months ended December 31, 2018 was $8.7 million,
compared to $11.2 million for the same period in 2017. The decrease in Adjusted EBITDA was due to an increase in
operating expenses net of an increase in revenue and gross profit. Adjusted EBITDA for the year ended December 31,
2018 was $40.9 million, compared to $40.1 million for the same period in 2017. The increase in Adjusted EBITDA
was due to an increase in revenue and gross profit.
Under IFRS 15 and 16, profit for the three months ended December 31, 2018 was $2.9 million or $0.11 per basic
and diluted share. This was comparable to profit prior to applying IFRS 15 and 16. Profit for the year ended December
31, 2018 was $14.4 million or $0.56 per basic share and $0.54 per diluted share. This was $1.4 million lower than
profit prior to applying IFRS 15 and 16. The lower profit for the year was due to lower subscription revenue, partly
offset by lower selling and marketing expenses under IFRS 15.
62
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, 2018. This MD&A has been prepared with an effective date of February 28, 2019.
This MD&A for the year ended December 31, 2018 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, 2018. The financial
information presented in this MD&A is derived from our annual consolidated financial statements prepared in
accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting
Standards Board (“IASB”). This MD&A contains forward-looking statements that involve risks, uncertainties and
assumptions, including statements regarding anticipated developments in future financial periods and our future plans
and objectives. There can be no assurance that such information will prove to be accurate, and readers are cautioned
not to place undue reliance on such forward-looking statements. See “Forward-Looking Statements”.
This MD&A includes trade-marks, such as “Kinaxis”, and “RapidResponse”, which are protected under
applicable intellectual property laws and are the property of Kinaxis. Solely for convenience, our trade-marks and
trade names referred to in this MD&A may appear without the ® or ™ symbol, but such references are not intended
to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights to these trade-
marks and trade names. All other trade-marks used in this MD&A are the property of their respective owners.
All references to $ or dollar amounts in this MD&A are to U.S. currency unless otherwise indicated.
Additional information relating to Kinaxis Inc., including the Company’s most recently completed Annual
Information Form, can be found on SEDAR at www.sedar.com.
Non-IFRS Measures
This MD&A makes reference to certain non-IFRS measures such as “Adjusted profit”, “Adjusted EBITDA” and
“Adjusted diluted earnings per share”. These non-IFRS measures are not recognized, defined or standardized measures
under IFRS. Our definition of Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share will likely
differ from that used by other companies and therefore comparability may be limited.
Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share should not be considered a substitute
for or in isolation from measures prepared in accordance with IFRS. These non-IFRS measures should be read in
conjunction with our annual consolidated financial statements and the related notes thereto as at and for the year ended
December 31, 2018. 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:
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;
•
•
•
•
63
Management's Discussion and Analysis
Under IFRS 15 and 16, Adjusted EBITDA for the three months ended December 31, 2018 was $9.0 million, $0.3
million higher than Adjusted EBITDA prior to applying IFRS 15 and 16. Adjusted EBITDA for the year ended
December 31, 2018 was $41.7 million, $0.8 million higher than Adjusted EBITDA prior to applying IFRS 15 and 16.
The higher Adjusted EBITDA for the three months and year was due to lower selling and marketing expenses under
IFRS 15 and lower operating expenses excluding depreciation under IFRS 16.
Key Balance Sheet Items
Pre-IFRS 15/16
As at
December 31, 2018
As at
December 31, 2018
As at
December 31, 2017
(In thousands of USD)
Total assets ..............................................
Total liabilities.........................................
$ 297,759
113,077
$ 269,728
107,514
$ 212,693
87,905
An analysis of the key balance sheet items driving the change in total assets and liabilities is as follows:
Trade and other receivables
Pre-IFRS 15/16
As at
December 31, 2018
As at
December 31, 2018
As at
December 31, 2017
(In thousands of USD)
Trade accounts receivable .......................
Unbilled receivables ................................
Other receivables .....................................
Total trade and other receivables .............
$ 56,618
6,408
1,304
64,330
$ 56,618
1,844
958
59,420
$ 27,645
1,507
2,631
31,783
Prior to applying IFRS 15, trade and other receivables were $59.4 million, an increase of $27.8 million compared
to December 31, 2017. The change in trade and other receivables was due to variances in the 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 and overdue amounts do not reflect any credit issues. There was no allowance
for doubtful accounts as at December 31, 2018.
Under IFRS 15, trade and other receivables were $64.3 million at December 31, 2018, an increase of $4.9 million
compared to the balance at December 31, 2018 prior to applying IFRS 15. The adoption of IFRS 15 as of January 1,
2018 increased the unbilled receivables balance due to the acceleration of revenue recognized for the implied software
component of on-premise and hybrid subscription arrangements in advance of payments received under the contracts.
