exactEarth Reports Q2 2016 Financial Results

CAMBRIDGE, ON, June 13, 2016 /CNW/ - exactEarth Ltd. ("the Company"), the leading provider of Satellite AIS ("S-AIS") data services, announces its financial results for the three- and six-month periods ended April 30, 2016. All financial figures are in Canadian dollars unless otherwise stated.

Q2 Financial and Operational Highlights

  • Revenue of $5.2 million compared to $5.9 million in Q2 2015. This reflects one month in Q2 2016 where service provided to the Government of Canada ("GoC") was on hold awaiting contract renewal. The Q2 2016 impact on revenue was approximately $1.1 million
  • Adjusted EBITDA* was $(0.2) million compared to $1.2 million in Q2 2015
  • Net loss was $(29.5) million, of which $28.0 million was a non-cash charge related to the impairment and write-down of certain assets. Excluding the non-cash charge, net loss was $(1.5) million, or $(0.07) per share, compared to a net loss of $(0.8) million, or $(0.08) per share in Q2 2015
  • Cash generated from operations was $1.4 million compared to $2.5 million in Q2 2015
  • Cash balance was $21.6 million at April 30, 2016 compared to $2.4 million at October 31, 2015
  • Completed a Spinout Transaction from COM DEV International and began trading on the Toronto Stock Exchange on February 9, 2016 under the symbol XCT
  • Announced alliance with Larus Technologies to develop Big Data analytics applications for the broader maritime market
  • Subsequent to quarter-end, announced renewal of a contract to be the sole provider of S-AIS services to the GoC
  • Subsequent to quarter-end, announced partnership agreement with EV Image Inc, to distribute exactEarth's advanced S-AIS solutions in China. EV Image is committing to minimum purchases of USD $8.5 million over six years with the potential for revenue expansion based on sales levels

"In Q2 we made progress on our strategies to develop high-value analytics products, expand into the broader maritime market and address the emerging opportunity to track small vessels," said Peter Mabson, CEO of exactEarth. "We also moved closer toward launch dates for the final two satellites in our first generation constellation with the M3M satellite scheduled to launch later this month, as well as the launch scheduled for later this summer of the inaugural satellites in our second generation constellation hosted on Iridium NEXT. These launches will enhance our service level as the various satellites become operational and will mark the beginning of our move towards a continuous real time global vessel tracking service capability in 2017. Financially, we are on solid footing with more than $21 million in cash. Our strong balance sheet will enable us to pursue our growth plan and we are confident that the investment we are making today will drive long-term growth rates for the business.

Our progress in Q2 was overshadowed by our announcement, subsequent to quarter-end, that we were awarded a renewal of our contract to continue as the exclusive provider of S-AIS services to the GoC, but at a service level that was well below our expectations. We have commenced the new service and are supporting the GoC as they assess this new service capability with their user community and will continue to work with them to address their future needs for maritime security, safety and arctic monitoring. Overall, we continue to see strong interest in our services and capabilities in the international market as evidenced by the major distribution agreement we entered into with EV Image, subsequent to quarter end, for the Chinese market, which is one of the largest maritime markets in the world."

Financial Review

Total revenue for the three and six months ended April 30, 2016 was $5.2 million and $11.6 million compared to $5.9 million and $11.4 million in the respective periods of 2015.  During the month of April 2016, exactEarth's service to the GoC was on hold while awaiting the renewal of the contract for S-AIS services. This had a negative impact on revenue of approximately $1.1 million in each of the three- and six-month periods ended April 30, 2016. Subsequent to quarter-end, on May 5, 2016, exactEarth announced that it had won the contract to be the exclusive provider of S-AIS services to the 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. As a result, the Company expects that total revenue, and more specifically, Subscription Services revenue, for the remainder of the year will be lower than levels in the prior year.

Subscription Services revenue for the three and six months ended April 30, 2016 was $4.1 million and $9.4 million compared to $5.1 million and $10.2 million in the respective periods of 2015. Subscription Services revenue in each of the three- and six-month periods ended April 30, 2016 was also impacted by the one-month hold period for the GoC contract renewal.  Subscription Services revenue for the three and six months ended April 30, 2016 represented 78% and 81% of total revenue compared to 86% and 89% in the respective periods of 2015. Subscription Services revenue from commercial customers for the three and six months ended April 30, 2016 rose 37% and 35% compared to the respective periods of 2015.

