A N N U A L R E P O R T
1
Eliminating volatility in a 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.
Our values
In 2020, we reviewed our corporate values and the result was a re-commitment to these core Kinaxis tenets:
BE
REAL
We are authentic,
respectful, and
act with integrity
BE SELF-
EMPOWERED
We are an empowered
BE CUSTOMER-
CENTRIC
We feel great pride and a
group of problem-solvers,
deep connection to our
thinkers, and doers
customers–both internal
and external
LAUGH
OFTEN
We laugh, have fun, and joke
STRONGER
TOGETHER
We know the whole is
BE A GLOBAL
CITIZEN
We are connected to our
around–it’s how we build
greater than the sum of
global team, active in our
meaningful relationships
our parts
communities, and here to
make the world better
2
Report
Contents
Financial highlights
Letter to shareholders
Case study: Saving lives. RapidResponse and COVID-19
Case study: Saving the planet. Tracking CO2 emissions
through the supply chain
Case study: Saving the future. Using machine learning to
sense short-term demand
Consolidated Financial Statements, Years Ended
December 31, 2019 and 2018 Kinaxis Inc
Management’s Discussion and Analysis for the Year Ended
December 31, 2019
4
6
10
12
15
17
55
3
Financial highlights
Our customers sign multi-year subscription agreements for our RapidResponse® supply chain planning
platform. The business model provides a predictable, recurring revenue base which has grown rapidly
over time as we have added new customers across six vertical markets and expanded deployments with
our existing customers. Unlike many SaaS companies, we have also been highly profitable and continue
to generate significant cash.
191.5
150.7
133.3
116
91.3
118.9
Margin
100.8
97.2
33% 25% 30% 28% 30%
99.3
81.8
65.2
57.7
40.1
41.7
30
28.5
212.6
181.5
158.5
127.9
Total Revenue
Subscription/SaaS Revenue
Adjusted EBITDA 1, 2
Cash, Cash Equivalents and
ST Investments - EOY
$US Millions
2015
2016
2017
2018
2019
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, 2019 dated February 25, 2020.
2 Results for 2018 and 2019 are impacted by the change
to the IFRS accounting standard.
4
Backlog
Our backlog represents revenue that we expect to recognize in the future related to firm performance obligations
that are unsatisfied (or partially unsatisfied) at December 31, 2019, for our signed, multi-year contracts:
SaaS backlog
Total backlog
$339.4
(cid:31) 43%
$310.6
(cid:31) 40%
*
*
$289.7
$246.9
$247.3
$229.3
$237.5
$222.3
$234.5
$212.6
400
300
200
100
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
* Percentage of growth compared to Q4 2018 figures.
5
John Sicard
President and Chief Executive Officer
2019 in review
2019 was a very successful year for Kinaxis. We
companies including Unilever and Schneider
significantly expanded the business while meeting
Electric. We are privileged to be associated with
or exceeding our published targets for our key
such incredible brands.
financial metrics. We grew our Software-as-a-
Service (SaaS) revenue by 22% to $119 million
and achieved an Adjusted EBITDA1 margin of
30% for the year. Our total revenue grew to $192
million. This success was fueled by renewals and
expansions of some important multi-year customer
subscriptions and a record number of new
customer additions.
Our success in 2019 was also driven by our
relationships with partners, who influenced the
significant majority of our new customer wins and
accelerated their support of our deployments. We
now work with approximately 25 partners globally,
including a number of highly respected supply chain
consultancies in new regions of Europe and Asia.
More than ever, we see our Global Alliances strategy
We were excited to welcome several new world-class
as instrumental to effectively and efficiently scaling
customers that include automotive companies such
our business globally.
as Honda and Yamaha Motors; leading pharmaceutical
companies like Dr. Reddy’s Laboratories, Lundbeck
A/S and Teva Pharmaceuticals; high-tech giants,
including Lenovo; and major industrial companies
such as Johnson Electric. We also successfully
renewed contracts with Fortune Global 500
6
2020 and ahead
We ended 2019 with a strong backlog of
committed subscription business. Our multi-year
SaaS revenue backlog was up 40% from a year ago,
which will help underpin our growth for 2020
is right to continue to accelerate our investment
and subsequent years.
We believe that our market and our position
in it is strengthening. Events that are wildly
disrupting supply chains globally continue to
reinforce the need for our unique concurrent
planning technique. From tariffs to Brexit to the
recent COVID-19 crisis, the need for synchronized
planning in real-time across all functional supply
chain areas has never been more evident.
Our customers and market, like investors, are
increasingly focused on the issue of sustainability
in addition to all the usual benefits of concurrent
planning. Our offering – the Kinaxis RapidResponse
platform – is core to the creation of savings in a
supply chain. Customers and prospects are keen
to identify and implement ways we can help them
remove inefficiencies and waste, both in real and
dollar terms. We have provided some real-world
in people and capabilities on a global basis and
across all functions of the business. In 2020, we are
targeting to grow the full Kinaxis team by roughly
40% from our base of over 650 people at the end
of 2019. As always, we will be guided by our core
strategy elements: innovation first, drive customer
excellence, evolve our amazing culture globally
and diversify growth strategies.
Innovation first
Our investment in our product group will
accelerate in 2020 as we launch several exciting
new innovations announced last year and as we
continue to execute our longer-term roadmap.
During 2020, customers will have access to exciting
new capabilities, such as:
y Demand sensing, which uses machine learning/AI
to unearth factors that can hone short-term
examples of how we are helping customers plan
demand forecasts
for improved sustainability later in this report.
Kinaxis is also laser-focused on innovation and we
aim to continue to outpace competitors in that
regard. There is increasing acceptance that supply
chains need to go through a digital transformation
to become more agile. We have seen a sharp
increase over the past year in the number of
unsolicited inbound requests from prospective
customers considering such a transformation.
In both 2018 and 2019, we roughly doubled
the size of our global sales team, with a focus
primarily in Europe and Asia. Since then, we
have seen significant success with customers in
those regions, as demonstrated by some of our
public announcements over that time. The time
y Platform extensibility, which will allow third
parties to develop their own applications and
algorithms on top of RapidResponse. Customers
will be able to add unique capabilities that relate
to their specific business. Our partners can help,
too, whether building functionality for individual
customers or entire vertical markets
y Intuitive new visualizations and a vastly
enhanced user experience to quickly point users
to supply chain issues and opportunities, and
greatly simplify and personalize the work of
supply chain planners
y A faster, more scalable and flexible core
concurrent planning engine
7
Drive customer excellence
We will continue to target sales and marketing
investments throughout 2020 to ensure we align
sales coverage with growing demand. We will
also place other roles in the field, closer to our
end markets. We have already enhanced our
services capabilities through the acquisition of
a long-time business partner, Prana Consulting,
such companies is one way to learn about new
opportunities for growth. We will continue to
actively investigate ways to augment our revenue
streams in 2020 and beyond.
In closing
I would like to thank our management team and
employees around the world for their unrelenting
which developed an India-based RapidResponse
efforts, particularly during the extremely challenging
consultancy with more than 70 professionals,
global COVID-19 crisis. I am incredibly happy and
including a team in North America. Over the past
proud that they remain healthy and are maintaining
15 years, Prana has supported many successful
customer deployments and this team will be
a razor focus on delivering value to our customers.
I would also like to thank our distinguished Board of
instrumental in scaling our ability in deployment,
Directors – which now includes former Apple and
customer care and product development for our
ever-growing global customer base.
Cisco executive, Betsy Rafael – for collaborating
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.
Sincerely,
Evolve our amazing culture globally
Kinaxis is recognized as a special place to work
with a special culture. More than ever, we need to
ensure that our culture propagates globally as we
continue to grow. We will continue to integrate
corporate support functions into our regions to
ensure employees are consistently provided the
support and resources they require to drive value,
regardless of their locale. We also continue to make
plans for our new Ottawa head office and look
forward to moving into a brand new state-of-the
art building in the future.
Diversifying growth strategies
Entering new markets and tackling new customer
use cases have been the cornerstones of our
John Sicard
President and Chief Executive Officer Kinaxis Inc.
growth. While we’re strongly focused on Tier 1
companies in six vertical markets across three
sales regions, we do have customers today that
fall outside those target parameters. Working with
8
In 2019, Kinaxis won a record number of new customers, including world-class brands across all of our vertical markets.
Kinaxis customers
Kinaxis helps billion-dollar companies transform their supply chains
to achieve breakthroughs.
Our vertical markets
AEROSPACE/DEFENCE
AUTOMOTIVE
CONSUMER PRODUCTS
HIGH TECH & ELECTRONICS
INDUSTRIAL
LIFE SCIENCES
9
Saving lives: RapidResponse and COVID-19
The scope and speed of the global COVID-19 pandemic is unlike anything
ever seen previously and, for manufacturers, supply chain agility is the main
muscle exercised in times like these. Executives and supply chain practitioners
are analyzing and determining the best course of action against multiple
simultaneous and interdependent scenarios not just daily, but hourly or by
the minute, for the entire supply chain.
While we are currently helping our customers make fast, confident decisions around COVID-19, Kinaxis has also
been used by our customers to help with all types of disruption, including hurricanes1, earthquakes, disease,
cyberattacks, financial crisis and war.