During the second quarter of 2017, an Asian-based customer did not make certain scheduled payments under its
contract. We have since terminated the contract with this customer, ceased providing services to this customer, and,
as per the dispute resolution procedures in our contract, we have initiated confidential, binding arbitration proceedings
for payment of all amounts due under the contract and damages. The customer has denied our claims, alleges breach
by Kinaxis, and has asserted its own counterclaims. We believe the customer’s positions and assertions are without
merit. We did not recognize subscription revenue in the second quarter of 2017 or subsequent quarters beyond
payments received from this customer. As at December 31, 2018, trade and other receivables from this customer
totaled $2.5 million. We believe that the receivables are collectible and that we will be successful in asserting our
claims.
64
Management's Discussion and Analysis
Right-of-use assets & Lease obligations
Pre-IFRS 15/16
As at
December 31, 2018
As at
December 31, 2018
As at
December 31, 2017
(In thousands of USD)
Right-of-use assets .................................
$ 8,873
$ –
$ –
Lease obligations:
Current .................................................
Non-current ..........................................
2,572
6,311
8,883
–
–
–
–
–
–
Upon adoption of IFRS 16 as of January 1, 2018, operating leases require recognition as a liability and a right-
of-use asset. Payments for operating leases with a term of less than one year and leases considered low value are
expensed as incurred. At December 31, 2018, the balance of right-of-use assets was $8.9 million, net of accumulated
depreciation and the balance of the related lease obligations was $8.9 million, net of deemed finance costs. The assets
and liabilities increased due to additional data center leases entered into during the year to date.
Contract acquisition costs
Pre-IFRS 15/16
As at
December 31, 2018
As at
December 31, 2018
As at
December 31, 2017
(In thousands of USD)
Contract acquisition costs .......................
$ 13,902
$ –
$ –
Upon adoption of IFRS 15 as of January 1, 2018, contract acquisition costs are capitalized and amortized over
the expected life of the customer upon commencement of the related revenue. Contract acquisition costs primarily
include sales commissions paid to employees and third party referral fees. Contract acquisition costs were $13.9
million at December 31, 2018, net of accumulated amortization. The balance increased due to additional contract
acquisition costs incurred during the year to date.
Deferred revenue
Pre-IFRS 15/16
As at
December 31, 2018
As at
December 31, 2018
As at
December 31, 2017
(In thousands of USD)
Current ...................................................
Non-current .............................................
$ 78,496
–
78,496
$ 89,931
–
89,931
$ 67,040
7,745
74,785
Prior to applying IFRS 15, deferred revenue at December 31, 2018 was $89.9 million, an increase of $15.1 million
compared to deferred revenue at December 31, 2017. We generally bill our customers annually in advance for
subscriptions resulting in initially recording the amount billed as deferred revenue which is subsequently drawn down
to revenue over the term. The change in deferred revenue was due to variances in the timing of billings for new and
existing customer contracts. There was no deferred revenue relating to subscription term periods beyond one year at
December 31, 2018 compared to $7.7 million at December 31, 2017.
Under IFRS 15, deferred revenue was $78.5 million at December 31, 2018, $11.4 million lower than the balance
at December 31, 2018 prior to applying IFRS 15. The adoption of IFRS 15 as of January 1, 2018 decreased the deferred
65
Management's Discussion and Analysis
revenue balance due to the acceleration of revenue recognized for the implied software component of on-premise and
hybrid subscription arrangements, the payments for which had been received and revenue deferred over the contract
term prior to the adoption of IFRS 15.
Summary of Quarterly Results
The following table summarizes selected results for the eight most recent completed quarters to December 31, 2018.
December
31, 2018
September
30, 2018
June 30,
2018
March 31,
2018
December
31, 2017
September
30, 2017
June 30,
2017
March 31,
2017
Three months ended
Prior to IFRS 15/16
Revenue:
SaaS and subscription ....................
Subscription term license support ..
Professional services ......................
Subscription term license ...............
Maintenance and support ..............
$ 25,492
2,707
7,447
2,390
263
$ 24,489
2,668
8,657
508
263
$ 23,873
2,669
9,640
2,543
269
$ 23,303
2,686
6,110
4,494
256
$ 26,961
–
7,202
–
260
$ 25,796
–
7,431
–
259
$ 24,202
–
8,395
–
269
$ 23,854
–
8,441
–
247
Cost of revenue ...................................
Gross profit .........................................
Operating expenses(2) ..........................
Foreign exchange gain (loss) ..............
Net finance income ............................
Profit before income taxes ..................
Income tax expense .............................
Profit ...................................................
Share-based compensation..................
Adjusted profit(1) .................................
Income tax expense .............................
Depreciation(2) .....................................
Foreign exchange loss (gain) ..............
Net finance income .............................
Adjusted EBITDA(1) ...........................
Basic earnings per share .....................
