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exactEarth Announces Fiscal 2017 Financial Results

Press Release From: exactEarth Ltd
Posted: Thursday, January 25, 2018

exactEarth Ltd. ("the Company"), a leading provider of Satellite AIS ("S-AIS") data services, announces its financial results for the three- and twelve-month periods ended October 31, 2017. All financial figures are in Canadian dollars unless otherwise stated.

2017 Financial Highlights

  • Revenue was $12.8 million
  • Revenue in the Commercial market increased 14% from 2016
  • Revenue backlog was $26.0 million at year-end
  • Order Bookings were $17.3 million in 2017
  • Adjusted EBITDA* was ($4.5) million
  • Net loss was ($33.8) million, which included a $26.9 million non-cash charge related to the impairment and write-down of certain assets
  • Cash balance was $8.1 million at October 31, 2017

"Our major milestone in 2017 was the formal launch our second-generation satellite constellation capability, exactView RT Powered by Harris, which will make us the first provider capable of delivering global S-AIS vessel data in real-time," said Peter Mabson, CEO of exactEarth. "This constellation will ultimately consist of 58 satellite payloads hosted onboard the Iridium NEXT constellation, and as of today, 18 are already in operation.

Powered by its real-time capability, exactView RT is a premium S-AIS service, which we believe when fully deployed will appeal to all AIS users, but in particular, to those involved in security, surveillance and search-and-rescue. Superior vessel detection, rapid update rate, longevity and reliability, and continuous innovation, are all features of exactView RT that we believe will be unrivaled in the market. In 2018 we will focus on capitalizing on this evolving service advantage as well as seeking new opportunities to monetize the data that we are collecting daily on a population of more than 250,000 vessels."

Financial Review

Total revenue for the three- and twelve-month periods ended October 31, 2017 ("Q4 2017" and "full-year") was $2.9 million and $12.8 million compared to $3.3 million and $18.9 million in the same periods last year. The change in revenue for Q4 2017 was primarily due to $0.68 million of non-cash revenue generated in Q4 2016 from an Asset Transfer Agreement with Communitech ("Asset Transfer Agreement") related to the EV9 satellite transfer. There was no revenue related to the Asset Transfer Agreement recognized in Q4 2017. The change in revenue for the full-year period was primarily due to lower revenue generated by the Government of Canada ("GoC") contract in 2017, which accounted for $5.3 million of the difference year-over-year, and lower non-cash revenue related to the Asset Transfer Agreement in 2017, which accounted for $2.4 million of the difference year-over-year. Excluding the loss of revenue associated with the GoC contract and the Asset Transfer Agreement, total revenue would have increased 8% in Q4 2017 and would have increased 14% year-over-year.

Order bookings for Q4 2017 were $3.0 million compared to $6.1 million in Q4 2016. For the full-year, Order Bookings were $17.3 million compared to $27.0 million last year. Revenue backlog at October 31, 2017 was $26.0 million compared to $22.6 million at October 31, 2016.

Subscription Services revenue for Q4 2017 and full-year periods was $2.7 million and $10.6 million compared to $2.8 million and $15.1 million in the same periods last year. For Q4 2017 and the full-year, exactEarth generated nil and $0.62 million in non-cash Subscription Services revenue, from the Asset Transfer Agreement, compared to $0.68 million and $1.4 million in the same periods last year. Excluding the loss of revenue associated with the GoC contract and the Asset Transfer Agreement, Subscription Services revenue would have increased by 25% in Q4 2017 and 18% for the full-year.

Subscription Services revenue for the Q4 2017 and full-year periods represented 94% and 83% of total revenue compared to 85% and 80% in the same periods last year. Subscription Services revenue from commercial customers rose 2% in Q4 2017 and 12% for the full-year, compared to the same periods last year.

Data Products revenue for the Q4 2017 and full-year periods was $0.13 million and $1.0 million compared to $0.17 million and $2.4 million in the same periods last year. The comparative periods in 2016 include non-cash Data Products revenue of nil and $1.6 million, respectively, related to the Asset Transfer Agreement. Excluding non-cash revenue from the Asset Transfer Agreement, Data Products revenue would have increased year-over-year. As of January 31, 2017, the Company has recognized, in full, all of the non-cash revenue from the in-kind sale of these datasets. The complete datasets have been delivered to Communitech and title to the EV9 satellite has transferred to exactEarth.

Other Products & Services revenue for the Q4 2017 and full-year periods was $0.04 million and $1.2 million compared to $0.32 million and $1.4 million in the same periods last year. 

Gross margin for the Q4 2017 and full-year periods was 30% and 33% compared to 21% and 48% in the same periods last year. Gross margin increased quarter-over-quarter due to a greater percentage of revenue generated from higher margin Subscription Services. Gross margin decreased in the full-year period due primarily to lower Subscription Services and Data Products revenue. This was offset, in part, by lower operating expenses for the year-to-date period and the reimbursement of costs related to the Company's Technology Demonstration Program Collaboration Agreement ("TDP Agreement") with MacDonald Dettwiler and Associates Ltd. TDP Agreement funding recognized as an offset to cost of revenue for 2017 was $0.38 million compared to $0.68 million in 2016 (TDP agreement funding started in the Company's Q3 2016).

Selling, general and administrative ("SG&A") expense for the Q4 2017 and full-year periods was $1.9 million and $7.0 million compared to $1.7 million and $7.5 million in the same periods last year. SG&A decreased year-over-year due primarily to lower payroll expenses resulting from the restructuring undertaken in October 2016. Commission expenses may cause SG&A may fluctuate from quarter-to-quarter depending on the volume of new subscriptions versus renewals and the timing of renewals.

