Halogen Announces Second Quarter 2016 Results

Total revenue growth of 12%, including 14% recurring revenue growth

Net Income of $283,000, Adjusted EBITDA of $1.9 million

OTTAWA, Aug. 4, 2016 /CNW/ - Halogen Software Inc. ("Halogen" or the "Company") (TSX: HGN), a leading provider of cloud-based talent management solutions, today announced its financial results for the three months ended June 30, 2016. All figures are stated in United States dollars unless otherwise noted.

Second Quarter 2016 Financial and Operational Highlights:

  • Recurring revenue increased 14% from Q2 2015 to $16.6 million, representing 92% of total revenue in the quarter.
  • Total revenue increased 12% from Q2 2015 to $18.0 million.
  • Deferred revenue rose 13% year-over-year to $37.3 million.
  • Net Income of $283,000 in Q2 2016 compared to a Net Loss of $2.3 million in Q2 2015.
  • Adjusted EBITDA of $1.91 million compared with $(1.1) million in Q2 2015.
  • Dollar retention was greater than 100%2.
  • Completed initial integration between the Halogen TalentSpace™ platform and Jobvite for version 16.1 release.
  • Named a leader in three IDC MarketScape reports for Integrated Talent Management Suites, Performance Management and Learning Management Systems.
  • Named one of Canada's Top 100 Small and Medium Employers for 2016.
  • The addition of key customers across all regions and strategic verticals including: Large healthcare organizations like Flagler Health  in North America and Southern Cross Care in Australia; Professional services firms such as FCB Worldwide in North America, Boult Wade in the UK and Calibre Consulting in Australia; Public sector organizations such as Town of Wake Forest, North Carolina and Olmsted County; Financial services firms like First Business Financial in North America and Qatar Financial Centre Authority in the Middle East; as well as the addition of strong global mid-market brands like Kia Canada and Nobu Hospitality.
  • Continued a normal course issuer bid to purchase up to a maximum of 1,249,792 of Halogen common shares through March 13, 2017. In the second quarter of 2016, Halogen purchased and cancelled 118,700 shares for approximately $0.8 million under the current normal course issuer bid.

"Our Q2 reflects another solid quarter in terms of profitable growth and advancing our solution strategy in the market," said Les Rechan, Halogen's CEO. "We've continued to refine our go-to-market strategy to sustain profitable growth and drive demand for our solutions. Our vision for next generation performance is fulfilled by a complete set of offerings aligned with our customers' needs and talent management journey; we've continued to see traction and build out our strategic partner solution portfolio, and we're proud of the market recognition for our leadership in performance-driven talent management."

Financial Review

Halogen's recurring revenue in the second quarter of 2016 was $16.6 million, a 14% increase over Q2 2015. Total revenue increased 12% over Q2 2015 to $18.0 million, driven by an increase in the value we derive from both new customers added over the last twelve months and from existing customers. In the second quarter of 2016, approximately 81% of revenue was generated from customers located in the United States (79% in Q2 2015), 8% in Canada (10% in Q2 2015) and 11% in international markets (11% in Q2 2015).

Gross margin was $13.8 million, or 77% of total revenue, in the second quarter of 2016, compared to $11.6 million, or 72% of total revenue, in Q2 2015.

Net income was $0.3 million in the second quarter of 2016 compared to a net loss of $2.3 million in Q2 2015. Adjusted EBITDA was $1.9 million in Q2 2016 compared to $(1.1) million in Q2 2015; Adjusted EBITDA per share was $0.09 in Q2 2016, compared to $(0.05) per share in Q2 2015.