Diluted earnings per share ..................
Adjusted diluted earnings per share(1).
38,299
12,390
25,909
22,418
3,491
22
1,208
4,721
1,796
36,585
12,014
24,571
20,660
3,911
(177)
264
3,998
1,333
38,994
12,493
26,501
20,398
6,103
(222)
193
6,074
1,809
36,849
10,135
26,714
19,372
7,342
196
145
7,683
3,130
34,423
9,737
24,686
16,964
7,722
(31)
378
8,069
2,584
33,486
9,681
23,805
16,202
7,603
(30)
276
7,849
1,817
32,866
9,985
22,881
16,496
6,385
(12)
310
6,683
1,043
32,542
10,377
22,165
17,164
5,001
(11)
167
5,157
1,931
$ 2,925
$ 2,665
$ 4,265
$ 4,553
$ 5,485
$ 6,032
$ 5,640
$ 3,226
2,924
2,959
2,527
3,158
2,334
2,299
2,397
2,716
$ 5,849
$ 5,624
$ 6,792
$ 7,711
$ 7,819
$ 8,331
$ 8,037
$ 5,942
1,796
2,571
(22)
(1,208)
3,137
1,333
2,483
177
(264)
3,729
1,809
2,398
222
(193)
4,236
3,130
1,820
(196)
(145)
4,609
2,584
1,101
31
(378)
3,338
1,817
911
30
(276)
2,482
1,043
818
12
(310)
1,563
1,931
788
11
(167)
2,563
$ 8,986
$ 9,353
$ 11,028
$ 12,320
$ 11,157
$ 10,813
$ 9,600
$ 8,505
$ 0.11
$ 0.11
$ 0.22
$ 0.10
$ 0.10
$ 0.21
$ 0.17
$ 0.16
$ 0.25
$ 0.18
$ 0.17
$ 0.29
$ 0.22
$ 0.21
$ 0.30
$ 0.24
$ 0.23
$ 0.31
$ 0.22
$ 0.21
$ 0.30
$ 0.13
$ 0.12
$ 0.23
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.
(2) During the fiscal 2018 audit, in applying more recently available guidance and interpretations for the adoption of IFRS 16, it was
determined that certain lease payments that were recorded as lease assets and lease obligations were considered variable and should be
recorded as operating expenses in the period incurred. The impact of this change has been reflected in the quarterly results for the three
months ended March 31, 2018, June 30, 2018, and September 30, 2018.
Prior to IFRS 15, SaaS and subscription revenue has increased due to the acquisition of new customers and
expansion within existing customers. With the adoption of IFRS 15, SaaS and subscription revenue is lower due to
separate recognition of on-premise subscription arrangements. With the adoption of IFRS 15, subscription term license
support is consistent, reflecting the recurring support component of on-premise subscription arrangements.
Professional services revenue has fluctuated due to an increase in new customer deployment activity, as well as a
significant increase in our partners assuming deployment activity and the related professional services revenue. With
the adoption of IFRS 15, subscription term license revenue varies from quarter to quarter based on the timing of new
on-premise subscription arrangements. Maintenance and support revenue has remained consistent over the quarters
66
Management's Discussion and Analysis
reflecting support contracts with legacy customers with perpetual licenses that continue to be renewed. 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 67% to 72% of revenue. Operating expenses have increased as we invest in sales, marketing, and product
development. 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 generally positive impact on operating expenses and
quarterly profit in 2017 to 2018.
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.
Cash and cash equivalents .......................................
Short-term investments ............................................
As at
December 31, 2018
As at
December 31, 2017
(In thousands of USD)
$ 126,144
55,404
181,548
$ 103,392
55,138
158,530
Cash and cash equivalents increased $22.8 million to $126.1 million at December 31, 2018. Short-term
investments increased $0.3 million to $55.4 million at December 31, 2018.
In addition to the cash and short-term investment balances, we have a $20.0 million CAD revolving demand
facility available to meet ongoing working capital requirements. No amounts have been drawn against this facility.
Our principal cash requirements are for working capital and capital expenditures. Excluding deferred revenue, working
capital at December 31, 2018 was $227.1 million. Given the ongoing cash generated from operations and our existing
cash and credit facilities, we believe there is sufficient liquidity to meet our current contractual obligations of $33.9
million and our longer-term growth.
The following table provides a summary of cash inflows and outflows by activity:
Three months ended
December 31,
Year ended
December 31,
2018
2017
2018
(In thousands of USD)
2017
Cash inflow (outflow) by activity
Operating activities .............................................................
Investing activities ..............................................................
Financing activities .............................................................
Effects of exchange rates .....................................................
Net cash inflows ..................................................................
