Redknee Solutions Reports Fiscal Fourth Quarter and Full Year 2012 Results

TORONTO, ONTARIO--(Marketwire - Dec. 5, 2012) - Redknee Solutions, Inc. (TSX:RKN), a leading provider of business-critical software and solutions for communications service providers, reported results for its fiscal fourth quarter and full year ended September 30, 2012. All figures below are in U.S. dollars.

Fiscal Q4 2012 Financial Highlights as Compared to the Same Year-ago Quarter

• Revenue at $14.5 million
• Recurring revenue at 47%
• Gross margin increased by 4% to 69% from 65%
• Net income increased significantly to $1.9 million or $0.03 per share compared to $0.7 million or $0.1 per share
• EBITDA increased by 58% to $1.9 million, compared to $1.2 million
• Quarter-end cash increased to $17.8 million from $15.7 million
• Quarter-end contract backlog up 50% to a record $69.7 million

Fiscal Q4 2012 Operational Highlights

• Signed a multi-million dollar, term-license agreement with a North American Tier-1 service provider for Redknee's converged billing private cloud solution. This reflects Redknee's growing presence in Tier-1 markets due to its expertise in providing large-scale solutions in the cloud
• Signed a multi-million dollar, long-term Software-as-a-Service contract with Step Up Mobile, a new U.S.-based mobile virtual network operator (MVNO),for Redknee's new cloud-based converged billing offering
• Launched the world's largest commercial interconnect system at Indosat in Asia Pacific, increasing the company's footprint in South East Asia's largest market

Fiscal Q4 2012 Financial Results

Revenue for the fiscal fourth quarter 2012 remained flat at $14.5 million compared to same year-ago quarter.

Gross margin increased to 69% from 65% in the same year-ago quarter.

EBITDA was $1.9 million or 13% of revenue, an increase of 58% from $1.2 million or 8% of revenue in the same year-ago quarter (see discussion about the presentation of EBITDA, a non-IFRS measure, below).

Net income totaled $1.9 million or $0.03 per basic and diluted share, improving from net income of $0.7 million or $0.01 per basic and diluted share in the same year-ago quarter.

Contracted order backlog was $69.7 million at the end of the quarter, an increase of 50% from $46.4 million at the end of the year-ago quarter.

Fiscal Year 2012 Financial Results

Revenue in fiscal 2012 decreased to $56.9 million from $58.3 million in fiscal 2011, primarily due to the decline in third party revenue as the company continued its successful transition to a SaaS/cloud-based recurring revenue model.

Recurring revenue for the fiscal year increased to 50% of total revenue as compared to 42% in fiscal year 2011.

Gross margin for the fiscal year increased to 69% from 64% in fiscal year 2011.

Net income totaled a record $5.3 million or $0.08 per basic and diluted share, as compared to a net loss of $1.6 million or $(0.02) per basic and diluted share in fiscal 2011. The year-over-year increase was primarily attributed to disciplined cost management and ongoing improvements in cost structure.

EBITDA was a record $7.3 million or 13% of revenue in the fiscal year 2012, increasing 248% from $2.1 million or 4% of revenue in fiscal 2011.

At September 30, 2012, cash and investments totaled $17.8 million, compared to $15.7 million at September 30, 2011. Net cash was $11.9 million at September 30, 2012 compared to $7.6 million at September 30, 2011.

Please refer to the section regarding forward-looking statements which form an integral part of this release. These results, along with the audited consolidated financial statements and the company's unaudited MD&A, are available on the company's website at www.redknee.com and on SEDAR at www.sedar.com.

Management Commentary

"Our fiscal 2012 results demonstrated our ability to successfully expand our customer base while continuing to manage costs and improve operational efficiencies," said Lucas Skoczkowski, CEO of Redknee. "Moreover, we have developed a stronger recurring revenue stream by signing large term-based license agreements delivered as SaaS or via the cloud, while improving our margins substantially. This has all resulted in record annual EBITDA and EPS performance, and our order backlog reaching nearly $70 million.

"Our success has been largely driven by mobile networks wanting to support expanding data usage and by MVNOs that want to provide mobile services as part of their offering. Redknee's award-winning solutions provide a strong value proposition, allowing both service providers and brand managers to differentiate their offerings and manage the complex, dynamic offerings across various network environments and devices. In fiscal 2012, this has allowed us to secure multiple multi-million dollar orders in the Americas, Asia Pacific and EMEA.