Adjusted EBITDA reconciliation3

3 months ended June 30,

($000's except per share amounts)


2016


2015

Net income (loss)

$

283

$

(2,280)

Interest (income) expense and other, net


(15)


(20)

Current tax expense (recovery)


43


90

Deferred tax expense (recovery)


125


-

Depreciation and amortization


1,062


994

Share-based compensation


357


164

Adjusted EBITDA

$

1,855

$

(1,052)

Adjusted EBITDA per share

$

0.09

$

(0.05)

 

Total cash and investments was $34.7 million at June 30, 2016 compared to $36.1 million at December 31, 2015. Deferred revenue was $37.3 million at quarter-end, compared to $36.9 million at December 31, 2015 and $33.1 million at June 30, 2015.

Third Quarter and Full Year 2016 Financial Guidance

For the third quarter of 2016, the Company is expecting:

  • Recurring revenue in the range of $16.6 to $16.8 million
  • Total revenue in the range of $17.9 to $18.1 million

For the full year 2016, the Company is expecting:

  • Recurring revenue in the range of $66.7 to $67.1 million
  • Total revenue in the range of $72.6 to $73.0 million

For the full year 2016, the Company is increasing its expectation of:

  • Adjusted EBITDA in the range of $4.0 to $5.0 million

Second Quarter 2016 Financial Statements and Management's Discussion and Analysis
Halogen's Management's Discussion and Analysis and Consolidated Financial Statements for the three months ended June 30, 2016 will be available on SEDAR (www.sedar.com) and on the Halogen website at http://ir.halogensoftware.com.

Conference Call and Webcast
Halogen will hold a conference call to discuss its second quarter 2016 results today (Thursday, August 4, 2016) at 5:00 p.m. (ET). The call will be hosted by Les Rechan, President and CEO, and Pete Low, CFO.  To participate in the call, please dial 647-427-7450 or 1-888-231-8191 (Conference ID: 46714894) ten minutes prior to the scheduled start of the call. A replay of the conference call will be available until 11:59 p.m. (ET) on August 11, 2016 by calling 416-849-0833 or 1-855-859-2056. The conference call will be webcast live at http://bit.ly/29vluQC.

Forward-looking Statements
Certain statements in this release, including those that express management's expectations or estimates of our future performance, are "forward-looking statements" which reflect the Company's current expectations and projections about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. In some cases, these forward-looking statements can be identified by words or phrases such as "may", "might", "will", "expect", "anticipate", "estimate", "intend", "plan", "indicate", "seek", "believe", "estimates", "predicts" or "likely", or the negative of these terms, or other similar expressions intended to identify forward-looking statements.

The Company has based these forward-looking statements on its current expectations and projections at the time the statements were originally made or at the time the information was originally provided, about future events and financial trends that it believes might affect its financial condition, results of operations, business strategy and financial needs. Forward-looking statements are based on certain assumptions and analyses made by the Company in light of the experience and perception of historical trends, current conditions and expected future developments and other factors it believes are appropriate, and are subject to risks and uncertainties. Although the Company believes that the assumptions underlying these statements are reasonable, they may prove to be incorrect, and it cannot assure that actual results will be consistent with these forward-looking statements. Whether actual results, performance or achievements will conform to the Company's expectations and predictions is subject to a number of known and unknown risks, uncertainties, assumptions and other factors, including without limitation, those risks and uncertainties discussed in the Company's Prospectus and other filings on SEDAR.

If any of these risks or uncertainties materialize, or if assumptions underlying the forward-looking statements prove incorrect, actual results might vary materially from those expressed or implied by the forward-looking statements contained herein. These factors should be considered carefully and prospective investors should not place undue reliance on these forward-looking statements. Although the forward-looking statements contained herein are based upon what the Company currently believes to be reasonable assumptions, the Company cannot assure prospective investors that actual results, performance or achievements will be consistent with these forward-looking statements. The Company does not intend, and the Company does not assume, any obligation to update or revise these forward-looking statements to reflect new events or circumstances.