$ 6,654
13,744
(104)
(190)
20,104
$ 12,514
(5,845)
281
13
6,963
$ 27,915
(12,406)
7,960
(717)
22,752
$ 33,563
(65,155)
6,713
361
(24,518)
Cash provided by operating activities
Cash generated by operating activities for the three months ended December 31, 2018 was $6.7 million, compared
to $12.5 million for the same period in 2017. Cash generated by operating activities for the year ended December 31,
2018 was $27.9 million, compared to $33.6 million for the same period in 2017. The decrease for the three months
and year was due to an increase in trade and other receivables.
67
Management's Discussion and Analysis
Cash used in investing activities
Cash used in investing activities is driven by net purchases of short-term investments as well as purchases of
property and equipment primarily related to computer equipment for use in our hosting facilities and to support
research and development requirements. Cash provided by investing activities for the three months ended December
31, 2018 was $13.7 million, compared to cash used by investing activities of $5.8 million for the same period in 2017.
The change in cash inflow/outflow is due to net redemption of short-term investments in the three months ended
December 31, 2018 and purchases related to investment in data center capacity for the same period in 2017. Cash used
in investing activities for the year ended December 31, 2018 was $12.4 million, compared to $65.2 million for the
same period in 2017. The decrease was due to net purchases of short-term investments in 2017, partly offset by
investment in computer equipment for our new data centers in Europe, Japan, and Canada in 2018. We expect to
continue to invest in additional property and equipment to support the growth in our customer base and to take
advantage of new and advanced technology.
Cash provided by financing activities
Payments of lease obligations are recorded as financing outflows with the adoption of IFRS 16 as of January 1,
2018. Prior to adoption of IFRS 16, all lease payments constituted a portion of operating cash flows. Cash used by
financing activities for the three months ended December 31, 2018 was $0.1 million, compared to cash provided by
financing activities of $0.3 million for the same period in 2017. The change in cash inflow/outflow was due to
payments of lease obligations in 2018. Cash provided by financing activities for the year ended December 31, 2018
was $8.0 million, compared to $6.7 million for the same period in 2017. The increase was due to an increase in
proceeds from stock options exercised, partly offset by payments of lease obligations.
Contractual Obligations
Our operating lease commitments are primarily for office premises and secure data center facilities with expiry
dates that range from November 2019 to May 2023. The largest lease commitment relates 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, 2018, including commitments
relating to leasing contracts:
Commitments
Operating lease agreements ..................
Financial Obligations
Trade payables and accrued liabilities ..
Total Contractual Obligations ..........
Less than
1 year
1 to
3 years
4 to
5 years
(In thousands of USD)
More than
5 years
Total
amount
$ 3,755
$ 7,926
$ 695
$
$ 12,376
21,546
21,546
$ 25,301
$ 7,926
$ 695
$
$ 33,922
The following table summarizes our contractual obligations as at December 31, 2017, including commitments
relating to leasing contracts:
Commitments
Operating lease agreements ..................
Financial Obligations
Trade payables and accrued liabilities ..
Total Contractual Obligations ..........
Less than
1 year
1 to
3 years
4 to
5 years
(In thousands of USD)
More than
5 years
Total
amount
$ 2,908
$ 6,824
$ 2,115
$
$ 11,847
11,176
11,176
$ 14,084
$ 6,824
$ 2,115
$
$ 23,023
68
Management's Discussion and Analysis
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, other than variable payments related to operating leases and
operating leases with terms of twelve months or less (which have been included in the disclosed obligations under
“Liquidity and Capital Resources - Contractual Obligations”), that have, or are likely to have, a current or future
material effect on our consolidated financial position, financial performance, liquidity, capital expenditures or capital
resources.
Transactions with Related Parties
We did not have any transactions during the three months and year ended December 31, 2018 and 2017 between
the Company and a related party outside the normal course of business.
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. The carrying amounts of our financial instruments
approximate fair market value due to the short-term maturity of these instruments.
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.
We invest our 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. We manage our credit risk on investments by
dealing only with major Canadian banks and investing only in instruments that we believe have high credit ratings.
Given these high credit ratings, we do not expect any counterparties to these investments to fail to meet their
obligations.
Currency risk
A portion of our revenues and operating costs are realized in currencies other than our functional currency, such
as the Canadian dollar, Japanese Yen, Euro, British Pound, and Korean Won. 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.
69
Management's Discussion and Analysis
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
See our 2018 annual consolidated financial statements and the related notes thereto for a discussion of the
accounting policies and estimates that are critical to the understanding of our business operations and the results of
our operations.
Adoption of New Accounting Standards
IFRS 15: Revenue from Contracts with Customers (“IFRS 15”)
Effective January 1, 2018, we adopted IFRS 15 using the cumulative effect method, with the effect of adopting
this standard recognized on January 1, 2018, the date of initial application. Accordingly, the information presented for
2017 has not been restated. It remains as previously reported under IAS 18, IAS 11 and related interpretations.