10
In terms of the COVID-19 disruption, Kinaxis customers have been using our RapidResponse platform to
act quickly and aggressively to lead through the supply chain crisis. In March, we took a look at some usage
statistics and our observations at the time included:
y Our customers responded on a global basis. We had supply chain practitioners using the Kinaxis cloud
service from over 75 countries on every continent. We observed a higher than normal usage first in Europe
and then in the US. The largest increase in usage at the time was from Germany. The one location with a
20%+ drop in usage in the period was China, due to the impact of their manufacturing shutdown.
y Industries were impacted differently. There was first a surge in usage by our high-tech vertical customers
due to dependencies on suppliers in China. As the outbreak spread, other verticals such as life sciences
and consumer products increased their activity as their supply chains responded to spikes in demand for
life-saving and life-sustaining products such as medicine/pharmaceuticals, medical products, consumer
cleaning supplies and other core consumer necessities.
y The usage rate of people accessing Kinaxis increased by over 33% in the period as more of the supply
chain collaborated on new scenarios to respond to the dynamic situation. To assist, Kinaxis provided our
customers with free unlimited report access users through the crisis period.
y The number of simulation scenarios skyrocketed 2x. We saw our first three-month period with over 10
billion planning assessment calculations. Kinaxis customers were creating complete lossless digital twins
of their end-to-end supply chains and running “what-if” scenarios imagining different futures and their
potential impacts on key corporate, financial and supply chain metrics.
COVID-19 has created uncertainty and fear for millions across the globe. But these data points are further proof
that the world in general, and our customers in particular, are working diligently and smartly to ensure that
basic needs are met.
1 https://www.forbes.com/sites/stevebanker/2019/11/05/procter--gamble-embraces-continuous-planning-and-execution/#20472f923ed1
11
Saving the planet: Tracking CO2 emissions through
the supply chain
In 2018, a leading global automotive manufacturer was improving its fleet
to meet emissions reductions standards under Clean Air for Europe (CAFE)
regulations. CAFE set target emissions for each manufacturer and penalties for
failure to comply. At first, the company met early targets ahead of schedule
but over time, it began to fall behind. Customer demand for higher-emitting
vehicles made it challenging to produce clean fleets that could compete in
the market, and early gains in fuel efficiency and battery technology weren’t
enough to keep pace with ever-lowering emissions caps.
Between 2017 and 2018, the European Commission phased in stricter emissions tests for all new cars, including
an assessment to measure output in real-world driving conditions1. Penalties for exceeding targets would
increase in 2019 which could result in millions of dollars in fines each year, but manufacturers were only given
months to prepare.
12
The company decided its best opportunity for lowering emissions would come at the supply chain level.
Although the company couldn’t control demand for high-emitting models like trucks and SUVs, better
planning could limit other contributing factors. For example, optional features in cars, such as sunroofs, paint
color and wheel size, could alter a vehicle’s emissions by as much as 30%. If planners had the ability to track
these features, they could adjust their market availability and reduce emissions.
The company’s planners couldn’t do this with the planning software they had in place when the new
emissions tests were announced. Instead, they based emission-level estimates on limited information about
the vehicles being produced. Planners assumed the best and worst case scenario for each model and then
estimated what mixture of high-emitting and low-emitting vehicles would be sold in each market. The
estimates weren’t accurate, and the lack of visibility limited the actions the company could take to reduce
emissions and avoid penalties.
The company’s planners needed a solution that could track granular changes to individual vehicles while still
providing high-level aggregate data on revenues and emissions targets.
The Kinaxis difference
Planners’ and manufacturers’ needs were met when the company found Kinaxis RapidResponse. With access to
detailed information for each vehicle being built, planners are able to craft and evaluate multiple scenarios to
pick the vehicle volume and mix that will boost revenues and stay within regulation targets.
Before RapidResponse, the company had to estimate emissions for its entire fleet using a base model for each
vehicle. Now, because demand data is continuously updated, planners can constantly monitor the supply chain
and recommend ways to lower fleets’ emissions and remain profitable. The company can then proactively
adjust the models and options they plan to produce and make available for sale in each country to avoid
exceeding targets and facing fines.
13
13
GRANULAR-
LEVEL DATA
on the vehicle models and options mixes
being sold in Europe
SCENARIO
PLANNING
to find emission-reduction opportunities
before reaching annual targets
VISIBILITY
into supply chains serving 13 brands
across 28 countries
AGGREGATE
REPORTING
on emissions throughout Europe
Results that matter
Company leaders now feel confident they can reach future European emissions targets. That conviction
couldn’t come at a better time: analysts are warning about a “2020 CO2 Cliff.” Independent researchers predict
that companies across the automotive industry could each pay billions in penalties by the end of that year.2
In that environment, better supply chain planning will give the company an opportunity to surpass its peers’
emissions goals and avoid hefty fines.
1https://ec.europa.eu/growth/content/clean-mobility-new-emissions-tests-become-mandatory-all-new-cars-1-september-2018_en
2 https://www.bloomberg.com/news/articles/2019-06-26/europe-s-tough-new-emissions-rules-come-with-39-billion-threat
14
Saving the future: Using machine learning to sense
short-term demand
Planning in silos has proven to produce plans that companies have little or
no confidence in. The best demand plans include input from all stakeholders.
This includes people closest to the customer, in sales and marketing, as well as
those closest to suppliers, in operations and finance. Together, these teams can
balance market and customer needs against supply chain capabilities and risk.
For years, our Demand Planning application has let planning teams create statistical forecasts and consensus
demand plans in a collaborative process that’s orchestrated using a single platform. It combines demand
planning with strategic capacity and supply management to reduce planning risk, actively monitor
performance and adjust demand plans when variances arise.
We’ve been adding another collaborator to the Demand Planning team: machine learning. Kinaxis is bringing deeper
demand sensing capabilities to the RapidResponse platform, incorporating machine learning to identify signals,
inside and outside an organization, that can dramatically impact short demand. Weather, social media sentiment,
company or competitor promotions, point of sale data – all of these signals and many others could impact short-
term demand for certain products, but do they? It’s the perfect question for machine learning algorithms.
A Kinaxis customer in Asia that manufactures food products has tested our demand sensing capabilities and
the results were staggering. Our algorithms looked at data related to 55 products, distributed through 140 retail
locations, over roughly a two-year historical period, with the first 500 days used to initially train the machine learning
model for prediction over the next 200 days. Training of the model also continued during the 200-day period.
15
Our demand sensing capabilities quickly discerned that certain factors, like the time since the last promotion,
the week of the year, and the time until the next holiday, were highly correlated to short-term demand – facts
that would have been nearly impossible to uncover at scale without machine learning.
Applying the trained demand sensing model to the 200-day forecast period, the food manufacturer discovered
that it would have experienced 60% fewer stockout days across the retail outlets and would have been able
to carry 7% less finished goods inventory. The benefits are obvious: higher sales, happier customers and less
waste – both financial and physical. Food for thought.
System under test
55
P R O D U C T S
140
S T O R E S
Demand sensing results
-60%
S T O C K O U T D A Y S
-7%
I N V E N T O R Y
16
Consolidated Financial Statements of
Kinaxis Inc.
Years ended December 31, 2019 and 2018
(In thousands of USD)
17
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:
the consolidated statements of financial position as at December 31, 2019 and
December 31, 2018
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, 2019 and
December 31, 2018, 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.
18
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
Other Information
Management is responsible for the other information. Other information comprises:
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.
19
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:
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.
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.
Evaluate the appropriateness of accounting policies used and the reasonableness
of accounting estimates and related disclosures made by management.
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.
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.
20
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.
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.
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 Anuj Madan.
Ottawa, Canada
February 25, 2020
21
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 4)
Prepaid expenses
Non-current assets:
Property and equipment (note 5)
Right-of-use assets (note 6)
Contract acquisition costs (note 7)
Unbilled receivables
Deferred tax assets (note 16)
2019
2018
$
182,284
30,319
81,336
6,534
300,473
25,704
8,671
15,497
249
149
$
126,144
55,404
64,330
5,815
251,693
22,785
8,873
13,902
457
49
$
350,743
$
297,759
Liabilities and Shareholders’ Equity
Current liabilities:
Trade payables and accrued liabilities (note 8)
Deferred revenue (note 9)
Lease obligations (note 10)
$
Non-current liabilities:
Lease obligations (note 10)
Deferred tax liabilities (note 16)
Shareholders’ equity:
Share capital (note 11)
Contributed surplus
Accumulated other comprehensive loss
Retained earnings
Contingencies (note 23)
20,770
83,673
2,288
106,731
6,818
7,092
13,910
140,961
30,392
(348)
59,097
230,102
$
21,623
78,496
2,572
102,691
6,311
4,075
10,386
124,951
24,284
(319)
35,766
184,682
$
350,743
$
297,759
See accompanying notes to consolidated financial statements.
On behalf of the Board of Directors:
(signed) John (Ian) Giffen
Director
(signed) John Sicard
Director
22
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 13)
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 16):
Current
Deferred
Profit
Other comprehensive loss:
Items that are or may be reclassified
subsequently to profit or loss:
Foreign currency translation
differences - foreign operations
Total comprehensive income
Basic earnings per share
Weighted average number of basic
Common Shares (note 12)
Diluted earnings per share
Weighted average number of diluted
Common Shares (note 12)
See accompanying notes to consolidated financial statements.