"Redknee continues to be very well positioned to capitalize on future opportunities, as we look to further expand with Tier-1 network operators around the world, as well as supporting the marketing efforts of both network operators and marketing companies.

"As we begin the new fiscal year, we remain focused on securing multi-year term license contracts, which builds backlog and recurring revenue, and thereby providing a clear pathway to continued profitable growth."

Subsequent Events

On October 23, 2012, Redknee completed an offering of 13 million common shares of the company at CDN$1.35 per common share. On November 14, 2012, the over-allotment option of 1.95 million common shares was exercised at CDN$1.35 per common share. The gross proceeds raised in the offering was CDN$20.2 million.

On December 5, 2012, Redknee reached a definitive agreement to acquire Nokia Siemens Networks' Business Support Systems ("BSS") business. The total consideration to be paid by Redknee for the BSS business will include EUR15 million in cash at closing, plus a maximum of EUR25 million for certain performance-based cash earn-outs expected to be paid over 12 to 36 months post-closing. The acquisition is anticipated to close in the first half of calendar year 2013, subject to applicable regulatory, exchange and third party approvals and other customary terms and conditions. A material change report, which provides more details on the acquisition and the agreement, will be filed with the Canadian securities regulators shortly and will be available at www.sedar.com and at Redknee's website at www.redknee.com.

Conference Call

The company will host a conference call today (Wednesday, December 5, 2012) to discuss these results. Redknee's CEO Lucas Skoczkowski and CFO David Charron will host the presentation starting at 8:30 a.m. Eastern time. A question and answer session will follow management's presentation.

Date: Wednesday, December 5, 2012

Time: 8:30 a.m. Eastern time

Dial-In Number: 1-877-941-2068

International: 1-480-629-9712

Conference ID#: 4573892

The presentation will be webcast live and available for replay via the Investors section of the company's website at www.redknee.com.

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization. If you have any difficulty connecting with the conference call, please contact Liolios Group at 1-949-574-3860.

A replay of the call will be available after 11:30 a.m. Eastern time on the same day until January 5, 2013.

Toll-Free Replay Number: 1-877-870-5176

International Replay Number: 1-858-384-5517

Replay PIN #: 4573892

About Redknee Solutions, Inc.

Redknee is a leading global provider of innovative communication software products, solutions and services. Redknee's award-winning solutions enable operators to monetize the value of each subscriber transaction while personalizing the subscriber experience to meet mainstream, niche and individual market segment requirements. Redknee's revenue generating solutions provide advanced converged billing, rating, charging and policy for voice, messaging and new generation data services to over 90 network operators in over 50 countries. References to Redknee refer to the combined operations of the parent Redknee Solutions, Inc., and all wholly owned subsidiaries.

Redknee^®, Redknee Solutions, and the Redknee logo are trademarks or registered trademarks of Redknee Solutions Inc. All other company, product names and any registered and unregistered trademarks mentioned (if any) are used for identification purposes only and remain the exclusive property of their respective owners. For more information, visit www.redknee.com.

About the Presentation of EBITDA

EBITDA is not a financial measure calculated and presented in accordance with International Financial Reporting Standards (IFRS) and should not be considered as an alternative to net income, operating income or any other financial measures so calculated and presented, or as an alternative to cash flow from operating activities as a measure of liquidity. The company defines EBITDA as net income (loss) from continuing operations excluding amounts for depreciation and amortization, finance costs, finance income, income taxes, foreign exchange (gain) loss and share-based compensation and is a common measure of operating performance in the industry. EBITDA is not a measure of financial performance under IFRS, and should not be considered in isolation or as a substitute for consolidated net income (loss) as a measure of performance.

Other companies (including competitors) may define EBITDA differently. The company presents EBITDA because management believes it to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in Redknee's industry. Management also uses this information internally for forecasting and budgeting. It may not be indicative of the historical operating results of Redknee or is it intended to be predictive of potential future results. Investors should not consider EBITDA in isolation or as a substitute for analysis of the company's results as reported under IFRS. See "Reconciliation of Net Income (Loss) to EBITDA" below for further information on this non-IFRS measure.