Adoption of IFRS 15 has not impacted the accounting for our SaaS, professional services or maintenance and
support arrangements for our legacy perpetual software licenses. However, adoption has impacted the accounting for
our on-premise and hybrid subscription license arrangements, our accounting for contract acquisition costs as well as
requiring expanded disclosure on revenue, performance obligations and contract balances.
Prior to adopting IFRS 15, subscription fees for licenses and coterminous maintenance and support and hosting
services were combined and recognized ratably over the term of the subscription contract. Under IFRS 15, the fees
for on-premise and hybrid subscriptions are separately allocated to each distinct performance obligation. Revenue
attributable to the distinct software license component is recognized upfront upon term commencement and revenue
allocated to maintenance and support and hosting components is recognized ratably over the term. This results in
earlier recognition of revenue for these subscription arrangements.
Prior to adopting IFRS 15, contract acquisition costs, including commissions paid to employees and referral fees
to third parties, were expensed upon commencement of the related contract revenue. Under IFRS 15, contract
acquisition costs are capitalized and amortized over the expected customer renewal period which we have determined
to be six years. We applied the practical expedient to not capitalize contract acquisition costs if the amortization period
is one year or less.
Effective January 1, 2018, revenue from SaaS arrangements is reported as SaaS and subscription revenue.
Revenue for maintenance and support from on-premise and hybrid arrangements and hosting services from hybrid
arrangements is separately reported as subscription term license support revenue. Revenue for the software license
component from on-premise arrangements is separately reported as subscription term license revenue. Professional
services revenue and revenue from maintenance and support on legacy perpetual license arrangements continue to be
reported separately.
We elected to apply the practical expedient to not adjust the total consideration over the contract term for the
effect of a financing component if the period between the transfer of services to the customer and the customer’s
payment for these services is expected to be one year or less.
70
Management's Discussion and Analysis
In our adoption of IFRS 15, we elected to apply the requirements of the new standard only to contracts that are
incomplete at the date of initial application. We also elected to apply the contract modification practical expedient and
reflect the aggregate effect of all contract modifications prior to the transition date.
IFRS 16: Leases (“IFRS 16”)
Effective January 1, 2018, we early adopted 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.
We adopted IFRS 16 using the modified retrospective approach and accordingly the information presented for
2017 has not been restated. We elected to apply the practical expedient not to recognise right-of-use assets and lease
liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets. We also
elected to apply the practical expedient to account for each lease component and any non-lease components as a single
lease component.
On initial application, we elected to record right-of-use assets based on the corresponding lease liability. Right-
of-use assets and lease obligations of $7.2 million were recorded as of January 1, 2018, with no net impact on retained
earnings.
IFRS 9: Financial Instruments (“IFRS 9”)
Effective January 1, 2018, we adopted IFRS 9, which sets out requirements for recognition and measurement,
impairment, derecognition and general hedge accounting. 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.
Trade and other receivables that were classified as loans and receivables under IAS 39 are classified as financial
assets measured at amortized cost. There is no change to the initial measurement of our financial assets. Impairment
of financial assets is based on an expected credit loss (“ECL”) model under IFRS 9, rather than the incurred loss model
under IAS 39. ECLs are a probability-weighted estimate of credit losses. We calculated ECLs based on consideration
of customer specific factors and actual credit loss experience over the past five years. As a percentage of revenue, our
actual credit loss experience has not been material.
The adoption of IFRS 9 has not had an effect on our accounting policies related to financial liabilities.
There was no material impact of transition to IFRS 9 on our statement of financial position at January 1, 2018.
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 our disclosure controls and procedures at the financial year end and based on the evaluation have concluded that
the disclosure controls and procedures are effective.
71
Management's Discussion and Analysis
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. We have made changes and additions to our
internal controls over financial reporting as a result of the adoption of IFRS 15, IFRS 16 and IFRS 9. Controls were
designed and implemented to ensure risks associated with the adoption of these new standards were addressed and
ensure that the inputs, processes and outputs are complete and accurate including the controls over the adjustments
required at transition. As at December 31, 2018, management assessed the effectiveness of our ICFR. Management
concluded that our ICFR is effective and there are no material weaknesses that have been identified by management.
Other than the changes to address adoption of IFRS 15, 16 and 9 noted above and other certain improvements, there
were no significant changes to our ICFR for the three months and year ended December 31, 2018.
Outstanding Share Information
As of December 31, 2018, 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, 2018 and as of February 28, 2019 are summarized as follows:
Class of Security
Common shares
Stock options
Restricted Share Units
Deferred Share Units
Number
outstanding at
December 31,
2017
Number
outstanding at
December 31,
2018
Net issued
25,507,922
2,232,735
45,097
37,862
570,259
(142,862)
7,537
(7,032)
26,078,181
2,089,873
52,634
30,830
Number
outstanding at
February 28,
2019
26,084,431
2,031,873
52,634
30,830
Net issued
6,250
(58,000)
–
–
Our outstanding common shares increased by 570,259 shares in 2018 due to the exercise of 511,862 options and
20,832 deferred share units and vesting of 37,565 restricted share units.