2019
2018
$
191,549
$
150,727
53,850
137,699
44,270
34,125
26,852
105,247
32,452
(226)
3,037
2,811
35,263
9,015
2,917
11,932
23,331
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
$
$
$
(29)
23,302
0.89
$
$
(35)
14,373
0.56
26,180,034
25,820,518
0.87
$
0.54
26,967,805
26,824,435
23
Kinaxis Inc.
Consolidated Statements of Changes in Shareholders’ Equity
For the years ended December 31
(Expressed in thousands of USD)
Accumulated
other
Contributed comprehensive
loss
surplus
Share
capital
Retained
earnings
(deficit)
Total equity
Balance, December 31, 2017 $
108,253
$
19,294
$
(284)
$
(2,475)
$
124,788
Adjustment on initial application
of IFRS 15
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 11)
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
Profit
Other comprehensive loss
Total comprehensive income (loss)
–
–
–
Share options exercised
Restricted share units vested
Share based payments (note 11)
Total shareholder transactions
12,042
3,968
–
16,010
–
–
–
(3,291)
(3,968)
13,367
6,108
–
(29)
(29)
–
–
–
–
23,331
–
23,331
–
–
–
–
23,331
(29)
23,302
8,751
–
13,367
22,118
Balance, December 31, 2019 $
140,961
$
30,392
$
(348)
$
59,097
$
230,102
See accompanying notes to consolidated financial statements.
24
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 and
right-of-use assets (note 15)
Share-based payments (note 11)
Investment tax credits recoverable
Net finance income
Income tax expense (note 16)
Change in operating assets and liabilities (note 17)
Interest received
Interest paid
Income taxes paid
Cash flows used in investing activities:
Purchase of property and equipment (note 5)
Purchase of short-term investments
Redemption of short-term investments
Cash flows from financing activities:
Payment of lease obligations (note 10)
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
2019
2018
$
23,331
$
14,408
11,908
13,367
–
(3,037)
11,932
(9,161)
3,653
(531)
(14,863)
36,599
(11,719)
(60,108)
85,108
13,281
(2,674)
8,751
6,077
55,957
126,144
183
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)
Cash and cash equivalents, end of year
$
182,284
$
126,144
See accompanying notes to consolidated financial statements.
25
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(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, 2019 and 2018 comprise the Company and its subsidiaries.
Kinaxis is a leading provider of cloud-based subscription software that enables its customers to
improve and accelerate analysis and decision-making across their supply chain operations. Kinaxis is
a global enterprise with offices in Chicago, United States; Tokyo, Japan; Hong Kong, China;
Amsterdam, The Netherlands; Seoul, South Korea; London, United Kingdom; Singapore; 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 eight wholly-owned subsidiaries,
Kinaxis Corp., Kinaxis US Corp., Kinaxis Asia Limited, Kinaxis Japan K.K., Kinaxis Korea Limited,
Kinaxis Europe B.V., Kinaxis UK Limited and Kinaxis Singapore Pte. Ltd.
The consolidated financial statements were authorized for issue by the Board of Directors on
February 25, 2020.
(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
26
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
2. Basis of preparation (continued):
(d) Foreign currency (continued):
recognized in profit or loss in the period in which they arise. Non-monetary items carried at fair
value that are denominated in foreign currencies are translated to the functional currency at the
rates prevailing at the date when the fair value was determined. Non-monetary items that are
measured in terms of historical cost in a foreign currency are translated using the rates at the
date of the transaction.
Foreign operations
The consolidated financial statements also include the accounts of its wholly-owned subsidiaries
Kinaxis Japan K.K., Kinaxis Korea Limited, 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 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
27
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
2. Basis of preparation (continued):
(e) Use of estimates and judgments (continued):
being distinct as they could be performed by third party service providers and do not involve
significant customization of the licensed software.
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.
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 11.
28
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies:
(a) Basis of consolidation:
Subsidiaries are entities controlled by the Company. The financial statements of subsidiaries are
included in the consolidated financial statements from the date that control commences until the
date that control ceases. The accounting policies of subsidiaries have been changed when
necessary to align them with the policies adopted by the Company. All intercompany
transactions, balances, revenues and expenses between the Company and its subsidiaries have
been eliminated.
(b) Revenue recognition:
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.
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 expects the costs to be recoverable, and has determined that certain sales incentive
programs meet the requirements to be capitalized. Capitalized contract acquisition costs are
29
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(b) Revenue recognition (continued):
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.
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.
30
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(c) Financial instruments (continued):
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.
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.
31
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(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.
(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. Depreciation methods, useful lives and residual values are reviewed at
each financial year end and adjusted prospectively if appropriate.
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
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.
32
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(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.
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.
33
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(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.
(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
34
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(k) Income taxes (continued):
returns. Deferred income taxes are provided for using the liability method. Under the liability
method, deferred income taxes are recognized for all significant temporary differences between
the tax and financial statement bases of assets and liabilities and for certain carry-forward items.
Deferred income tax assets are recognized only to the extent that, in the opinion of management,
it is probable that the deferred income tax assets will be realized.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the
year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that
have been enacted or substantively enacted at the reporting date. Deferred income tax assets
and liabilities are adjusted for the effects of changes in tax laws and rates on the date of the
enactment or substantive enactment. Deferred tax assets and liabilities are offset when there is a
legally enforceable right to set off current tax assets against current tax liabilities and when they
relate to income taxes levied by the same taxation authority and the Company intends to settle its
current tax assets and liabilities on a net basis.
Investment tax credits
Investment tax credits relating to scientific research and experimental development expenditures
are recorded in the fiscal period the qualifying expenditures are incurred based on management’s
interpretation of applicable legislation in the Income Tax Act of Canada. Credits are recorded
provided there is reasonable assurance that the tax credit will be realized. Credits claimed are
subject to review by the Canada Revenue Agency.
Credits claimed in connection with research and development activities are accounted for using
the cost reduction method. Under this method, assistance and credits relating to the acquisition of
equipment is deducted from the cost of the related assets, and those relating to current
expenditures, which are primarily salaries and related benefits, are included in the determination
of profit or loss as a reduction of the research and development expenses.
(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
35
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
3. Significant accounting policies (continued):
(l) Share-based payments (continued):
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.
36
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
4. Trade and other receivables:
The following table presents trade and other receivables for the Company:
Trade accounts receivable
Unbilled receivables
Taxes receivable
Other
Loss allowance
$
2019
65,406
13,880
382
1,690
81,358
(22)
$
2018
56,618
6,408
566
738
64,330
–
$
81,336
$
64,330
Trade and other receivables of $2,768 were written off in 2019 (2018 – $561).
The Company had a dispute with an Asian-based customer that was the subject of confidential,
binding arbitration proceedings. The parties have agreed to resolve their dispute amicably, with no
admission by either party and with no payment by either party to the other. The arbitration has been
discontinued. The trade and other receivables from this customer of $2,532 were written off to
general and administrative expenses in 2019.
The following table presents changes in unbilled receivables:
Balance, beginning of year
$
6,865
$
11,280
2019
2018
Amounts transferred to trade accounts receivable from the
balance at the beginning of year
Amounts written off
Revenue in excess of billings, net of amounts transferred to trade
accounts receivable
Balance, end of year
Current
Non-current
(5,614)
(794)
13,672
14,129
13,880
249
$
$
(9,690)
–
5,275
6,865
6,408
457
$
$
37
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
5. Property and equipment:
The following table presents property and equipment for the Company:
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Cost
Balance, December 31,
2017
$ 23,827
$
919
$
335
$
3,569
$ 28,650
Additions
Effects of movement in
exchange rates
Balance, December 31,
9,713
(172)
1,179
–
2018
$ 33,368
$
2,098
$
Additions
Dispositions
Effects of movement in
exchange rates
Balance, December 31,
9,672
(329)
(64)
1,063
(219)
–
158
–
493
447
(92)
–
1,260
12,310
(10)
(182)
$
4,819
$ 40,778
537
–
5
11,719
(640)
(59)
2019
$ 42,647
$
2,942
$
848
$
5,361
$ 51,798
Accumulated depreciation
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
Balance, December 31,
2017
$
8,108
$
664
$
123
$
2,405
$ 11,300
Depreciation
Effects of movement in
exchange rates
Balance, December 31,
5,694
(35)
395
–
2018
$ 13,767
$
1,059
$
Depreciation
Dispositions
Effects of movement in
exchange rates
Balance, December 31,
7,231
(329)
(28)
650
(219)
–
101
–
224
130
(92)
–
538
–
6,728
(35)
$
2,943
$ 17,993
755
–
3
8,766
(640)
(25)
2019
$ 20,641
$
1,490
$
262
$
3,701
$ 26,094
Carrying value
Computer
equipment
Computer
software
Office
furniture and
equipment
Leasehold
improvements
Total
property and
equipment
December 31, 2018
December 31, 2019
$ 19,601
$ 22,006
$
$
1,039
1,452
$
$
269
586
$
$
1,876
1,660
$ 22,785
$ 25,704
There were no proceeds associated with asset dispositions in 2019 (2018 – no asset dispositions).
