exactEarth Reports Q3 2016 Financial Results

CAMBRIDGE, ON, Sept. 14, 2016 /CNW/ - exactEarth Ltd. ("the Company"), the leading provider of Satellite AIS ("S-AIS") data services, announces its financial results for the three- and nine-month periods ended July 31, 2016. All financial figures are in Canadian dollars unless otherwise stated.

Q3 Financial Highlights

  • Revenue of $4.0 million
  • Order Bookings of $16.0 million
  • Adjusted EBITDA* of ($0.3) million
  • Net loss of ($1.3) million, or ($0.06) per share
  • Cash balance was $15.1 million at July 31, 2016

Q3 Operational Highlights

  • Partnership with EV Image Inc. for distribution of exactEarth's S-AIS solutions in China with a minimum financial commitment of USD $8.5 million over six years
  • Renewal of a contract to be the sole provider of S-AIS services to the Government of Canada
  • Contract with the French Navy for S-AIS services
  • Partnership with DigitalGlobe to combat illegal and unreported fishing
  • Expanded collaboration with Genscape for S-AIS and Maritime Data services
  • Increased satellite constellation to nine with the launch of M3MSat (Maritime Monitoring and Messaging Microsatellite)
  • Subsequent to quarter-end, signed a small-vessel tracking contract with Government of Ghana

"Q3 was a strong quarter for new bookings, which more than tripled from a year ago," said Peter Mabson, CEO of exactEarth. "This activity was driven primarily by our new distribution agreement for China and by sales activity with the French Navy and Government of Canada. Our momentum continued into Q4, where we recently announced a contract to provide small-vessel tracking services to the Government of Ghana. We also broadened our partner network by signing an agreement with DigitalGlobe that targets illegal and unreported fishing and by announcing deeper ties with our existing partner, Genscape. The successful June 20th launch of the M3M satellite brings the total number of satellites in our first generation constellation to nine, and the satellite will enhance the capabilities of this constellation when it comes on line in the fall.

Looking out through Q4 and into fiscal 2017, we have a number of exciting growth catalysts that we are working on. We expect to gain visibility into the potential for further opportunities with the Government of Canada. We look to enter the larger maritime information services market by launching analytics-based applications developed with our partner, Larus. We are leveraging our relationship with the government of Ghana and with DigitalGlobe to build a pipeline of small-vessel tracking opportunities. Longer term, our participation on the IridiumNEXT constellation is expected to increase our addressable market by providing real-time service capability for our AIS and analytics products."

Financial Review

Total revenue for the three and nine months ended July 31, 2016 was $4.0 million and $15.6 million compared to $7.8 million and $19.1 million in the respective periods of 2015.  On May 5, 2016, exactEarth announced that it had won the contract to be the exclusive provider of S-AIS services to the Government of Canada ("GoC"); however, the service levels subscribed for, and the revenue generated by the contract renewal, are well below the previous levels that the Company had with the GoC. The difference between the renewal contract and the original contract accounted for $3.1 million of the revenue change in Q3 and $4.2 million for the YTD period.

Subscription Services, our primary growth and focus area, revenue for the three and nine months ended July 31, 2016 was $2.8 million and $12.3 million compared to $5.1 million and $15.3 million in the respective periods of 2015. Subscription Services revenue in each of the three- and nine-month periods ended July 31, 2016 was also negatively impacted by the lower service and revenue level of the GoC contract renewal in the amount of $3.1 million and $4.2 million, respectively.  Excluding the impact of the GoC contract, subscription revenue grew by $0.8 million and $1.2 million in the three and nine-month periods ended July 31, 2016.

Subscription Services revenue for the three and nine months ended July 31, 2016 represented 70% and 79% of total revenue compared to 66% and 80% in the respective periods of 2015. Subscription Services revenue from commercial customers for the three and nine months ended July 31, 2016 rose 29% and 33% compared to the respective periods of 2015.