Our outstanding stock options decreased by 142,862 options in 2018 due to the grant of 522,000 options less
511,862 options exercised and 153,000 options forfeited. Each option is exercisable for one common share.
Our outstanding restricted share units increased by 7,537 in 2018 due to the grant of 58,200 restricted share units
less 37,565 units vested and 13,098 units forfeited. Our outstanding deferred share units decreased by 7,032 in 2018
due to the grant of 13,800 deferred share units less 20,832 units exercised. 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.
72
Management's Discussion and Analysis
•
•
•
•
•
•
•
•
•
our plans for and timing of expansion of our solutions and services;
our future growth plans;
the acceptance by our customers and the marketplace of new technologies and solutions;
our ability to attract new customers and develop and maintain existing customers;
our ability to attract and retain personnel;
our expectations with respect to advancement in our technologies;
our competitive position and our expectations regarding competition;
regulatory developments and the regulatory environments in which we operate; and
anticipated trends and challenges in our business and the markets in which we operate.
Forward-looking statements are based on certain assumptions and analysis made by us in light of our experience
and perception of historical trends, current conditions and expected future developments and other factors we believe
are appropriate. Expected future developments include growth in our target market, an increase in our subscription
revenue and decrease in maintenance and 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.
This MD&A also includes forward-looking statements in relation to a contract dispute and arbitration proceeding
with an Asian-based customer. These forward-looking statements are based on our assessment and analysis of the
merits of the parties’ positions. This assessment and analysis may evolve as the relevant proceedings are at a very
early stage. 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:
•
If we are unable to attract new customers or sell additional products to our existing customers, our revenue
growth and profitability will be adversely 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.
73
Management's Discussion and Analysis
• 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.
• 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.
•
Security breaches could delay or interrupt service to our customers, harm our reputation or subject us to
significant liability and adversely affect our business and financial results.
• 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.
•
Privacy and security concerns, including evolving government regulation in the area of consumer data privacy,
could adversely affect our business and operating results.
• We have incurred operating losses in the past and may incur operating losses in the future.
•
•
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.
• Our inability to assess and adapt to rapid technological developments could impair our ability to remain
competitive.
• 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.
• We are subject to fluctuations in currency exchange rates.
•
If we fail to protect our intellectual property and proprietary rights adequately, our business could be adversely
affected.
• 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.
• 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.
• As we increase our emphasis on our partnership program, we may encounter new risks, such as dependence on
partners for a material portion of our revenue and potential channel conflict.
If we experience significant fluctuations in our rate of anticipated growth and fail to balance our expenses with
our revenue forecasts, our results could be harmed.
Interruptions or delays in the services provided by third party data centers and/or internet service providers
could impair the delivery of our solutions and our business could suffer.
•
•
74
Management's Discussion and Analysis
• 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.
• The use of open source software in our products may expose us to additional risks and harm our intellectual
property.
• Mergers or other strategic transactions involving our competitors or customers could weaken our competitive
position, which could harm our results of operations.
• We may not receive significant revenue as a result of our current research and development efforts.
• 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.
• Current and future accounting pronouncements and other financial reporting standards might negatively impact
our financial results.
• We are subject to taxation in various jurisdictions and the taxing authorities may disagree with our tax positions.
•
If we fail to develop widespread brand awareness cost-effectively, our business may suffer.
• Our strategy includes pursuing acquisitions and our potential inability to successfully integrate newly-acquired
companies or businesses may adversely affect our financial results.
• The market price for our common shares may be volatile.
• We may issue additional common shares in the future which may dilute our shareholders’ investments.
• We may need to raise additional funds to pursue our growth strategy or continue our operations, and we may
be unable to raise capital when needed or on acceptable terms.
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.
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. On a pre-IFRS 15/16 basis, our subscription and total annual revenues have grown at a compound
annual growth rate (CAGR) of 23% and 19% respectively for the three years ended December 31, 2018. Our
subscription revenue growth is driven both by contracts with new customers and expansion of our solution and service
engagements within our existing customer base. Under IFRS 15 and 16, for the three months and year ended December
31, 2018, our Adjusted EBITDA was 23% and 28% of revenue and ending cash and short-term investment balances
grew to $181.5 million. Prior to applying IFRS 15 and 16 (see “Adoption of New Accounting Standards” below) our
Adjusted EBITDA for the three months and year ended December 31, 2018 was 22% and 26% of revenue.
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Management's Discussion and Analysis
Our customers are generally large national or multinational enterprises with complex supply chain requirements.