38
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
6. Right-of-use assets:
The following table presents right-of-use assets for the Company:
Offices
Data centres
Total
right-of-use
assets
Balance, January 1, 2018
$
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
Additions
Depreciation
Effects of movement in exchange rates
203
(1,154)
(16)
2,746
(1,988)
7
2,949
(3,142)
(9)
Balance, December 31, 2019
$
1,987
$
6,684
$
8,671
7. Contract acquisition costs:
The following table presents changes in contract acquisition costs:
Balance, beginning of year
$
13,902
$
11,514
2019
2018
Additions
Amortization
Balance, end of year
5,951
(4,356)
6,088
(3,700)
$
15,497
$
13,902
Amortization of contract acquisition costs is recorded in selling and marketing expense.
8. Trade payables and accrued liabilities:
The following table presents trade payables and accrued liabilities for the Company:
Trade accounts payable
Accrued liabilities
Taxes payable
$
2019
4,285
13,360
3,125
$
2018
1,406
9,141
11,076
$
20,770
$
21,623
39
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
9. Deferred revenue:
The following table presents changes in deferred revenue:
Balance, beginning of year
$
78,496
$
63,639
2019
2018
Amounts invoiced and revenue deferred
Recognition of deferred revenue included in the balance at the
beginning of year
Balance, end of year
10. Lease obligations:
82,949
(77,772)
73,192
(58,335)
$
83,673
$
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
2019
2,288
6,818
9,106
$
$
2018
2,572
6,311
8,883
$
$
The following table presents the contractual undiscounted cash flows for lease obligations as at
December 31, 2019:
Less than one year
One to five years
More than five years
Total undiscounted lease obligations
$
2,729
7,301
158
$
10,188
Interest expense on lease obligations for 2019 was $531 (2018 –$501). The expense relating to
variable lease payments not included in the measurement of lease obligations was $730 (2018 –
$739). This consists of variable lease payments for operating costs, property taxes, and insurance.
Expenses relating to short-term leases were $556 (2018 – $256) and expenses relating to leases of
low value assets were not material. Total cash outflow for leases was $4,491 (2018 – $3,656),
including $2,674 of principal payments on lease obligations (2018 –$2,160).
40
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
10. Lease obligations (continued):
During 2019, the Company entered into commitments to lease office space in Ottawa, Canada and
Tokyo, Japan, and to expand data centres in Tokyo, Japan and Osaka, Japan. The office lease in
Ottawa is expected to commence in late 2021 and the minimum payments required under this
commitment are $43,103 over a fifteen year period. The office lease in Tokyo will commence in April
2020 and the minimum payments required under this commitment are $1,987 over a three year
period. The expanded data centre lease in Tokyo, Japan and Osaka, Japan will commence in April
2020 and the minimum payments required under this commitment are $1,187 over a three year
period.
11. 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, 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
Shares issued from exercised options
Shares issued from vested restricted share units
261,929
62,894
12,042
3,968
Shares outstanding at December 31, 2019
26,403,004
$ 140,961
41
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
11. Share capital (continued):
Stock option plans
The following table presents the status of the stock option plans:
Options outstanding, beginning of
year
Granted
Exercised
Forfeited
468,044
(261,929)
(67,250)
Options outstanding, end of year
2,228,738
Options exercisable, end of year
1,041,110
2019
Weighted
average
Shares exercise price
2018
Weighted
average
Shares exercise price
2,089,873
$
38.32
2,232,735
$
31.92
57.81
33.41
54.98
44.24
30.43
522,000
(511,862)
(153,000)
63.65
19.77
53.96
2,089,873
851,622
$
$
38.32
22.16
The following table presents information about stock options outstanding at December 31, 2019:
Range of
exercise prices
$1 to $4
$9 to $20
$29 to $36
$46 to $50
$52 to $56
$58 to $59
$62 to $67
$72 to $76
Options outstanding
Options exercisable
Weighted
average
remaining
outstanding contractual life
Number
Weighted
average
exercise
price
235,599
150,500
454,650
154,381
326,496
572,862
249,750
84,500
1.65
4.20
5.98
5.99
3.25
4.86
3.31
3.78
$
1.74
10.68
34.29
47.68
54.42
58.51
64.70
73.10
Number
exercisable
235,599
150,500
323,400
88,481
111,996
55,884
57,000
18,250
Weighted
average
exercise
price
$
1.74
10.68
34.24
47.51
54.75
58.02
64.76
72.74
2,228,738
4.33
$
44.24
1,041,110
$
30.43
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, 2019, there were 1,119,156 stock options available for grant under the Plans.
42
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
11. Share capital (continued):
In 2019, the Company granted 468,044 (2018 – 522,000) options and recorded share-based
compensation expense of $8,271 (2018 – $8,232) related to the vesting of options granted in 2019
and previous years. The per share weighted-average fair value of stock options granted in 2019 was
$18.51 (2018 – $17.34) 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 2.45% (2018 – 2.65%), an expected life of 3 to
5 years (2018 – 2 to 5 years), estimated volatility of 38% (2018 – 38%). The forfeiture rate was
estimated at 15% (2018 – 10%). The forfeiture rate is estimated based upon an analysis of actual
forfeitures.
Share Unit Plan
At December 31, 2019, there were 268,895 share units available for grant under the Share Unit Plan.
In 2019, the Company granted 70,982 (2018 – 58,200) restricted share units (“RSU”) and none were
forfeited (2018 – 13,098). There were 60,722 (2018 – 52,634) RSUs outstanding at December 31,
2019. 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 2019
was $63.13 (2018 – $66.16) per unit using the fair value of a Common Share at time of grant. The
Company recorded share-based compensation expense of $4,196 (2018 – $2,436) related to the
RSUs.
In 2019, the Company granted 14,256 (2018 – 13,800) deferred share units (“DSU”). There were
45,086 (2018 – 30,830) DSUs outstanding at December 31, 2019. 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 2019 was $63.13
(2018 – $65.23) per unit using the fair value of a Common Share at time of grant. The Company
recorded share-based compensation of $900 (2018 – $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
$
2019
900
5,484
1,574
5,409
$
2018
844
4,644
1,053
5,027
$
13,367
$
11,568
43
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
12. Earnings per share:
The following table summarizes the calculation of the weighted average number of basic and diluted
common shares:
2019
2018
Issued Common Shares, beginning of year
26,078,181
25,507,922
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
98,234
3,619
–
300,799
2,161
9,636
Weighted average number of basic Common Shares
26,180,034
25,820,518
Effect of share options on issue
Effect of share units on issue
644,062
143,709
890,135
113,782
Weighted average number of diluted Common Shares
26,967,805
26,824,435
For 2019, 1,233,608 (2018 – 352,000) options were excluded from the weighted average number of
diluted common shares as their effect would have been anti-dilutive.
13. Revenue:
The following table presents revenue of the Company:
SaaS
Professional services
Subscription term licenses
Maintenance and support
2019
$ 118,860
33,549
26,218
12,922
$
2018
97,157
31,854
9,935
11,781
$ 191,549
$ 150,727
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, 2019:
2020
$ 122,090
11,145
4,533
$
2021
91,778
8,272
–
2022 and
thereafter
Total
$
96,729
4,887
–
$ 310,597
24,304
4,533
$ 137,768
$ 100,050
$ 101,616
$ 339,434
SaaS
Maintenance and support
Subscription term licenses
44
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
14. Personnel expenses:
The following table presents personnel expenses of the Company:
Salaries including bonuses
Benefits
Commissions
Share-based payments
15. Depreciation:
The following table presents total depreciation expense by function:
Cost of revenue
Selling and marketing
Research and development
General and administrative
16. 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
$
2019
71,823
11,274
6,190
13,367
$
2018
59,538
9,355
5,329
11,568
$ 102,654
$
85,790
$
2019
8,384
4
1,365
2,155
$
2018
6,299
4
1,282
1,687
$
11,908
$
9,272
2019
2018
$
9,015
$
8,930
Origination and reversal of temporary differences
2,917
(862)
$
11,932
$
8,068
The current tax expense and deferred tax expense for 2019 include a recovery of $1,272 and an
expense of $1,392, respectively, arising from a prior period.
45
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
16. Income tax expense (continued):
A reconciliation of the income tax expense to the expected amount using the Company’s Canadian
tax rate is as follows:
Canadian tax rate
2019
2018
26.50%
26.50%
Expected Canadian income tax expense
$
9,345
$
5,956
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
308
133
2,146
–
13
60
2,045
(6)
$
11,932
$
8,068
The following tables present 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
Contract acquisition costs
Stock based compensation
Net operating loss carryforwards
Other
46
Balance at
December 31,
2018
Recognized
in profit
and loss
Balance at
December 31,
2019
$
(395)
96
(2,197)
(3,360)
1,070
658
102
$
(36)
(96)
(1,344)
(306)
259
(658)
(736)
$
(431)
–
(3,541)
(3,666)
1,329
–
(634)
$
(4,026)
$
(2,917)
$
(6,943)
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)
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
16. Income tax expense (continued):
The company does not have foreign net operating loss carryforwards as at December 31, 2019 (2018
– $2,520).
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, 2019 was
$14,913 (2018 – $10,714).