Data Products revenue for the three and nine months ended July 31, 2016 was $1.0 million and $2.3 million compared to $1.9 million and $2.2 million in the respective periods of 2015. In Q3 2015, exactEarth generated $1.6 million in Data Products revenue from the sale of its historical S-AIS data to Harris Corporation ("Harris").

For the three and nine months ended July 31, 2016, exactEarth generated $0.81 million and $1.6 million, respectively, in non-cash Data Products revenue, and $0.68 million and $0.75 million, respectively, in non-cash Subscription Services revenue, from an Asset Transfer Agreement with Communitech related to the EV9 satellite. Under the agreement, the Company will provide in‑kind datasets at a value of $3.7 million, not licensed for commercial use, in exchange for title to the EV9 satellite, subject to certain restrictions. The Company expects to recognize revenue from the remaining $1.3 million of in-kind data sets over the next six months.  

Other Products & Services revenue for the three and nine months ended July 31, 2016 was $0.17 million and $1.1 million compared to $0.75 million and $1.6 million in the respective periods of 2015.  This revenue tends to fluctuate from quarter to quarter as it is generated from on-demand customer requests and long-term percentage-of-completion contracts.

Gross margin for the three and nine months ended July 31, 2016 was 50.5% and 54.1% compared to 64.4% and 58.7% in the respective periods of 2015. Gross margin decreased quarter over quarter due to lower Subscription Services and Data Products revenue, offset in part by a decrease in operational costs for the Company's satellite constellation.

Selling, general and administrative expenses for the three and nine months ended July 31, 2016 were $1.7 million and $5.7 million compared to $2.6 million and $6.2 million in the respective periods of 2015. The decrease in SG&A expense reflects the Company's focus on cost control, and costs related to investments in growth-oriented initiatives that were made in 2015. Lower expenses in fiscal 2016 were offset, in part, due to collection issues related to one customer and higher administrative costs related to the Company's public listing.

Product development expense for the three and nine months ended July 31, 2016 was $0.51 million and $1.4 million compared to $0.35 million and $1.0 million in the respective periods of 2015. The increase primarily reflects investment in the Company's next generation of analytics-based product offerings.

Adjusted EBITDA for the three and nine months ended July 31, 2016 was ($0.29) million and $0.86 million compared to $3.6 million and $5.7 million in the respective periods of 2015. The year-over-year decrease in Adjusted EBITDA was primarily due to lower revenue from the GoC, the one-time Data Product sale of historical S-AIS data to Harris, collection issues related to one customer and the introduction of costs related to being a public company. (Adjusted EBITDA is a non-IFRS measure and is defined below.)

Net loss for the three and nine months ended July 31, 2016 was ($1.3) million, or ($0.06) per share, and ($31.8) million, or ($1.77) per share, compared to net income of $0.31 million, or $0.03 per share, and a net loss of ($1.5) million, or ($0.13) per share, in the respective periods of 2015. For the nine month period ended July 31, 2016, the year-over-year increase in net loss is primarily due to a $28.0 million non-cash charge taken in Q2 2016, related to the impairment and write-down of certain assets. Excluding the non-cash write-down, net loss for the nine months ended July 31, 2016 was ($3.8) million, or ($0.21) per share. Additional information related to the Q2 2016 non-cash asset impairment and write-down can be found below in this press release.

exactEarth used $1.8 million of cash from operating activities in the three months ended July 31, 2016 compared with cash generated from operations of $2.6 million in the same period of 2015. Approximately $3.7 million of cash used in operations was paid to Harris as part of the agreement signed between exactEarth and Harris. This represented the final up-front payment obligation to Harris from exactEarth. The Company's cash balance at July 31, 2016 was $15.1 million, up from $2.4 million at October 31, 2015.

As at July 31, 2016, the Company had 21,605,506 shares outstanding. 

Conference Call

The management of exactEarth will host an investor conference call to discuss these results in greater detail.  All interested investors and analysts are invited to participate.