Product development and research and development ("R&D") expense for the Q4 2017 and full-year periods was $0.36 million and $1.7 million compared to $0.51 million and $2.0 million in the same periods last year. exactEarth generated $0.24 million in R&D expense in 2017. The R&D expense was incurred on Project VESTA, which is a proof-of-concept related to VHF data exchange technology.

Adjusted EBITDA for the Q4 2017 and full-year periods was ($1.5) million and ($4.5) million compared to $(0.96) million and $0.52 million in the same periods last year. The quarter-over-quarter decrease in Adjusted EBITDA is due to an increased unrealized foreign exchange loss and a restructuring expense recovery, offset in part by a greater percentage of revenue being generated from higher margin Subscription Services and lower operating expenses resulting from the restructuring in October 2016. The year-over-year decrease in Adjusted EBITDA was primarily due to lower revenue from the GoC contract, offset in part by lower operating expenses. (Adjusted EBITDA is a non-IFRS measure and is defined below)

Net loss for the Q4 2017 and full-year periods was ($29.0) million, or ($1.34) per share, and ($33.8) million, or ($1.57) per share, compared to ($4.1) million, or ($0.19) per share, and ($36.0) million, or ($1.90) per share, in the same periods last year. Net loss for the Q4 2017 and full-year periods includes a $26.9 million non-cash charge related to the impairment and write-down of certain assets. Net loss for the 2016 full-year period includes a $28.0 million non-cash impairment charge related to the write-down of certain assets on the balance sheet.

Net loss for fiscal 2017 excluding the non-cash impairment of $26.9 million, other income of $1.5 million and the restructuring reversal of $0.1 million, was ($8.5) million. Net loss for fiscal 2016 excluding the non-cash impairment of $28.0 million and the restructuring charge of $1.7 million, was ($6.2) million. Excluding those items, the fiscal 2017 net loss is higher than the fiscal 2016 net loss primarily due to lower revenue, which was partially offset by decreases in cost of revenue, SG&A expense, product development expense and interest expense.

exactEarth used $1.6 million of cash in operations in Q4 2017 compared with $1.4 million of cash used in operations in Q4 2016. For the full-year period, exactEarth used $7.7 million of cash in operations compared with $2.9 million of cash used in operations in fiscal 2016. The Company's cash balance at October 31, 2017 was $8.1 million compared to $13.7 million at October 31, 2016.

As at October 31, 2017, the Company had 21,614,120 shares outstanding. 

Change to Board of Directors

exactEarth is pleased to announce upcoming proposed changes to its board of directors (the "Board") through the addition to its Board of William "Mac" Evans.  Mr. Evans is expected to be appointed to the Board effective January 25, 2018.

Mr. Evans has more than 35 years of experience in the Canadian Space Program, and served as President of the Canadian Space Agency from 1994 to 2001. Mr. Evans also led the development of the Canadian Astronaut and RADARSAT programs and negotiated Canada's role in the ISS and a number of international agreements that are the foundation of Canada's international space partnerships. In 2004, Mr. Evans was Chief of Staff for the Minister of National Defence (Canada). He is currently of Chair of the Defence Advisory Board, which provides advice to the Chief of the Defence Staff and the Deputy Minister of National Defence. In 2016, Mr. Evans was appointed to the Order of Canada and in 2017, he was appointed to Canada's Space Advisory Board, which advises the Minister of Industry, Science and Economic Development.

"We are very pleased that Mac Evans has agreed to join our Board," said Eric Zahler, Chairman of the Board of exactEarth. "He brings a wealth of experience and knowledge about Canadian space policy, and we look forward to his counsel and guidance as we continue to roll out our enhanced maritime surveillance capabilities and advanced analytics, through our next generation, real-time, satellite-AIS constellation."

Concurrent with this new appointment, Pui-Ling Chan informed the Board that he will not stand for re-election at the Company's next shareholder's meeting in order to pursue other personal opportunities. Added Mr. Zahler: "I'd like to thank Pui-Ling for having played an active role on our board since the Company went public in February 2016. We are grateful and appreciative of the contributions he has made, and we wish him continued success in the future."

Review of Strategic Alternatives

The Company also announced today that the Board has commenced a process to explore and evaluate potential strategic alternatives focused on maximizing shareholder value. These alternatives could include, among other things, a financing, a sale of assets, a sale of the Company or a merger or other business combination or other strategic transactions that may be available to the Company.

In conjunction with the strategic review, the Company's Board has formed a special committee of independent directors to oversee the strategic review process (the "Special Committee"). The Special Committee will be chaired by Eric Zahler and includes Maria Izurieta and Mac Evans. It is the intention of the Special Committee to engage a financial advisor in the coming weeks. The Company's Board is committed to fully evaluating appropriate strategic alternatives while concurrently supporting management and employees in their delivery of services and products to customers. The Board believes that this course of action is in the best interests of the Company and its stakeholders.

The Board has not set a timetable for this process nor has it made any decisions related to any strategic alternatives at this time. There can be no assurance that the exploration and review of strategic alternatives will result in a transaction. The Company does not intend to provide announcements or updates unless or until it determines that further disclosure is required by law.

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: Thursday, January 25, 2018 at 8:30 a.m. E.S.T.

Dial-in:647-427-7450 or 1-888-231-8191

Webcast: To access the live webcast: http://event.on24.com/r.htm?e=1581294&s=1&k=67C4ABF690C392537C8CE3219D00C671  or visit the exactEarth website for more details. The webcast will be archived for 30 days.

Replay: Encore Toll Free Dial-In Number: (855) 859-2056 

Encore Password: 3249369

Dial-In Replay Availability: 25/01/2018 11:30 ET - 08/02/2018 23:59 ET

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.

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