17. Statement of cash flow:
The following table presents changes in operating assets and liabilities:
Trade and other receivables
Prepaid expenses
Contract acquisition costs
Trade payables and accrued liabilities
Deferred revenue
$
2019
(16,776)
(716)
(1,566)
4,726
5,171
$
2018
(23,302)
(1,633)
(2,429)
(1,118)
15,267
$
(9,161)
$
(13,215)
18. Credit facility:
The Company has a CAD$20.0 million revolving demand credit facility which bears interest at bank
prime per annum and has not been drawn as at December 31, 2019.
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, 2019 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$5 million, a borrowing
limit applies that is based principally on the Company’s accounts receivable.
19. 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.
47
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
19. Financial instruments (continued):
Financial risk management:
(a) Credit risk:
Credit risk is the risk of an unexpected loss if a customer or counterparty to a financial instrument
fails to meet its contractual obligations. The Company’s credit risk is primarily attributable to its
trade and other receivables.
(a) Credit risk (continued):
The following table presents maximum exposure to credit risk for trade receivables by geographic
region:
United States
Europe
Asia
Canada
The following table presents aging of trade receivables:
Current
Past due:
0 – 30 days
31 – 60 days
Greater than 60 days
$
2019
45,950
15,889
2,057
1,510
$
2018
36,684
16,397
2,827
710
$
65,406
$
56,618
2019
2018
$
41,209
$
40,321
17,854
2,453
3,890
13,269
746
2,282
$
65,406
$
56,618
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, 2019, one customer individually accounted for greater than
10% of total trade receivables (December 31, 2018 – no customer). For 2019, no customer
individually accounted for greater than 10% of revenue (2018 – no customer).
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
48
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
19. Financial instruments (continued):
(a) Credit risk (continued):
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, 2019, the Company
wrote off $2,768 of trade receivables that were deemed not collectible (2018 – $561 written off).
As at December 31, 2019, the Company has recorded a loss allowance of $22 (2018 – no
allowance).
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, 2019, the Company had cash and cash equivalents and short-term investments
totaling $212,603 (2018 – $181,548). Further, the Company has a credit facility as disclosed in
Note 18. 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
49
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
19. Financial instruments (continued):
(c) Market risk (continued):
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.
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, 2019, 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
$3,250 lower (2018 – $2,953 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, 2019
In thousands of local currency
Trade receivables
Unbilled receivables
Other receivables
Trade payables
Accrued liabilities
December 31, 2018
In thousands of local currency
Trade receivables
Unbilled receivables
Other receivables
Trade payables
Accrued liabilities
Interest rate risk
USD
CAD
EUR
JPY
GBP
KRW
55,994
11,830
623
(775)
(5,091)
212
4
115
(1,093)
(7,634)
4,852
414
10
(135)
(593)
171,150
171,829
104,172
(200,587)
(69,950)
1,651
1
5
(491)
(776)
68,969
–
1,269
(2,139)
(46,992)
62,581
(8,396)
4,548
176,614
390
21,107
USD
CAD
EUR
JPY
GBP
KRW
51,590
3,798
317
(173)
(4,046)
57
113
214
(1,083)
(5,080)
3,556
–
20
(41)
(198)
68,887
328,685
24,796
(36,125)
(37,127)
–
–
12
(4)
(600)
331,472
–
–
(53,684)
(9,479)
51,486
(5,779)
3,337
349,116
(592)
268,309
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, 2019,
the Company has not drawn on the revolving demand facility.
50
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
20. 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
The following table presents external revenue on a geographic basis:
United States
Europe
Asia
Canada
2019
2018
$ 125,591
41,275
19,584
5,099
$ 103,060
33,226
12,373
2,068
$ 191,549
$
150,727
The following table presents total property and equipment on a geographic basis:
Canada
United States
Asia
Europe
$
2019
14,020
5,851
3,450
2,383
$
2018
12,547
3,422
4,616
2,200
$
25,704
$
22,785
The following table presents total right-of-use assets on a geographic basis:
Canada
United States
Asia
Europe
$
2019
2,984
2,743
2,097
847
$
2018
4,214
608
2,966
1,085
$
8,671
$
8,873
51
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
21. Related party transactions:
Details of the Company’s subsidiaries at December 31, 2019 and 2018 are as follows:
Name of subsidiary
Principal Place of incorporation
activity
and operation
Proportion of ownership interest
and voting power held
Sales
Kinaxis Asia Limited
Sales
Kinaxis Corp.
Holding
Kinaxis US Corp.
Sales
Kinaxis Europe B.V.
Sales
Kinaxis Japan K.K.
Sales
Kinaxis Korea Limited
Kinaxis UK Limited
Sales
Kinaxis Singapore Pte. Ltd. Sales
Hong Kong
State of Delaware, USA
State of Delaware, USA
The Netherlands
Japan
South Korea
United Kingdom
Singapore
2019
100%
100%
100%
100%
100%
100%
100%
100%
2018
100%
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
22. Capital management:
2019
$
5,135
10,061
$
2018
4,063
8,002
$
15,196
$
12,065
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.
52
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
22. Capital management (continued):
The Company has access to a revolving demand facility bears interest at bank prime per annum
which has not been drawn as at December 31, 2019. The terms of the facility require the Company to
meet certain financial covenants which are monitored by senior management to ensure compliance.
23. Contingencies:
a)
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.
b) 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.
24. Subsequent event:
On January 31, 2020, the Company acquired 100% of the outstanding shares of Prana Consulting,
Inc. and all of its subsidiaries (“Prana”) in exchange for cash and contingent consideration. Prana
provides consulting services for implementation of the Company’s software.
The cash consideration is based on a purchase price of $3,650, adjusted for Prana’s working capital
surplus or deficit at the date of acquisition and subject to post-closing working capital adjustments.
The contingent consideration arrangement consists of additional payments to the selling shareholder
for attainment of specific revenue and team retention metrics in the year following the acquisition. The
potential undiscounted amount of all future payments that the Company could be required to make
53
Kinaxis Inc.
Notes to Consolidated Financial Statements
For the years ended December 31, 2019 and 2018
(Expressed in thousands of USD, except share and per share amounts)
24. Subsequent event (continued):
under this arrangement is between $150 and $1,000. The Company estimates that the fair value of
contingent consideration at the date of acquisition is $800.
The financial effects of this transaction have not been recognized at December 31, 2019. At the time
the financial statements were authorized for issue, the Company has not yet completed the initial
accounting for the acquisition of Prana. In particular, the fair value assessment of the assets acquired
and liabilities assumed is incomplete. It is not yet possible to provide detailed information about each
class of net assets and any contingent liabilities of the acquired entity.
The provisionally determined goodwill arising from the acquisition is $4,450. The goodwill is
attributable mainly to the skills and technical talent of Prana’s work force and the synergies expected
to be achieved from integrating Prana into the Company’s existing professional services business.
The goodwill is expected to be deductible for tax purposes.
54
KINAXIS INC.
MANAGEMENT’S DISCUSSION AND ANALYSIS
FOR THE YEAR ENDED DECEMBER 31, 2019
DATED: February 25, 2020
55
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, 2019. This MD&A has been prepared with an effective date of February 25, 2020.
This MD&A for the year ended December 31, 2019 should be read in conjunction with our annual audited
consolidated financial statements for the year ended December 31, 2019. 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, 2019. 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;
•
•
•
•
56
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.
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.
•
Downturns or upturns in new sales will not be immediately reflected in operating results and may be difficult
to discern.
57
Management's Discussion and Analysis
•
•
•
•
•
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.
• 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.
58
Management's Discussion and Analysis
•
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. Our SaaS and subscription term license revenue growth is driven both by contracts with new
customers and expansion of our solution and service engagements within our existing customer base. For the three
months and year ended December 31, 2019, our Adjusted EBITDA was 32% and 30% of revenue, respectively (2018
– 23% and 28%), and ending cash and short-term investment balances grew to $212.6 million (2018 – $181.5 million).
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 product delivered from the cloud is recorded as
59
Management's Discussion and Analysis
Software as a Service (“SaaS”) revenue. Certain customers, have licensed our subscription product on an on-premise
basis or have retained the option to take the hosted software on-premise as a hybrid subscription. Under IFRS 15, for
on-premise and hybrid customers the deemed software component for the applicable subscription term is recognized
as “subscription term license revenue” upon initiation or renewal of the subscription contract term, with the remaining
maintenance and support component and hosting services for hybrid subscriptions recognized ratably over the term
as “maintenance and 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. The 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 three months and year ended December 31, 2019, our ten largest customers accounted for 39% and 32%,
respectively, of our total revenues (2018 – 34% and 33%) with no customer accounting for greater than 10% of total
revenues (2018 – no customer).
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 supported by our Strategic, Reseller and other service 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 SaaS revenue growth has been derived from
new customers. Our net revenue retention from both SaaS and on-premise subscriptions 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, Deloitte, and EY, which are able to
positively influence the decision making process at major target customers. These partners and others, such as
Genpact, mSE Solutions, Crimson and Co., and Cognizant, 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, Hong Kong and Singapore and subsidiaries and offices in Seoul, South Korea and Tokyo, Japan.
We continue to expand our operations internationally. For the three months and year ended December 31, 2019, 71%
and 68% of our revenues, respectively, were derived from North American customers (2018 – 67% and 70%) and our
remaining revenues were derived from European and Asian customers.