Date: 

Wednesday, September 14, 2016 at 8:30 a.m. E.S.T.



Dial-in: 

647-427-7450 or 1-888-231-8191



Webcast:  

To access the live webcast, please go to http://bit.ly/2bJ5MWI or visit the exactEarth website for more details.




The web cast will be archived for 30 days.



Replay: 

Replay Toll Free Dial-In Number: 1-855-859-2056
Replay Password: 74764236

 

About exactEarth Ltd.

exactEarth is a leading provider of global maritime vessel data for ship tracking and maritime situational awareness solutions. Since its establishment in 2009, exactEarth has pioneered a powerful new method of maritime surveillance called Satellite-AIS ("S-AIS") and has delivered to its clients a view of maritime behaviours across all regions of the world's oceans unrestricted by terrestrial limitations. exactEarth has deployed an operational data processing supply chain involving a constellation of satellites, receiving ground stations, patented decoding algorithms and advanced "big data" processing and distribution facilities. This ground-breaking system provides a comprehensive picture of the location of AIS equipped maritime vessels throughout the world and allows exactEarth to deliver data and information services characterized by high performance, reliability, security and simplicity to large international markets.  For more information, visit exactearth.com.

Forward-Looking Statements

This news release contains statements that, to the extent they are not recitations of historical fact, may constitute "forward-looking statements" within the meaning of applicable Canadian securities laws. Forward-looking statements may include financial and other projections, as well as statements regarding exactEarth's future plans, objectives or economic performance, or the assumptions underlying any of the foregoing, including statements regarding, among other things, the intentions of the parties, the use of any intellectual property, further investments that may be made by exactEarth and new markets that may be exploited by either party. exactEarth uses words such as "may", "would", "could", "will", "likely", "expect", "anticipate", "believe", "intend", "plan", "forecast", "project", "estimate" and similar expressions to identify forward-looking statements. Any such forward-looking statements are based on assumptions and analyses made by exactEarth in light of its experience and its perception of historical trends, current conditions and expected future developments, as well as other factors exactEarth believes are appropriate under the relevant circumstances. However, whether actual results and developments will conform to exactEarth's expectations and predictions is subject to any number of risks, assumptions and uncertainties. Many factors could cause exactEarth's actual results, historical financial statements, or future events to differ materially from those expressed or implied by the forward-looking statements contained in this news release. These factors include, without limitation: uncertainty in the global economic environment; fluctuations in currency exchange rates; delays in the purchasing decisions of exactEarth's customers; the competition exactEarth faces in its industry and/or marketplace; the further delayed launch of satellites; the reduced scope of significant existing contracts; and the possibility of technical, logistical or planning issues in connection with the deployment of exactEarth's products or services.

Asset Impairment and Write-Down

At the end of each reporting period, the Company assesses whether there are events or circumstances indicating that an asset may be impaired. The Company considers the relationship between its market capitalization and the book value of its equity, among other factors, when reviewing for indicators of impairment.

During the second quarter of fiscal 2016, exactEarth's market capitalization was lower than its carrying amount. As a result, an impairment test was performed using a value-in-use model to calculate the recoverable asset amount, as defined by International Accounting Standard ("IAS") 36, using assumptions that represent management's best estimate of future economic and market conditions in line with the Company's target operating model.

Certain significant assumptions used for the interim impairment test were adjusted compared with those used for the Company's annual October 31, 2015 impairment test. The terminal growth rate was reduced from 3.25% to 2.5% to reflect current inflation rates, and the discount rate was increased from 14.7% to 21.0% to reflect current market risks as indicated by a lower market capitalization value. As a result, impairment losses of $17.7 million related to property, plant & equipment and $10.3 million related to intangible assets were recognized in the quarter.

