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.
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.