We target multiple key industry verticals including high technology and electronics manufacturing, aerospace and
defense, industrial products, life sciences and pharmaceuticals, automotive, and consumer packaged goods.
We sell our product using a subscription-based model, with the product being delivered from the cloud in the vast
majority of cases, from data centers that we operate. Revenue from these customers is recorded as Software as a
Service (“SaaS”) and subscription revenue. Certain customers, including some long term customers who converted to
the subscription model several years ago, have licensed our subscription product on an on-premise basis. Under IFRS
15, for on-premise customers the deemed software component for the applicable subscription term is now recognized
as “subscription term license revenue” with the remaining maintenance and support component recognized ratably
over the term as “subscription term license support revenue”. 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 licensed manufacturing, distribution and inventory sites. Average
annual contract value fluctuates from period to period depending on the number and size of new customer
arrangements and the extent to which we are successful in expanding adoption of our products by existing customers.
For the year ended December 31, 2018, our ten largest customers accounted for 33% of our total revenues with
no one customer accounting for greater than 10% of total revenues.
Increasing revenues through new customer wins is one of our highest organizational priorities. Our sales cycle
can be lengthy, as we generally target very large organizations with significant internal processes for adoption of new
systems. We currently pursue a revenue growth model that includes both direct sales through our internal sales force,
as well as indirect sales through channels including resellers and other partners.
Due to the growth in the market and the increasing need for solutions, we expect competition in the industry from
new entrants and larger incumbent vendors to 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. Approximately 65% of subscription service revenue growth has been
derived from new customers. Our net subscription service revenue retention is greater than 100%, reflecting our longer
term contract structure and renewal history.
We continue to invest in our partnerships both from a sales and product implementation perspective. We work
with major consulting organizations as Strategic Partners, such as Accenture and Deloitte Consulting LLP, which are
able to positively influence the decision making process at major target customers. These partners, and our Service
Partners, such as Barkawi Management Consultants, mSE Solutions, Cognizant and others, help customers realize
end-to-end supply chain optimization by implementing our industry-leading concurrent planning solution for our
customers. Finally, in Asia we work with certain organizations as Reseller Partners, as that is frequently the most
effective way to engage accounts in those markets.
We are headquartered in Ottawa, Ontario. We have subsidiaries located in the United States, the Netherlands, the
United Kingdom and Hong Kong and subsidiaries and offices in Seoul, South Korea and Tokyo, Japan. We continue
to expand our operations internationally. For the year ended December 31, 2018, 70% of our revenues were derived
from North American based customers and our remaining revenues were derived principally from Asian and European
based customers.
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 (See “Reconciliation of Non-IFRS Measures” below). We evaluate
our performance by comparing our actual results to budgets, forecasts and prior period results.
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Management's Discussion and Analysis
Net revenue retention
Our subscription customers generally enter into two to five year agreements which are paid annually in advance.
In certain circumstances, customers will prepay subscription fees for the term of the agreement. 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 SaaS and
subscription revenue, subscription term license support revenue and maintenance and support revenue (see
“Significant Factors Affecting Results of Operations – Revenue”). While the underlying contracts for on-premise
subscription agreements are typically structured in the same manner as for our cloud-delivered customers, including
contracted, recurring annual payments, under IFRS 15 for on-premise customers we are required to separately report
revenue as two components: the deemed software component and the maintenance and support component. The
deemed software component for the entire term of these on-premise subscriptions is recognized as revenue upon
contract term commencement (as a subscription term license), and therefore not recorded as recurring revenue. See
“Adoption of New Accounting Standards” below for further discussion of this change in accounting standards.
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 late in a
quarter will typically have limited contribution to 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 SaaS and subscription revenue, subscription term license support revenue, professional
services revenue, subscription term license revenue, and maintenance and support revenue.
SaaS and subscription revenue is primarily comprised of fees for provision of RapidResponse as software as a
service in our hosted, cloud environment. This includes hosting services and maintenance and support for the solution
over the term of the contract when the product is provided from the cloud under a SaaS arrangement.
Subscription term license support revenue is comprised of fees for the implied maintenance and support
component for on-premise subscriptions Prior to IFRS 15, this revenue was recognized over the term of the
subscription agreement as subscription revenue.
Subscription term license revenue is comprised of fees for the implied software component for on-premise
subscriptions, which is recognized as revenue upon term commencement. Prior to adopting IFRS 15, this revenue was
recognized over the term of the subscription agreement as subscription revenue.
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.
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Management's Discussion and Analysis
Maintenance and support revenue is comprised of 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,
maintenance and support for legacy customers 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 center
facilities where we physically host our on-demand solution, and network connectivity costs for the provisioning of
hosting services under SaaS arrangements.