*Non-IFRS Measures

We measure Adjusted EBITDA as earnings before interest, taxes, depreciation and amortization ("EBITDA"), plus offering related expenses, unrealized foreign exchange losses and share-based compensation costs, less unrealized foreign exchange gains. We believe that Adjusted EBITDA provides useful supplemental information as it provides an indication of the income generated by our main business activities before taking into consideration how they are financed or taxed and exclude the impact of items that are considered by management to be outside of the Company's ongoing operating results. Adjusted EBITDA should not be construed as an alternative to net income (loss) determined in accordance with IFRS as an indicator of our performance or to cash flows from operating, investing and financing activities as a measure of liquidity and cash flows.

We define Subscription Revenue as the dollar sum of fully executed contracts for our products and/or services to our customers that are subscription-based, typically sold with a one-year period of service and recognized in our "Subscription Services" segmented revenue.

A reconciliation of Adjusted EBITDA to net income determined in accordance with IFRS, is provided below.


 Three months ended 

 Nine months ended 



July 31, 2016


July 31, 2015


July 31, 2016


July 31, 2015

 Net loss 

$

(1,315)

$

309

$

(31,828)

$

(1,496)

 Interest expense (income) 


(3)


316


312


983

 Income tax expense 


-


-


-


-

 Depreciation and amortization 


911


1,370


3,723


4,110

 EBITDA  

$

(407)

$

1,995

$

(27,793)

$

3,597

 Offering related expenses 


-


1,302


-


1,574

 Unrealized foreign exchange (gain) loss 


(73)


317


215


486

 Share-based compensation 


188


-


454


-

 Impairment losses 


-


-


27,987


-

 Adjusted EBITDA 

$

(292)

$

3,614

$

863

$

5,657

 

 

exactEarth Ltd.

Interim Consolidated Statements of Financial Position

(in thousands of Canadian Dollars)

Unaudited




As at
July 31,


As at
October 31,




2016


2015




$


$


ASSETS





Current assets






Cash


15,087


2,365


Trade accounts receivable


1,605


3,865


Unbilled revenue


799


1,954


Prepaid expenses and other assets


1,022


676

Total current assets


18,513


8,860







Property, plant and equipment


30,968


48,538

Intangible assets


18,704


24,646

Total assets


68,185


82,044








LIABILITIES & EQUITY











Current liabilities






Accounts payable and accrued liabilities


4,534


10,966


Due to related parties


21


295


Deferred revenue


993


1,037


Current portion of loans


702


361


Current portion of long-term incentive plan


37


-

Total current liabilities


6,287


12,659







Government loan


1,145


1,436

Long-term debt


226


-

Due to related parties


-


44,801

Long-term incentive plan


117


82

Total liabilities


7,775


58,978







Shareholders' equity






Share capital


123,726


55,120


Contributed surplus


549


249


Accumulated other comprehensive loss


(30)


(296)


Deficit


(63,835)


(32,007)

Total shareholders' equity


60,410


23,066







Total liabilities and equity


68,185


82,044

 

 

exactEarth Ltd.

Interim Consolidated Statements of Comprehensive Loss

(in thousands of Canadian Dollars)

Unaudited




Three months ended 


Nine months ended 




July 31,


July 31,


July 31,


July 31,




2016


2015


2016


2015




$


$


$


$






















Revenue


4,008


7,781


15,610


19,138


Cost of revenue


1,983


2,771


7,165


7,905


Gross margin


2,025


5,010


8,445


11,233











Operating expenses










Research and development


-


15


28


46


Selling, general and administrative


1,654


2,599


5,728


6,194


Product development


513


345


1,415


1,046


Depreciation and amortization


911


1,370


3,723


4,110


Impairment loss


-


-


27,987


-

(Loss) income from operations


(1,053)


681


(30,436)


(163)











Other expense










Other expense


75


28


155


55


Foreign exchange loss


190


28


925


295


Interest (income) expense


(3)


316


312


983

Total other expense


262


372


1,392


1,333


Income tax expense


-


-


-


-

Net (loss) income


(1,315)


309


(31,828)


(1,496)











Other comprehensive (loss) income










Items that may be subsequently reclassified to net income:










Foreign currency translation, net of income tax expense of nil


99


(197)


266


(252)

Total other comprehensive (loss) income


99


(197)


266


(252)











Comprehensive income (loss)


(1,216)


112


(31,562)


(1,748)











Basic and diluted (loss) income per share


(0.06)


0.03


(1.77)


(0.13)

 

 

exactEarth Ltd.