Forward-Looking Statements

Certain statements in this document may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this document, such statements use such words as "may," "will," "expect," "continue," "believe," "plan," "intend," "would," "could," "should," "anticipate" and other similar terminology. These statements reflect current assumptions and expectations regarding future events and operating performance and speak only as of the date of this document. Forward-looking statements involve significant risks and uncertainties, should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether or not such results will be achieved. A number of factors could cause actual results to vary significantly from the results discussed in the forward-looking statements, including, but not limited to, the factors discussed under the "Risk Factors" section of the Company's the most recently filed AIF which is available on SEDAR at www.sedar.com and on the Company's web-site at www.redknee.com.

Although the forward-looking statements contained in this document are based upon what we believe are reasonable assumptions, we cannot assure investors that our actual results will be consistent with these forward-looking statements. We assume no obligation to update or revise these forward-looking statements to reflect new events or circumstances, except as required by securities law.

REDKNEE SOLUTIONS INC.

Consolidated Statements of Financial Position

(Expressed in U.S. dollars)

		September 30,			September 30,				October 1,
			2012			2011			2010
Assets
Current assets:
	Cash and cash equivalents	$	16,878,523		$	14,879,940		$	18,038,121
	Short-term investments		-			-			21,356
	Trade accounts and other receivables		10,394,639			13,471,157			14,400,281
	Unbilled revenue		12,125,089			9,253,901			6,927,557
	Prepaid expenses		799,901			1,398,145			1,320,649
	Other assets		649,272			-			-
	Inventory		580,171			450,788			247,108
	Total current assets		41,427,595			39,453,931			40,955,072
Restricted cash			913,270			784,820			781,611
Property and equipment			726,818			378,013			611,757
Deferred income taxes			659,260			471,770			284,156
Investment tax credits			550,000			991,479			481,300
Long-term unbilled revenue			-			1,226,496			-
Other assets			3,170,308			464,416			499,257
Intangible assets			3,671,306			4,356,521			5,772,034
Goodwill			7,638,590			7,638,590			7,381,368
Total assets		$	58,757,147		$	55,766,036		$	56,766,555
Liabilities and Shareholders' Equity
Current liabilities:
	Trade payables	$	1,756,532		$	1,731,397		$	2,526,188
	Accrued liabilities		7,156,844			6,001,706			3,564,561
	Income taxes payable		2,036,864			3,199,295			2,628,543
	Contingent consideration		-			870,789			-
	Deferred revenue		7,258,759			5,740,086			5,697,971
	Loans and borrowings		-			3,232,857			2,980,289
	Total current liabilities		18,208,999			20,776,130			17,397,552
Deferred revenue			78,002			-			-
Other liabilities			439,398			524,520			450,983
Contingent consideration			-			-			1,160,816
Loans and borrowings			5,461,970			4,804,700			6,859,743
Deferred income taxes			408,156			815,829			1,217,842
Total liabilities			24,596,525			26,921,179			27,086,936
Shareholders' equity:
	Share capital, net of employee share purchase loans		46,543,100			46,312,920			45,880,359
	Treasury stock		(264,584	)		-			-
	Contributed surplus		4,787,549			4,739,437			4,428,818
	Deficit		(16,918,912	)		(22,220,969	)		(20,629,558	)
	Accumulated other comprehensive income		13,469			13,469			-
	Total shareholders' equity		34,160,622			28,844,857			29,679,619
Total liabilities and shareholders' equity		$	58,757,147		$	55,766,036		$	56,766,555

REDKNEE SOLUTIONS INC.

Consolidated Statements of Comprehensive Income (Loss)

(Expressed in U.S. dollars)