About Halogen Software
Halogen Software (TSX: HGN) offers a cloud-based talent management suite that puts ongoing, next-generation performance management principles at the center of all talent programs, including learning and development, succession planning, recruiting, and compensation. With over 2,100 customers worldwide, the company has been recognized as a market leader by major business analysts and has garnered the highest customer satisfaction ratings in the industry. Halogen's powerful, yet simple-to-use solutions, which also include industry-vertical editions, help organizations win with talent, by aligning their talent and business strategies to deliver exceptional outcomes. For more information, visit: http://www.halogensoftware.com. Subscribe to Halogen Software's TalentSpace blog: http://www.halogensoftware.com/blog/ or follow Halogen Software on Twitter: http://twitter.com/HalogenSoftware.






1

Adjusted EBITDA is a non-IFRS measure defined by the Company as earnings before interest income or expense, other income, depreciation and amortization, and share-based compensation. Adjusted EBITDA per share is calculated by dividing the Adjusted EBITDA by the weighted average number of shares outstanding in each period. Adjusted EBITDA and Adjusted EBITDA per share do not have a uniform definition. Our definition will likely differ from the definitions used by other companies, including peer companies, and therefore comparability may be limited. Thus, our non-IFRS measure of Adjusted EBITDA and Adjusted EBITDA per share should be considered in addition to, not as a substitute for, or in isolation from, measures prepared in accordance with IFRS. There are inherent limitations with non-IFRS measures; we compensate for these limitations by reconciling Adjusted EBITDA to the most comparable IFRS financial measure. Management encourages investors and others to review our financial information in its entirety, not to rely on any single financial measure, and to view our non-IFRS financial measures in conjunction with the most comparable IFRS financial measures.



2

Calculated by taking the annualized recurring revenue of customers at the beginning of a 12-month period and dividing it into annualized recurring revenue for those same customers at the end of the period.



3

Note that we have changed the calculation of Adjusted EBITDA to no longer adjust for foreign exchange gains and losses. Please refer to the "Adjusted EBITDA" section of Management's Discussion and Analysis for more information and the impact of this change.    

 



HALOGEN SOFTWARE INC.
Condensed Consolidated Interim Statements of Operations and Comprehensive Income (Loss)
Three and six month periods ended June 30, 2016 and 2015

(in United States dollars, tabular amounts in thousands, except share and per share data)

(Unaudited)






Three Months Ended June 30,


Six Months Ended June 30,



2016


2015



2016


2015











Revenue











Recurring

$

16,564

$

14,592


$

32,741

$

28,964


Professional services


1,438


1,480



2,922


3,016



18,002


16,072



35,663


31,980











Cost of revenue











Recurring


3,114


3,240



6,240


6,367


Professional services


1,109


1,233



2,321


2,223



4,223


4,473



8,561


8,590











Gross margin


13,779


11,599



27,102


23,390











Expenses











Sales and marketing


7,733


8,651



15,818


16,098


Research and development


2,968


3,330



6,127


6,525


General and administrative


2,582


2,367



5,132


4,930


Foreign exchange (gain) loss


60


(539)



(18)


2,775



13,343


13,809



27,059


30,328

Operating income (loss)


436


(2,210)



43


(6,938)

Interest and other income


15


20



30


49

Income (loss) before income taxes


451


(2,190)



73


(6,889)

Current tax expense (recovery)


43


90



99


116

Deferred tax expense (recovery)


125


-



(253)


-











NET INCOME (LOSS) AND COMPREHENSIVE INCOME (LOSS)

$

283

$

(2,280)


$

227

$

(7,005)











Basic and diluted earnings (loss) per share

$

0.01

$

(0.10)


$

0.01

$

(0.32)











Weighted average number of basic common shares outstanding


21,618,964


21,962,889



21,716,412


21,933,691

Weighted average number of diluted common shares outstanding


21,842,028


21,962,889



21,889,818


21,933,691



Three Months Ended June 30,


Six Months Ended June 30,



2016


2015



2016


2015











NET INCOME (LOSS)

$

283

$

(2,280)


$

227

$

(7,005)