60
Management's Discussion and Analysis
Key Performance Indicators
The key performance indicators that we use to manage our business and evaluate our financial results and
operating performance are: total revenue, total new customers, incremental subscription revenue and bookings, net
revenue retention, secured subscription backlog, operating expenses, Adjusted profit (as discussed below), Adjusted
EBITDA (as discussed below), Adjusted diluted earnings per share (as discussed below), and cash flow from
operations. Some of these measures are non-IFRS measures. See “Non-IFRS Measures” above. Management
reconciles non-IFRS measures to IFRS measures (See “Reconciliation of Non-IFRS Measures” below). We evaluate
our performance by comparing our actual results to budgets, forecasts and prior period results.
Recurring revenue model
Our subscription customers generally enter into two to five year agreements which are paid annually in advance.
SaaS and on-premise 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 SaaS
and subscription term license 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 includes SaaS 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 or renewal (as a subscription term license). The amount
and timing of any recurring subscription term license revenue from on-premise subscription agreements is subject to
the timing and length of renewal term of the agreement.
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
annual 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 SaaS and
maintenance and support 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 revenue, subscription term license revenue, professional services revenue, and
maintenance and support revenue.
SaaS 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 revenue is comprised of fees for the implied software component for on-premise
subscriptions, which is recognized as revenue upon term commencement.
61
Management's Discussion and Analysis
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.
Maintenance and support revenue is comprised of fees for the implied maintenance and support component for
on-premise and hybrid subscriptions as well as a small amount of 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 SaaS 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.
62
Management's Discussion and Analysis
Results of Operations
The following table sets forth a summary of our results of operations:
Three months ended
December 31,
2019
2018
Year ended
December 31,
2018
2019
2017(1)
(In thousands of USD, except earnings per share)
38,299 $ 191,549 $ 150,727 $ 133,317
39,780
12,390
47,032
53,850
Statement of Operations
Revenue ........................................................ $
Cost of revenue ............................................
Gross profit ..................................................
Operating expenses ......................................
Foreign exchange loss ..................................
Net finance income ......................................
Profit before income taxes ...........................
Income tax expense ......................................
Profit ............................................................ $
Adjusted profit(2) ........................................... $
Adjusted EBITDA(2) ..................................... $
Basic earnings per share .............................. $
Diluted earnings per share ........................... $
Adjusted diluted earnings per share(2) ........... $
56,312 $
14,872
41,440
29,695
11,745
(40)
610
12,315
4,484
25,909
22,418
3,491
22
1,208
4,721
1,796
7,831 $
11,008 $
18,134 $
2,925 $
5,849 $
8,986 $
0.30 $
0.29 $
0.40 $
0.11 $
0.11 $
0.22 $
137,699
105,247
32,452
(226)
3,037
35,263
11,932
23,331 $
36,698 $
57,727 $
0.89 $
0.87 $
1.36 $
103,695
82,848
20,847
(181)
1,810
22,476
8,068
14,408 $
25,976 $
41,687 $
0.56 $
0.54 $
0.97 $
93,537
66,826
26,711
(84)
1,131
27,758
7,375
20,383
30,129
40,075
0.81
0.77
1.14
Note:
(1) We adopted IFRS 15 and 16 effective January 1, 2018. Under this adoption, the comparative information for 2017 was not restated.
(2) Adjusted profit, Adjusted EBITDA and Adjusted diluted earnings per share are non-IFRS measures. See “Non-IFRS Measures”. For a
reconciliation of these measures to the closest IFRS measure, where a comparable IFRS measure exists, see “Reconciliation of Non-IFRS
Measures” below.
As at
December 31, 2019
As at
December 31, 2018
(In thousands of USD)
As at
December 31, 2017(1)
Total assets ..............................................................
Total non-current liabilities ......................................
$ 350,743
13,910
$ 297,759
10,386
$ 212,693
9,689
Note:
(1) We adopted IFRS 15 and 16 effective January 1, 2018. Under this adoption, the comparative information for 2017 was not restated.
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.
63
Management's Discussion and Analysis
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,
2019
2018
Year ended
December 31,
2018
2019
(In thousands of USD)
2017(1)
Profit ............................................................. $
Share-based compensation ............................
Adjusted profit ..............................................
Income tax expense .......................................
Depreciation ..................................................
Foreign exchange loss ...................................
Net finance income .......................................
Adjusted EBITDA ........................................ $
Adjusted EBITDA as a percentage of
revenue .........................................................
7,831 $
2,925 $
3,177
2,924
$11,008 $
5,849 $
4,484
3,212
40
(610)
7,126
1,796
2,571
(22)
(1,208)
3,137
18,134 $
8,986 $
23,331 $
13,367
36,698 $
11,932
11,908
226
(3,037)
21,029
57,727 $
14,408 $
11,568
25,976 $
8,068
9,272
181
(1,810)
15,711
41,687 $
20,383
9,746
30,129
7,375
3,618
84
(1,131)
9,946
40,075
32%
23%
30%
28%
30%
Note:
(1) We adopted IFRS 15 and 16 effective January 1, 2018. Under this adoption, the comparative information for 2017 was not restated.
Revenue
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
SaaS ..................................................
Professional services ........................
Subscription term license .................
Maintenance and support ..................
$ 32,006
8,931
12,120
3,255
56,312
$ 25,492
7,447
2,390
2,970
38,299
26%
20%
407%
10%
47%
$ 118,860
33,549
26,218
12,922
191,549
$ 97,157
31,854
9,935
11,781
150,727
2018 to
2019
%
22%
5%
164%
10%
27%
Total revenue for the three months ended December 31, 2019 was $56.3 million, an increase of $18.0 million
compared to the same period in 2018. This increase was primarily due to higher subscription term license revenue and
a 26% increase in SaaS revenue. Total revenue for the year ended December 31, 2019 was $191.5 million, an increase
of $40.8 million compared to the same period in 2018. This increase was primarily due to a 22% increase in SaaS
revenue and a 164% increase in subscription term license revenue.
64
Management's Discussion and Analysis
SaaS revenue
SaaS revenue for the three months and year ended December 31, 2019 was $32.0 million and $118.9 million, an
increase of $6.5 million and $21.7 million, respectively, compared to the same periods in 2018. This increase was due
to contracts secured with new customers, as well as expansion of existing customer subscriptions.
Professional services revenue
Professional services revenue for the three months and year ended December 31, 2019 was $8.9 million and $33.5
million, an increase of $1.5 million and $1.7 million, respectively, compared to the same periods in 2018. Professional
services revenue varies quarter to quarter due to the size, timing and scheduling of customer engagements and the
level of partner led engagements.
Subscription term license revenue
Subscription term license revenue for the three months and year ended December 31, 2019 was $12.1 million and
$26.2 million, an increase of $9.7 million and $16.3 million, respectively, compared to the same periods in 2018.
Subscription term license revenue varies quarter to quarter due to the timing of new contracts, expansions and renewals
for on-premise and hybrid subscription arrangements.
Maintenance and support revenue
Maintenance and support revenue for the three months and year ended December 31, 2019 was $3.3 million and
$12.9 million, an increase of $0.3 million and $1.1 million, respectively, compared to the same periods in 2018.
Cost of Revenue
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
Cost of revenue ................................
Gross profit.......................................
Gross profit percentage ....................
$ 14,872
41,440
74%
$ 12,390
25,909
68%
20%
60%
$ 53,850
137,699
72%
$ 47,032
103,695
69%
2018 to
2019
%
14%
33%
Cost of revenue for the three months and year ended December 31, 2019 was $14.9 million and $53.9 million, an
increase of $2.5 million and $6.8 million, respectively, compared to the same periods in 2018. Cost of revenue
increased due to higher headcount and related compensation costs, depreciation costs associated with the expansion
of data center capacity, and partner and third-party service provider costs. In 2018 and 2019, we expanded existing
data centers and launched new data centers in Japan to support new and ongoing customer engagements as well as
global expansion.
Gross profit for the three months and year ended December 31, 2019 was $41.4 million and $137.7 million, an
increase of $15.5 million and $34.0 million, respectively, compared to the same periods in 2018. The increase for the
three months and year was due to an increase in SaaS and subscription term license revenue, partly offset by the
increase in cost of revenue.
As a percentage of revenue, gross profit was 74% and 72% for the three months and year ended December 31,
2019, compared to 68% and 69%, respectively, for the same periods in 2018.
65
Management's Discussion and Analysis
Selling and Marketing Expenses
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
2018 to
2019
%
Selling and marketing .......................
As a percentage of revenue...............
$ 13,747
24%
$ 10,285
27%
34%
$ 44,270
23%
$ 35,055
23%
26%
Selling and marketing expenses for the three months and year ended December 31, 2019 were $13.7 million and
$44.3 million, an increase of $3.5 million and $9.2 million, respectively, compared to the same periods in 2018. The
increase in selling and marketing expenses was due to higher headcount and related compensation costs, commissions
expense, stock-based compensation, and sales and marketing event activity. We continue to expand our sales team,
particularly in Europe and Asia, as well as our partner network.
As a percentage of revenue, selling and marketing expenses were 24% and 23% for the three months and year
ended December 31, 2019, compared to 27% and 23%, respectively, for the same periods in 2018.
Research and Development Expenses
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
2018 to
2019
%
Research and development ...............
As a percentage of revenue...............