			Three months ended						Twelve months ended
			September 30,						September 30,
			2012			2011			2012			2011
Revenue:
	Software, services and other	$	8,835,897		$	8,778,004		$	33,859,929		$	36,757,357
	Support		5,700,526			5,739,395			23,004,219			21,552,262
			14,536,423			14,517,399			58,864,148			58,309,619
Cost of revenue			4,440,467			5,011,285			17,865,463			20,775,240
Gross profit			10,095,956			9,506,114			38,998,685			37,534,379
Operating expenses:
	Sales and marketing		3,535,468			4,227,471			14,704,054			15,446,624
	General and administrative		2,755,751			2,328,394			9,247,155			10,873,407
	Research and development		2,238,928			1,889,653			9,382,866			11,759,726
			8,530,147			8,445,518			33,334,075			38,079,757
Income (loss) from operations			1,565,809			1,060,596			5,664,610			(545,378	)
Foreign exchange gain (loss)			177,801			556,936			(38,881	)		(64,045	)
Other income (expense)			-			(245,598	)		(13,938	)		290,027
Finance income			28,061			41,926			99,718			158,557
Finance costs			(152,580	)		(81,466	)		(449,753	)		(515,988	)
Income (loss) before income taxes			1,619,091			1,332,394			5,261,756			(676,827	)
Income taxes (recovery):
	Current		450,859			753,428			964,069			1,280,415
	Deferred		(705,236	)		(84,092	)		(1,004,370	)		(365,831	)
			(254,377	)		669,336			(40,301	)		914,584
Net income (loss)			1,873,468			663,058			5,302,057			(1,591,411	)
Other comprehensive income:
	Foreign currency translation adjustment		-			(139,278	)		-			13,469
Comprehensive income (loss)		$	1,873,468		$	523,780		$	5,302,057		$	(1,577,942	)
Net income (loss) per common share:
	Basic		0.03			0.01			0.08			(0.02	)
	Diluted		0.03			0.01			0.08			(0.02	)
Weighted average number of common shares:
	Basic		64,790,447			64,197,904			64,178,009			64,165,013
	Diluted		64,948,923			64,419,693			65,129,225			64,165,013

REDKNEE SOLUTIONS INC.

Consolidated Statements of Cash Flows

(Expressed in U.S. dollars)

Years ended September 30, 2012 and 2011

				2012			2011
Cash provided by (used in):
Operating activities:
	Net income (loss)		$	5,302,057		$	(1,591,411	)
	Adjustments for:
		Depreciation of property and equipment		226,606			270,469
		Amortization of intangible assets		727,572			1,445,429
		Finance income		(99,718	)		(158,557	)
		Finance costs		449,753			515,988
		Income tax expense		(40,301	)		914,584
		Unrealized foreign exchange loss		(93,760	)		(398,034	)
		Share-based compensation		729,160			643,304
		Revaluation of contingent consideration		6,588			(290,027	)
	Changes in non-cash operating working capital			1,075,803			(2,014,225	)
				8,283,760			(662,480	)
	Interest paid			(114,081	)		(4,895	)
	Interest received			99,590			146,207
	Income taxes paid			(1,293,995	)		(521,866	)
				6,975,274			(1,043,034	)
Financing activities:
	Proceeds from employee share purchase loans			-			5,048
	Proceeds from exercise of stock options			168,039			157,610
	Purchase of treasury stock			(714,608	)		-
	Proceeds from loans and borrowings			5,911,319			-
	Repayment of loans and borrowings			(8,362,083	)		(2,283,654	)
	Payment of financing costs			(449,523	)		-
				(3,446,856	)		(2,120,996	)
Investing activities:
	Proceeds from short-term investments			-			21,356
	Purchase of property and equipment			(575,411	)		(36,725	)
	Purchase of intangible assets			(42,357	)		(29,916	)
	Increase in restricted cash			(128,450	)		(3,209	)
	Acquisition of Nimbus Systems			-			(257,222	)
	Settlement of Nimbus Systems contingent consideration			(877,377	)		-
				(1,623,595	)		(305,716	)
Effect of foreign exchange rate changes on cash and cash equivalents				93,760			311,565
Increase (decrease) in cash and cash equivalents				1,998,583			(3,158,181	)
Cash and cash equivalents, beginning of year				14,879,940			18,038,121
Cash and cash equivalents, end of year			$	16,878,523		$	14,879,940

REDKNEE SOLUTIONS INC.

Reconciliation of Net Income (Loss) to EBITDA

(Expressed in U.S. dollars)

(Unaudited)

			Three months ended						Twelve months ended
			September 30,						September 30,
			2012			2011			2012			2011
Net income (loss) for the period			1,873,468			663,058			5,302,057			(1,591,411	)
Add back / (subtract):
	Depreciation of property and equipment and amortization of intangible assets		253,807			375,319			954,178			1,715,898
	Finance income		(28,061	)		(41,926	)		(99,718	)		(158,557	)
	Finance costs		152,580			81,466			449,753			515,988
	Income taxes		(254,377	)		669,336			(40,301	)		914,584
	Share-based compensation		74,594			2,792			729,160			643,304
	Foreign exchange loss (gain)		(177,801	)		(556,936	)		38,881			64,045
EBITDA		$	1,894,210		$	1,193,109		$	7,334,010		$	2,103,851