Ottawa software firm Halogen boosts Q3 revenue, falls short on customer retention

Ottawa’s Halogen Software (TSX:HGN) reported an increase in revenue and profits in the third quarter, but the company says it still has work to do in acquiring and retaining customers.

Quarterly revenue for the talent management software provider was $17.9 million, an increase of eight per cent year-over-year. (All numbers in USD.) Ninety-three per cent of this figure came from recurring revenue, which stood at $16.7 million following a 12-per-cent increase from the same quarter last year. The rest of the company's revenue comes from professional services.

Halogen CEO Les Rechan told investors during a call Thursday evening that while he's pleased with year-to-date cash flow ($4 million at the end of the quarter), the company has not met its expectations in adding customers and retaining existing ones. He says the company is being pinched by all-in-one HR providers and smaller startups that focus on niche areas, such as targeting millennials.

“There’s a lot of market opportunity out there, but a lot of people are going after that opportunity,” Mr. Rechan said during the call. “We believe these factors and alternatives are leading to confusion in customer prospects.”

These issues affect Halogen’s dollar retention - a figure representing the company’s customer base, which can rise or fall based on whether the company loses customers, gains new ones,  upsells to existing customers or conversely downgrades agreements. The company says it expects dollar retention to drop below 100 per cent in the fourth quarter.

Chief financial officer Pete Low told investors on the call that he was confident in the company’s trajectory and current initiatives, but it would likely take until 2017 for it to reflect on the company’s bottom line. Mr. Rechan echoed his positivity.

“I believe we are driving a powerful vision of the future of next-generation performance solutions for our prospects and customers,” he said.

One of the customer acquisitions Mr. Rechan mentioned on the call was Ottawa-based Kinaxis, which also reported its third-quarter results on Thursday. He said the sale was a strong example of targeting a company looking to make a change in HR software and efficiently striking a deal over a three-week period.

Halogen made major improvements in its bottom line, this year reporting a profit of nearly $800,000 compared to net loss of $3.8 million in the same period a year ago.

Adjusted EBITDA was $2.9 million, compared to a $3-million loss a year earlier. This number does not include Halogen’s closure of its Amsterdam office or its consolidation of its European operations into its London offices, as these were one-time costs in quarter.

One of the other positives highlighted in the company’s quarterly results was the release of the latest version of its TalentSpace suite, which provided all customers with its custom Halogen Learning modules for employee training.

The company made two new additions to the executive team in the quarter as well: Paul Fitzpatrick joined Halogen as chief marketing officer, and David Mennie joined as vice-president of product management and strategy.

Mr. Rechan made a point of congratulating the Chicago Cubs on their recent World Series victory during the call, noting that the Cubs, the opposing Cleveland Indians and Major League Baseball are all Halogen customers.

Halogen's stock was down 4.9 per cent to $9.50 on the Toronto Stock Exchange on Friday morning.