$ 9,443
17%
$ 7,105
19%
33%
$ 34,125
18%
$ 27,626
18%
24%
Research and development expenses for the three months and year ended December 31, 2019 were $9.4 million
and $34.1 million, an increase of $2.3 million and $6.5 million, respectively, compared to the same periods in 2018.
The increase in research and development expenses was due to higher headcount and related compensation costs. The
investment in headcount supports ongoing programs to drive further innovation in our RapidResponse platform and
ensure sustainable market leadership.
As a percentage of revenue, research and development expenses were 17% and 18%, for the three months and
year ended December 31, 2019, compared to 19% and 18%, respectively, for the same periods in 2018.
66
Management's Discussion and Analysis
General and Administrative Expenses
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
2018 to
2019
%
General and administrative ...............
As a percentage of revenue...............
$ 6,505
12%
$ 5,028
13%
29%
$ 26,852
14%
$ 20,167
13%
33%
General and administrative expenses for the three months and year ended December 31, 2019 were $6.5 million
and $26.9 million, an increase of $1.5 million and $6.7 million, respectively, compared to the same periods in 2018.
General and administrative expenses for the year ended December 31, 2019 include a $2.5 million write off of trade
and other receivables. We had a dispute with an Asian-based customer that was the subject of confidential, binding
arbitration proceedings. We have agreed with the customer to resolve our dispute amicably, with no admission by
either party and with no payment by either party to the other. The arbitration has been discontinued. Prior to the effect
of this write off, general and administrative expenses increased $4.2 million or 21% for the year ended December 31,
2019 compared to the same period in 2018.
The remaining increase, excluding the write-off, was due to higher headcount and related compensation costs in
support of ongoing investment in global expansion, particularly in Europe and Asia, and higher legal fees.
As a percentage of revenue, general and administrative expenses were 12% and 14% for the three months and
year ended December 31, 2019, respectively, compared to 13% for the same periods in 2018.
Other Income and Expense
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
2018 to
2019
%
Other income (expense):
Foreign exchange loss ..............
Net finance income ...................
Total other income ...........................
$
$
(40)
610
570
22
1,208
1,230
–(1)
(50%)
(54%)
$ (226)
3,037
2,811
$ (181)
1,810
1,629
25%
68%
73%
Note:
(1)
The percentage change has been excluded as it is not meaningful.
Total other income for the three months ended December 31, 2019 was $0.6 million, compared to $1.2 million
for the same period in 2018. The decrease for the three month period was due to lower interest earnings.
Total other income for the year ended December 31, 2019 was $2.8 million, compared to $1.6 million for the
same period in 2018. The increase for the year was due to interest earned on higher balances of cash and cash
equivalents and short-term investments.
67
Management's Discussion and Analysis
Income Taxes
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
2018 to
2019
%
Income tax expense ..........................
As a percentage of profit before
income taxes .....................................
$ 4,484
$ 1,796
150%
$ 11,932
$ 8,068
48%
36%
38%
34%
36%
Income tax expense for the three months and year ended December 31, 2019 was $4.5 million and $11.9 million,
compared to $1.8 million and $8.1 million, respectively, for the same periods in 2018. The increase in income tax
expense was due to higher profit before income taxes. As a percentage of profit before taxes, income tax expense was
36% and 34% for the three months and year ended December 31, 2019, compared to 38% and 36%, respectively, for
the same periods in 2018.
Income tax expense as a 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.
Profit
Three months ended
December 31,
2019
2018
2018 to
2019
%
2019
(In thousands of USD)
Year ended
December 31,
2018
Profit ................................................
Adjusted profit(1) ..............................
Adjusted EBITDA(1) .........................
Basic earnings per share ...................
Diluted earnings per share ................
Adjusted diluted earnings per
share(1) ..............................................
$ 7,831
11,008
18,134
0.30
0.29
$
$
$ 2,925
5,849
8,986
0.11
0.11
$
$
168%
88%
102%
$ 23,331
36,698
57,727
0.89
0.87
$
$
$ 14,408
25,976
41,687
0.56
0.54
$
$
$
0.40
$
0.22
$
1.36
$
0.97
2018 to
2019
%
62%
41%
38%
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.
Profit for the three months ended December 31, 2019 was $7.8 million or $0.30 per basic share and $0.29 per
diluted share, compared to $2.9 million or $0.11 per basic and diluted share for the same period in 2018. Profit for the
year ended December 31, 2019 was $23.3 million or $0.89 per basic share and $0.87 per diluted share, compared to
$14.4 million or $0.56 per basic share and $0.54 per diluted share for the same period in 2018. The increase in profit
for the three months and year was due to an increase in revenue and gross profit, partly offset by an increase in
operating expenses.
Adjusted EBITDA for the three months and year ended December 31, 2019 was $18.1 million and $57.7 million,
compared to $9.0 million and $41.7 million, respectively, for the same periods in 2018. The increase in Adjusted
EBITDA was due to an increase in revenue and gross profit, partly offset by an increase in operating expenses
excluding stock-based compensation and depreciation and the $2.5 million write off of trade and other receivables
related to the discontinued arbitration proceedings. Prior to the effect of this write off, Adjusted EBITDA for the year
ended December 31, 2019 was $60.3 million, or 31% of revenue.
68
Key Balance Sheet Items
Management's Discussion and Analysis
As at
December 31, 2019
As at
December 31, 2018
(In thousands of USD)
Total assets ..............................................................
Total liabilities .........................................................
$ 350,743
120,641
$
297,759
113,077
An analysis of the key balance sheet items driving the change in total assets and liabilities is as follows:
Trade and other receivables
As at
December 31, 2019
As at
December 31, 2018
(In thousands of USD)
Trade accounts receivable........................................
Unbilled receivables ................................................
Taxes receivable ......................................................
Other ........................................................................
Loss allowance ........................................................
Total trade and other receivables .............................
$ 65,406
13,880
382
1,690
(22)
81,336
$ 56,618
6,408
566
738
–
64,330
Trade and other receivables at December 31, 2019 were $81.3 million, an increase of $17.0 million compared to
December 31, 2018 due to variances in the timing of billings and collections on receivables. The balance at any point
in time is impacted by the timing of the annual subscription billing cycle for each customer and when new customer
contracts are secured. Unbilled receivables at December 31, 2019 were $13.9 million, an increase of $7.5 million
compared to December 31, 2018 due to renewals and expansion of on-premise subscription agreements resulting in
recognition of subscription term license revenue in advance of invoicing under the respective agreements. The aging
of trade receivables is generally current or within 30 days past due and overdue amounts do not reflect any credit
issues. We have a nominal allowance for expected losses recorded as at December 31, 2019.
69
Management's Discussion and Analysis
Right-of-use assets & Lease obligations
As at
December 31, 2019
As at
December 31, 2018
(In thousands of USD)
Right-of-use assets ..................................................
$ 8,671
$
8,873
Lease obligations:
Current .................................................................
Non-current ..........................................................
2,288
6,818
9,106
2,572
6,311
8,883
The right-of-use assets and lease obligations relate to our leases for office space and data centers.
Right-of-use assets at December 31, 2019 were $8.7 million, a decrease of $0.2 million compared to December
31, 2018. This decrease was due to regular amortization, mostly offset by additional data center leases entered into
during the year. Lease obligations at December 31, 2019 were $9.1 million, an increase of $0.2 million compared to
December 31, 2018. This increase was due to additional data center leases entered into during the year, mostly offset
by regular lease payments.
Contract acquisition costs
As at
December 31, 2019
As at
December 31, 2018
(In thousands of USD)
Contract acquisition costs .......................................
$ 15,497
$ 13,902
Contract acquisition costs are capitalized and amortized over the expected life of the customer upon
commencement of the related revenue. Contract acquisition costs consist of sales commissions paid to employees and
third party referral fees. Contract acquisition costs at December 31, 2019 were $15.5 million, an increase of $1.6
million compared to December 31, 2018.
Deferred revenue
As at
December 31, 2019
As at
December 31, 2018
(In thousands of USD)
Deferred revenue ....................................................
$
83,673
$ 78,496
Deferred revenue at December 31, 2019 was $83.7 million, an increase of $5.2 million compared to December
31, 2018. We generally bill our customers annually in advance for SaaS agreements resulting in initially recording the
amount billed as deferred revenue which is subsequently drawn down to revenue over the agreement 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.
70
Management's Discussion and Analysis
Summary of Quarterly Results
The following table summarizes selected results for the eight most recent completed quarters to December 31, 2019.
Three months ended
December
31, 2019
September
30, 2019
June 30,
2019
March 31,
2019
December
31, 2018
September
30, 2018
June 30,
2018
March 31,
2018
Revenue:
SaaS ..............................................
Professional services .....................
Subscription term license ..............
Maintenance and support .............
$ 32,006
8,931
12,120
3,255
$ 31,229
9,348
3,278
3,276
$ 28,283
8,358
2,414
3,297
$ 27,342
6,912
8,406
3,094
$ 25,492
7,447
2,390
2,970
$ 24,489
8,657
508
2,931
$ 23,873
9,640
2,543
2,938
$ 23,303
6,110
4,494
2,942
Cost of revenue .................................
Gross profit .......................................
Operating expenses ...........................
Foreign exchange gain (loss) .............
Net finance income ...........................
Profit before income taxes .................
Income tax expense ...........................