Data Products revenue for the three and six months ended April 30, 2016 was $1.0 million and $1.3 million compared to $0.28 million and $0.34 million in the respective periods of 2015. For the three months ended April 30, 2016 exactEarth generated $0.82 million in non-cash Data Products 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. Revenue from the remaining $2.8 million of in-kind data sets is expected to be recognized over the next twelve months.  

Other Products & Services revenue for the three and six months ended April 30, 2016 was $0.21 million and $0.91 million compared to $0.55 million and $0.86 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.

Gross margin for the three and six months ended April 30, 2016 was 51.1% and 55.3% compared to 57% and 54.8% in the respective periods of 2015. Our gross margin decreased quarter over quarter due to lower Subscription Services revenue, offset in part by increased Data Products revenue.

Selling, general and administrative expenses for the three and six months ended April 30, 2016 were $2.1 million and $4.1 million compared to $1.9 million and $3.5 million in the respective periods of 2015. The increase in SG&A expense reflects the Company's investment in sales and marketing activity as it executes on its strategic plan as well as the introduction of costs related to being a public company.

Product development expense for the three and six months ended April 30, 2016 was $0.45 million and $0.9 million compared to $0.37 million and $0.7 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 six months ended April 30, 2016 was $(0.2) million and $1.2 million compared to $1.2 million and $2.0 million in the respective periods of 2015. The decrease in Adjusted EBITDA was primarily due to lower revenue from the GoC, higher operating expenses made to support the Company's growth initiatives 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 six months ended April 30, 2016 was $(29.5) million and $(30.5) million compared to $(0.85) million and $(1.8) million in the respective periods of 2015. The year-over-year increase in net loss is primarily due to a $28.0 million non-cash charge related to the impairment and write-down of certain assets. Additional information related to the non-cash asset impairment and write-down can be found below in this press release.

Excluding the non-cash write-down, net loss for the three and six months ended April 30, 2016 was $(1.5) million, or $(0.07) per share, and $(2.5) million, or $(0.16) per share, compared to $(0.85) million, or $(0.08) per share and $(1.8) million, or $(0.16) per share, in the respective periods of 2015. Net loss in the quarter was primarily due to lower revenue and higher selling, general and administrative expenses, which were partially offset by a decrease in interest expense. The increase in net loss for the first half of the year was primarily due to increased selling, general and administrative expenses, product development expense and foreign exchange loss, which was partially offset by an increase in revenue and a decrease in interest expense.

exactEarth generated $1.6 million and $1.2 million of cash from operating activities in the three and six months ended April 30, 2016 compared with cash used in operations of $2.5 million and $1.0 million in 2015. The Company's balance sheet strengthened when the spinout of exactEarth from COM DEV International was completed on February 4, 2016. The Company's debt was converted to equity, and a cash investment was made into the business by its shareholders prior to the spinout. As a result, exactEarth's cash balance at April 30, 2016 was $21.6 million, up from $2.4 million at October 31, 2015. 

As at April 30, 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: 

Monday, June 13, 2016 at 5:00 p.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/1r3KrbH or visit the exactEarth website for more details.




The webcast will be archived for 30 days.



Replay: 

Replay Toll Free Dial-In Number: 1-855-859-2056
Replay Password: 18350161

 

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

Six months ended

(in thousands of dollars)

April 30, 2016

May 1, 2015

April 30, 2016

May 1, 2015

Net loss

$

(29,512)

$

(851)

$

(30,513)

$

(1,805)

Interest expense


21


347


315


667

Income tax expense


-


-




-

Depreciation and amortization


1,435


1,368


2,812


2,737

EBITDA

$

(28,056)

$

864

$

(27,386)

$

1,599

Offering related expenses


-


255


-


255

Unrealized foreign exchange loss (gain)


(401)


38


288


169

Share-based compensation


266


-


266


-

Impairment losses


27,987


-


27,987


-

Adjusted EBITDA

$

(204)

$

1,157

$

1,155

$

2,023

 

exactEarth Ltd.

