Losses in Q4 part of the plan as Halogen looks for long-term growth

Ottawa’s Halogen Software might be losing money but that’s exactly where the company’s executives want it to be.

By Jacob Serebrin

“We expect to continue to incur losses for the foreseeable future as we are focused

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on growing recurring revenue and market share and not short-term profitability,” reads the management discussion and analysis the company filed with regulators on Thursday.

The same message was on display when executives spoke to investors on a conference call to discuss its fourth quarter and year-end results that evening.

“We have commenced investment for future years by increasing the size of our new accounts sales team,” said Paul Loucks, Halogen’s CEO.

He said the company has also increased its “focus on selling back to our existing customer base,” both by adding new features to the company’s cloud-based talent management system and by adding sales staff focused on up-selling.

That approach appears to be paying off. The company said it has added a record number of new customers, bringing its customer base to around 2,000.

Revenue measured $12.6 million during the three-month period that ended Dec. 31, up from $10.2 million during the same period last year and from $12.3 million during the previous quarter.

Of that revenue, $11.2 million is recurring.

The company reported a net loss during the quarter of $2.1 million. That’s down from $6.4 million during the fourth quarter of 2012.

For the year, the company reported revenue of $48.0 million, a 26 per cent increase from 2012, when the company had revenue of $32.7 million. Of that, 88 per cent – or $42.1 million – is recurring revenue.

For the period the company recorded a net loss of $12.8 million, down from $19.6 million in 2012.

“The improvement was primarily due to the elimination of the loss related to the company’s redeemable preferred shares,” said Pete Low, the company’s CFO.

Those preferred shares were converted into common shares during the company’s IPO in May. Halogen took a $4.6 million loss due to changes in the fair value of the preferred shares last year

The company’s gross margin for the year, as a percentage of revenue, increased to 75 per cent from 72 per cent in 2012.

The improvement “reflects our growth in revenue outpacing our ability to invest as quickly in the short term,” said Mr. Low.

The company expects its growth to continue on a similar trajectory, said Mr. Low. He said the company is expecting revenue of $13.4 to $13.6 million during the first quarter of 2014 and $56.8 to $57.8 million during the entire year – increases of around 20 per cent.

The company’s non-renewal rate was slightly higher than usual. But Mr. Loucks said Halogen’s renewal rate remains “best in class” and has generally been around 90 per cent.

Halogen is planning to continue hiring. The company currently has around 330 employees and Mr. Loucks said he expects that to increase by 20 to 25 per cent over the next year.

The company is also looking to expand its international profile. It is considering opening offices in the United Arab Emirates and the Benelux region.

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