Deferred gain (loss) on cash flow hedges*


(349)


-



701


-

COMPREHENSIVE INCOME (LOSS)

$

(66)

$

(2,280)


$

928

$

(7,005)

*Amount of deferred gain (loss) is net of deferred tax expenses (recovery) of $125,000 and ($253,000)
for the three and six month periods ended June 30, 2016, respectively (2015 - $Nil and $Nil, respectively)

 

HALOGEN SOFTWARE INC.
Condensed Consolidated Interim Statements of Financial Position
As at June 30, 2016 and December 31, 2015

(in United States dollars, tabular amounts in thousands)

(Unaudited)









June 30,



December 31,



2016



2015







ASSETS






Current assets







Cash and cash equivalents

$

34,684


$

36,133


Trade receivables (net)


8,538



12,458


Derivative asset


402



-


Prepaid expenses


2,530



1,912



46,154



50,503

Non-current assets







Property and equipment


5,776



6,806


Intangible assets


2,273



2,287


Other long-term assets


723



329


$

54,926


$

59,925







LIABILITIES






Current liabilities







Trade payables and accrued liabilities

$

6,141


$

8,204


Derivative liabilities


-



2,632


Deferred revenue


37,283



36,922


Deferred leasehold inducement


109



339



43,533



48,097

Non-current liabilities







Deferred leasehold inducement


299



289



43,832



48,386







SHAREHOLDERS' EQUITY












Share capital


68,588



69,663

Share compensation reserve


1,977



1,330

Cash flow hedging reserve


701



-

Retained earnings (deficit)


(60,172)



(59,454)



11,094



11,539








$

54,926


$

59,925

 


HALOGEN SOFTWARE INC.
Condensed Consolidated Interim Statements of Cash Flows
Three and six month periods ended June 30, 2016 and 2015

(in United States dollars, tabular amounts in thousands)

(Unaudited)



Three Months Ended June 30,


Six Months Ended June 30,



2016


2015



2016


2015











CASH PROVIDED BY (USED IN):




















OPERATING ACTIVITIES




















Net income (loss)

$

283

$

(2,280)


$

227

$

(7,005)

Items not affecting cash:











Depreciation and amortization


1,062


994



2,061


1,965


Share-based compensation


357


164



678


321


Unrealized foreign exchange (gain) loss


(980)


(1,073)



(2,000)


1,573


Deferred tax expenses (recovery)


125


-



(253)


-


Deferred leasehold inducement


(129)


(85)



(219)


(170)

Net changes in non-cash working capital items


815


279



1,577


1,257



1,533


(2,001)



2,071


(2,059)





















INVESTING ACTIVITIES




















Purchase of property and equipment


(398)


(355)



(605)


(566)

Purchase of intangible assets


(310)


(365)



(410)


(465)

Change in other long-term assets


(176)


41



(394)


63

Maturity of investments


-


3



-


3

Purchase of investments


-


-



-


(3)



(884)


(676)



(1,409)


(968)











FINANCING ACTIVITIES




















Issuance of share capital


7


458



54


463

Repurchase of Class A common shares


(817)


(413)



(2,105)


(505)













(810)


45



(2,051)


(42)











Effect of exchange rate changes on cash and cash equivalents


(58)


(42)



(60)


(815)











INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS


(219)


(2,674)



(1,449)


(3,884)











CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD


34,903


43,037



36,133


44,247











CASH AND CASH EQUIVALENTS, END OF PERIOD

$

34,684

$

40,363


$

34,684

$

40,363

 

SOURCE Halogen Software

For further information: Investor relations: William Maina, T: 1-613-270-1011, ext. 5904, NA Toll Free: 1-866-566-7778, ext. 5904, E: ir@halogensoftware.com; Media relations: Connie Costigan, T: 1-613-270-1011, ext. 4334, NA Toll Free: 1-866-566-7778, ext. 4334, E: ccostigan@halogensoftware.com

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