56,312
14,872
41,440
29,695
11,745
(40)
610
12,315
4,484
47,131
13,803
33,328
27,810
5,518
(101)
841
6,258
1,725
42,352
12,984
29,368
24,368
5,000
85
821
5,906
1,905
45,754
12,191
33,563
23,374
10,189
(170)
765
10,784
3,818
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
Profit .................................................
$ 7,831
$ 4,533
$ 4,001
$ 6,966
$ 2,925
$ 2,665
$ 4,265
$ 4,553
Share-based compensation ................
Adjusted profit(1) ................................
Income tax expense ...........................
Depreciation(2) ...................................
Foreign exchange loss (gain) .............
Net finance income ............................
3,177
3,537
3,581
3,072
2,924
2,959
2,527
3,158
$ 11,008
$ 8,070
$ 7,582
$ 10,038
$ 5,849
$ 5,624
$ 6,792
$ 7,711
4,484
3,212
40
(610)
7,126
1,725
3,045
101
(841)
4,030
1,905
2,974
(85)
(821)
3,973
3,818
2,677
170
(765)
5,900
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
Adjusted EBITDA(1) (2) ......................
$ 18,134
$ 12,100
$ 11,555
$ 15,938
$ 8,986
$ 9,353
$ 11,028
$ 12,320
Basic earnings per share ....................
Diluted earnings per share .................
Adjusted diluted earnings per share(1)
$ 0.30
$ 0.29
$ 0.40
$ 0.17
$ 0.17
$ 0.30
$ 0.15
$ 0.15
$ 0.28
$ 0.27
$ 0.26
$ 0.37
$ 0.11
$ 0.11
$ 0.22
$ 0.10
$ 0.10
$ 0.21
$ 0.17
$ 0.16
$ 0.25
$ 0.18
$ 0.17
$ 0.29
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) Figures have been adjusted for the three months ended March 31, 2018, June 30, 2018, and September 30, 2018 as a result of adjustments
identified in connection with issuing our consolidated financial statements for the year ended December 31, 2018. Certain variable lease
payments previously recorded as lease assets and obligations have been recorded as operating expenses. These adjustments were not
considered material and did not affect our consolidated revenue or consolidated profit.
SaaS revenue has increased due to the acquisition of new customers and expansion within existing customers.
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.
Subscription term license revenue varies quarter to quarter due to the timing of new contracts, expansions and renewals
for on-premise and hybrid subscription arrangements. Maintenance and support revenue is consistent, reflecting the
recurring support component of on-premise and hybrid subscription arrangements and legacy perpetual licenses.
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 74% 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 from 2018 to 2019.
71
Management's Discussion and Analysis
Liquidity and Capital Resources
Our primary source of cash flow is sales of subscriptions for our software and sales of professional 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, 2019
As at
December 31, 2018
(In thousands of USD)
$
182,284
30,319
212,603
$ 126,144
55,404
181,548
Cash and cash equivalents increased $56.1 million to $182.2 million at December 31, 2019. Short-term
investments decreased $25.1 million to $30.3 million at December 31, 2019. Total cash and cash equivalents and
short-term investments increased $31.1 million to $212.6 million at December 31, 2019.
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, 2019 was $277.4 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 $78.7
million and finance 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,
2019
2018
2019
2018
(In thousands of USD)
Cash inflow (outflow) by activity
Operating activities ..........................................
Investing activities ...........................................
Financing activities ..........................................
Effects of exchange rates .................................
Net cash inflows ...............................................
$
8,025
(1,378)
3,749
(69)
10,327
$
6,654
13,744
(104)
(190)
20,104
$
36,599
13,281
6,077
183
56,140
$
27,915
(12,406)
7,960
(717)
22,752
Cash provided by operating activities
Cash generated by operating activities for the three months ended December 31, 2019 was $8.0 million, compared
to $6.7 million for the same period in 2018. The increase was due to higher profit, partly offset by fluctuations in
operating assets and liabilities including a larger increase in trade and other receivables compared to the same period
in 2018. Cash generated by operating activities for the year ended December 31, 2019 was $36.6 million, compared
to $27.9 million for the same period in 2018. The increase was due to higher profit and collection of trade and other
receivables, partly offset by income tax payments and a smaller increase in deferred revenue compared to the same
period in 2018.
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Management's Discussion and Analysis
Cash provided by (used in) investing activities
Cash provided by/used in investing activities is driven by net redemption 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 used in investing activities for the three months ended
December 31, 2019 was $1.4 million, compared to cash provided by investing activities of $13.7 million for the same
period in 2018. The change was due to net redemptions of short-term investments for the three month period in 2018.
Cash provided by investing activities for the year ended December 31, 2019 was $13.3 million, compared to cash used
in investing activities of $12.4 million for the same period in 2018. The change was due to net redemptions of short-
term investments in 2019. We expect to invest in additional property and equipment to support the growth in our
customer base and to take advantage of new and advanced technology.
Cash provided by (used in) financing activities
Cash provided by financing activities for the three months ended December 31, 2019 was $3.7 million, compared
to cash used in financing activities of $0.1 million for the same period in 2018. The change was due to higher proceeds
from stock options exercised. Cash provided by financing activities for the year ended December 31, 2019 was $6.1
million, compared to $8.0 million for the same period in 2018. The decrease was due to lower proceeds from stock
options exercised.
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 February 2037. The largest lease commitment relates to a new head office in
Ottawa, Canada, the lease of which commences in 2021 and expires in 2037. 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, 2019, 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
$ 4,437
$ 13,182
$ 5,572
$ 34,757
$ 57,948
20,770
̶
̶
̶
20,770
$ 25,207
$ 13,182
$ 5,572
$ 34,757
$ 78,718
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
$
21,546
̶
̶
$ 25,301
$ 7,926
$ 695
$
̶
̶
̶
$ 12,376
21,546
$ 33,922
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Management's Discussion and Analysis
Recent Developments
On January 31, 2020, we acquired 100% of the outstanding shares of Prana Consulting, Inc. and all of its
subsidiaries (“Prana”) in exchange for cash and contingent consideration. Prana provides consulting services for
implementation of our software.
The cash consideration is based on a purchase price of $3,650, adjusted for Prana’s working capital surplus or
deficit at the date of acquisition and subject to post-closing working capital adjustments.
The contingent consideration arrangement consists of additional payments to the selling shareholder for
attainment of specific revenue and team retention metrics in the year following the acquisition. The potential
undiscounted amount of all future payments that we could be required to make under this arrangement is between
$150 and $1,000. We estimate that the fair value of contingent consideration at the date of acquisition is $800.
The financial effects of this transaction have not been recognized at December 31, 2019. At the effective date of
this MD&A, we have not yet completed the initial accounting for the acquisition of Prana. In particular, the fair value
assessment of the assets acquired and liabilities assumed is incomplete. It is not yet possible to provide detailed
information about each class of net assets and any contingent liabilities of the acquired entity.
The provisionally determined goodwill arising from the acquisition is $4,450. The goodwill is attributable mainly
to the skills and technical talent of Prana’s work force and the synergies expected to be achieved from integrating
Prana into our existing professional services business. The goodwill is expected to be deductible for tax purposes.
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 year ended December 31, 2019 and 2018 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
74
Management's Discussion and Analysis
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 Royal Bank prime rate and Royal Bank US base rate.
Capital management
Our capital is composed of shareholders’ equity which includes our common shares. Our objective in managing
our capital is financial stability and sufficient liquidity to increase shareholder value through organic growth and
investment in sales, marketing and product development. Our senior management team is responsible for managing
the capital through regular review of financial information to ensure sufficient resources are available to meet
operating requirements and investments to support our growth strategy. The Board of Directors is responsible for
overseeing this process. In order to maintain or adjust our capital structure, we could issue new shares, repurchase
shares, approve special dividends or issue debt.
Critical Accounting Policies and Estimates
See our 2019 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.
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 end of the financial year end and based on the evaluation have
concluded that the disclosure controls and procedures are effective.
75
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. As at December 31, 2019, management
assessed the effectiveness of our ICFR and concluded that our ICFR is effective and there are no material weaknesses
that have been identified. There were no significant changes to our ICFR for the year ended December 31, 2019.
Outstanding Share Information
As of December 31, 2019, 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, 2019 and as of February 25, 2020 are summarized as follows:
Class of Security
Common shares
Stock options
Restricted Share Units
Deferred Share Units
Number
outstanding at
December 31,
2018
26,078,181
2,089,873
52,634
30,830
Number
outstanding at
December 31,
2019
26,403,004
2,228,738
60,722
45,086
Number
outstanding at
February 25,
2020
Net issued
4,669
(5,919)
̶
̶
26,407,673
2,222,819
60,722
45,086
Net issued
324,823
138,865
8,088
14,256
Our outstanding common shares increased by 324,823 shares in 2019 due to the exercise of 261,929 stock options
and vesting of 62,894 restricted share units.
Our outstanding stock options increased by 138,865 options in 2019 due to the grant of 468,044 options less
261,929 options exercised and 67,250 options forfeited. Each option is exercisable for one common share.
Our outstanding restricted share units increased by 8,088 units in 2019 due to the grant of 70,982 restricted share
units less 62,894 units vested. Our outstanding deferred share units increased by 14,256 units in 2019 due to the grant
of 14,256 deferred share units. 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.
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