Selling and marketing expenses
Selling and marketing expenses consist primarily of personnel and related costs for our sales and marketing teams,
including salaries and benefits, contract acquisition costs including commissions earned by sales personnel and partner
referral fees 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, selling and marketing expenses will continue to increase.
Research and development expenses
Research and development (“R&D”) 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 USD with the exception of our subsidiaries in South Korea (Korean
Won), Japan (Japanese Yen), the Netherlands (Euro) and the United Kingdom (British Pound). We derive most of our
revenue in USD. 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.
Adoption of IFRS 15
Effective January 1, 2018, we adopted IFRS 15: Revenue from Contracts with Customers. The adoption of this
standard has not impacted the revenue recognized from our cloud-based SaaS arrangements. However, revenue
recognized from software subscriptions delivered on-premise on a fixed term basis are accounted for differently. Prior
to adoption of IFRS 15 subscription revenue from on-premise arrangements was deferred and recognized over the
term of the arrangement, consistent with our cloud-based SaaS arrangements. Under IFRS 15, the implied software
component for on-premise arrangements is recognized up-front upon commencement of the term and the implied
maintenance and support component is recognized ratably over the term. Subscription revenue from SaaS
arrangements is recognized as “SaaS and subscription” revenue. The implied maintenance and support component for
on-premise arrangements is recognized as “subscription term license support” revenue. The implied software
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Management's Discussion and Analysis
component for on-premise arrangements is recognized as “subscription term license” revenue. There has been no
impact on the recognition of professional services revenue or maintenance and support revenue from legacy perpetual
licenses.
In addition to the impact on revenue recognition, the adoption of IFRS 15 impacts the recognition of customer
acquisition costs. Prior to adopting IFRS 15, customer acquisition costs including commissions paid to employees and
third party referral fees were expensed upon commencement of the related contract revenue. Under IFRS 15, these
costs are capitalized and amortized over the expected life of the customer.
We adopted IFRS 15 using the cumulative effect method with the effect of adopting this standard recognized in
retained earnings on January 1, 2018. Accordingly, we have not restated the 2017 comparative information and have
presented the 2018 results prior to giving effect to IFRS 15 for comparative purposes and will form the basis of our
discussion and analysis. The total impact, net of related income tax, recorded in retained earnings on January 1, 2018
was an increase of $23.8 million. The acceleration of revenue recognition for on-premise arrangements noted above
resulted in recording a $20.9 million increase in retained earnings for revenue that would otherwise have been recorded
in the future but will now not be reported as revenue on any of our statements of comprehensive income. The deferral
of customer acquisition costs increased retained earnings by $11.5 million for costs previously expensed that have
been deferred and will be re-expensed in the future as selling and marketing expenses over the estimated life of the
customer.
Results of Operations
The following table sets forth a summary of our results of operations for the three months and year ended
December 31, 2018 and 2017:
Three months ended December 31,
Year ended December 31,
2018
Pre-IFRS 15/16
2017
2018
2018
2018
Pre-IFRS 15/16
2017
2016
(In thousands of USD, except earnings per share)
Statement of Operations
Revenue ...............................................
Cost of revenue ..................................
Gross profit ........................................
Operating expenses ............................
Foreign exchange gain (loss) ..............
Net finance income ............................
Profit before income taxes ..................
Income tax expense ............................
Profit ..................................................
Adjusted profit(1) .................................
Adjusted EBITDA(1) ............................
Basic earnings per share .....................
Diluted earnings per share ..................
Adjusted diluted earnings per share(1) .
12,390
27,010
23,157
25,909
22,418
3,491
22
1,208
3,853
(117)
1,270
$ 38,299 $ 39,460 $ 34,423
9,737
12,450
24,686
16,964
7,722
(31)
378
8,069
2,584
$ 2,925 $ 2,978 $ 5,485
$ 5,849 $ 5,902 $ 7,819
$ 8,986 $ 8,671 $ 11,157
$ 0.11 $ 0.22
$ 0.11
$ 0.11 $ 0.11 $ 0.21
$ 0.22 $ 0.22 $ 0.30
5,006
2,028
4,721
1,796
$ 150,727
47,032
$ 154,951 $ 133,317 $ 115,591
35,777
47,168
39,780
103,695
82,848
107,783
85,225
20,847
(181)
1,810
22,558
(507)
2,583
93,537
66,826
26,711
(84)
1,131
80,174
62,280
17,894
(198)
307
24,634
8,788
22,476
8,068
27,758
7,375
18,003
7,258
$ 14,408 $ 15,846 $ 20,383 $ 10,745
$ 25,976 $ 27,414 $ 30,129 $ 18,885
$ 41,687 $ 40,854 $ 40,075 $ 28,528
$ 0.56 $ 0.61 $ 0.81 $ 0.44
$ 0.54 $ 0.59 $ 0.77 $ 0.41
$ 0.97 $ 1.02 $ 1.14 $ 0.73
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.
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