Interim Consolidated Statements of Cash Flows

(in thousands of Canadian Dollars)

Unaudited




Three months ended 


Nine months ended 




July 31,


July 31,


July 31,


July 31,




2016


2015


2016


2015




$


$


$


$











Net (loss) income


(1,315)


309


(31,828)


(1,496)

Add (deduct) items not involving cash










Nonmonetary transaction


(1,486)




(2,368)




Impairment loss


-


-


27,987


-


Non cash interest


44


39


113


118


Depreciation and amortization


911


1,370


3,723


4,110


Settlement of long term incentive plan


-


-


-


(1)


Foreign exchange loss on revaluation of
foreign currency shareholder loans


-


203


-


327


Long term incentive plan


7


203


72


609


Stock based compensation


181


-


300


-


Change in non-cash working capital balances


(111)


468


576


576

Cash flows (used in) from operations


(1,769)


2,592


(1,425)


4,243





















Investing activities










Acquisition of property, plant, and equipment


(829)


(769)


(2,117)


(5,183)


Reimbursement of acquisition costs of
property, plant, and equipment


-


36


120


371


Acquisition of intangible assets


(3,731)


(6,594)


(6,785)


(7,005)

Cash flows used in investing activities


(4,560)


(7,327)


(8,782)


(11,817)











Financing activities










Government loan repayment


(123)


(123)


(369)


(205)


Long-term debt repayment


(88)


-


(117)


-


Shares issued


-


-


20,440


-


Shareholder loan advances


-


4,516


3,000


8,516

Cash flows (used in) from financing activities


(211)


4,393


22,954


8,311











Effect of exchange rate changes on cash


46


413


(25)


393











Net (decrease) increase in cash


(6,494)


71


12,722


1,130

Cash, beginning of the period


21,581


3,462


2,365


2,403

Cash, end of the period


15,087


3,533


15,087


3,533

 

 

exactEarth Ltd.

Interim Consolidated Statements of Changes in Equity

(in thousands of Canadian Dollars)

Unaudited

For the Nine Months Ended July 31, 2016

Total

Deficit

Accumulated
Other
Comprehensive
Loss

Share
Capital

Contributed
Surplus



$

$

$

$

$

Balance October 31, 2015

23,066

(32,007)

(296)

55,120

249


Stock option expense

300

-

-

-

300


Comprehensive loss

(31,562)

(31,828)

266

-

-


7,349,780 common shares issued on conversion of debt

48,166

-

-

48,166

-


3,144,615 common shares issued for cash

20,440

-

-

20,440

-

Balance July 31, 2016

60,410

(63,835)

(30)

123,726

549










-





For the Nine Months Ended July 31, 2015













Balance October 31, 2014

24,356

(30,952)

(62)

55,120

250


Settlement of long-term incentive plans

(1)

-

-

-

(1)


Comprehensive loss

(1,748)

(1,496)

(252)

-

-

Balance July 31, 2015

22,607

(32,448)

(314)

55,120

249

 

SOURCE exactEarth Ltd.

Image with caption: "exactEarth Announces Fiscal 2016 Third Quarter Results (CNW Group/exactEarth Ltd.)". Image available at: http://photos.newswire.ca/images/download/20160914_C3643_PHOTO_EN_772156.jpg

For further information: Dave Mason, Investor Relations, Tel: +1 416-985-3647, investors@exactearth.com

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