Interim Consolidated Statements of Financial Position

(in thousands of Canadian Dollars)

Unaudited





As at
April 30,


As at
October 31,





2016


2015





$


$


ASSETS






Current assets







Cash



21,581


2,365


Trade accounts receivable



1,207


3,865


Unbilled revenue



796


1,954


Prepaid expenses and other assets



823


676

Total current assets



24,407


8,860








Property, plant and equipment



30,271


48,538

Intangible assets



17,518


24,646

Total assets



72,196


82,044









LIABILITIES & EQUITY













Current liabilities







Accounts payable and accrued liabilities



7,281


10,966


Due to related parties



-


295


Deferred revenue



1,084


1,037


Current portion of loans



711


361


Current portion of long-term incentive plan



36


-

Total current liabilities



9,112


12,659








Government loan



1,244


1,436

Long-term debt



285


-

Due to related parties



-


44,801

Long-term incentive plan



111


82

Total liabilities



10,752


58,978








Shareholders' equity







Share capital



123,726


55,120


Contributed surplus



368


249


Accumulated other comprehensive loss



(130)


(296)


Deficit



(62,520)


(32,007)

Total shareholders' equity



61,444


23,066








Total liabilities and equity



72,196


82,044

 

exactEarth Ltd.

Interim Consolidated Statements of Comprehensive Loss

(in thousands of Canadian Dollars)

Unaudited






Three months ended 


Six months ended 






April 30,


May 1,


April 30,


May 1,






2016


2015


2016


2015






$


$


$


$

























Revenue





5,222


5,939


11,602


11,357


Cost of revenue




2,554


2,551


5,182


5,134


Gross margin




2,668


3,388


6,420


6,223













Operating expenses












Research and development




18


16


28


31


Selling, general and administrative




2,133


1,926


4,074


3,477


Product development




449


372


902


701


Depreciation and amortization




1,435


1,368


2,812


2,737


Impairment losses




27,987


-


27,987


-

Loss from operations




(29,354)


(294)


(29,383)


(723)













Other expense












Other expense




80


92


80


148


Foreign exchange loss




57


118


735


267


Interest expense




21


347


315


667

Total other expense




158


557


1,130


1,082


Income tax expense




-


-


-


-

Net loss





(29,512)


(851)


(30,513)


(1,805)













Other comprehensive loss












Items that may be subsequently reclassified to net income:











Foreign currency translation, net of income tax expense of nil



154


69


166


(55)

Total other comprehensive loss




154


69


166


(55)













Comprehensive loss




(29,358)


(782)


(30,347)


(1,860)













Basic and diluted loss per share




(1.39)


(0.08)


(1.89)


(0.16)

 


exactEarth Ltd.

Interim Consolidated Statements of Cash Flows

(in thousands of Canadian Dollars)

Unaudited





Three months ended 


Six months ended 





April 30,


May 1,


April 30,


May 1,





2016


2015


2016


2015





$


$


$


$












Net loss




(29,512)


(851)


(30,513)


(1,805)

Add (deduct) items not involving cash











Nonmonetary transaction



(882)




(882)




Impairment losses



27,987


-


27,987


-


Imputed interest on government loan



33


39


69


79


Depreciation and amortization



1,435


1,368


2,812


2,737


Settlement of long term incentive plan



-


-


-


(1)


Foreign exchange loss on revaluation of
foreign currency shareholder loans



-


(80)


-


124


Stock based compensation



164


203


184


406


Change in non-cash working capital balances



2,385


1,810


1,573


(520)

Cash flows from operations



1,610


2,489


1,230


1,020























Investing activities











Acquisition of property, plant, and equipment



(301)


(206)


(1,288)


(3,783)


Reimbursement of acquisition costs of property, plant, and equipment



120


335


120


335


Acquisition of intangible assets



(1,620)


(214)


(3,940)


(411)

Cash flows used in investing activities



(1,801)


(85)


(5,108)


(3,859)












Financing activities











Government loan repayment



(123)


(82)


(246)


(82)


Long-term debt repayment



(29)


-


(29)


-


Shares issued



20,440


-


20,440


-


Shareholder loan advances



-


-


3,000


4,000

Cash flows from financing activities



20,288


(82)


23,165


3,918












Effect of exchange rate changes on cash



(192)


(35)


(71)


(20)












Net increase in cash



19,905


2,287


19,216


1,059

Cash, beginning of the period



1,676


1,175


2,365


2,403

Cash, end of the period



21,581


3,462


21,581


3,462

 

SOURCE exactEarth Ltd.

Image with caption: "exactEarth Ltd. (CNW Group/exactEarth Ltd.)". Image available at: https://photos.newswire.ca/images/download/20160613_C6157_PHOTO_EN_712234.jpg

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

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