SOURCE: Redknee Solutions, Inc.

Redknee Solutions, Inc.

August 08, 2012 17:39 ET

Redknee Solutions Reports Fiscal Third Quarter 2012 Results

TORONTO--(Marketwire - Aug 8, 2012) - Redknee Solutions, Inc. (TSX: RKN), a leading provider of business-critical software and solutions for communications service providers, reported results for its fiscal third quarter ended June 30, 2012. All figures below are in U.S. dollars.

FY Q3 2012 Financial Highlights as Compared to the Same Year-ago Quarter

  • Revenue increased from $14.2 million to $14.8 million
  • Gross margin increased from 61% to 71%
  • Net income totaled $1.7 million or $0.03 per share versus a loss of $1.9 million or $(0.03) per share
  • EBITDA totaled $2.5 million, improving from a loss of $1.4 million
  • Recurring revenue as percent of total revenue increased from 44% to 47%
  • Order backlog was $55.8 million versus $42.6 million
  • Quarter-end cash totaled $20.3 million

FY Q3 2012 Operational Highlights

  • The greater industry-wide adoption of 4G LTE, a new standard for wireless communication of high-speed data for mobile phones, led to a multi-million dollar increase in Redknee's Tier 1 business in North America
  • Subscriber growth in the Mobile Virtual Network Operator (MVNO) segment led to an expansion of business in Americas with a multi-million dollar contract
  • Need for advanced functionality drove upgrades to Redknee's converged billing platform across Asia Pacific resulting in Redknee securing incremental, multi-million dollar, business in the region
  • Initiated repurchase program for company's common stock
  • Achieved Microsoft Partner Gold status
  • Recognized by Branham Group's Top ICT Scorecard as one of Canada's Top 10 wireless companies

FY Q3 2012 Financial Results
Revenue for the fiscal third quarter 2012 was $14.8 million, increasing 5% both sequentially and over the same year-ago quarter. The improvement was primarily due to increases in revenue from software upgrades and support.

Recurring revenue for the trailing 12 months increased to 49% of revenue from 41% in the same year-ago period. The improvement was due to increased sales and renewals of customer support services, software subscriptions and term licenses.

Gross margin for the fiscal third quarter 2012 increased to 71% from 61% in the same year-ago quarter. EBITDA (i.e., earnings before interest, taxes, depreciation, and amortization, including amortization of non-cash stock-based compensation) was $2.5 million or 17% of revenue in the fiscal third quarter, compared to a loss of $1.4 million in the year-ago quarter (see discussion about the presentation of EBITDA, a non-IFRS metric, below).

Net income for the fiscal third quarter 2012 totaled $1.7 million or $0.03 per basic and diluted share, improving from a net loss of $1.9 million or $(0.03) per basic and diluted share in the year-ago quarter. The comparative increase was primarily attributed to disciplined cost management and ongoing improvements in the company's cost structure.

At June 30, 2012, cash and investments totaled $20.3 million compared to $15.7 million as at September 30, 2011. Net cash was $14.6 million at June 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 unaudited consolidated financial statements and the company's MD&A, are available on the company's website at www.redknee.com and on SEDAR at www.sedar.com.

Management Commentary
"Our fiscal third quarter results demonstrated our ability to grow with our customer base, continue to manage costs and improve operational efficiencies," said Lucas Skoczkowski, CEO of Redknee. "This is particularly evidenced by our EBITDA increasing 60% to $2.5 million over the previous quarter, and especially compared to the year-ago loss. Our sales momentum continues to be encouraging, driving our order backlog to $55.8 million and giving us a clear pathway to profitable growth.

"Our growth has also been driven by mobile networks working to expand in order to handle the increasing number of users and their data usage. Redknee's award-winning solutions provide a strong value proposition, allowing network operators around the world to differentiate their offerings and manage the complex, dynamic network environments. This has allowed us to secure new multi-million dollar orders in the Americas and Asia Pacific.

"Redknee is well positioned to capitalize on future opportunities as we look to further expand in North America with Tier 1 network operators. We are focused on growing recurring revenue by securing multi-year contracts, with high margins that ultimately result in sustained profitability over the long term."

Conference Call
The company will host a conference call tomorrow (Thursday, August 9, 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 the management's presentation.

Dial-in number: 1-877-941-4774
International: 1-480-629-9760
Conference ID#: 4551892

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 September 9, 2012.

Toll-free replay number: 1-877-870-5176
International replay number: 1-858-384-5517
Replay PIN#: 4551892

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.

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.

   
REDKNEE SOLUTIONS INC.  
Interim Condensed Consolidated Statement of Financial Position  
(Expressed in U.S. dollars)  
(Unaudited)  
             
    June 30,     September 30,  
    2012     2011  
                 
Assets                
                 
Current assets:                
  Cash and cash equivalents   $ 19,626,880     $ 14,879,940  
  Trade accounts and other receivables     11,010,238       12,987,865  
  Unbilled revenue     10,526,941       9,253,901  
  Prepaid expenses     1,531,094       1,398,145  
  Inventory     543,161       450,788  
      43,238,314       38,970,639  
                 
Restricted cash     718,260       784,820  
Property and equipment     791,790       378,013  
Deferred income taxes     1,431,228       1,463,249  
Long-term unbilled revenue     350,073       1,226,496  
Other assets     2,840,586       464,416  
Intangible assets     3,465,845       3,976,609  
Goodwill     7,638,590       7,638,590  
                 
    $ 60,474,686     $ 54,902,832  
                 
Liabilities and Shareholders' Equity                
                 
Current liabilities:                
  Accounts payable   $ 1,752,569     $ 1,731,396  
  Accrued liabilities     5,982,501       6,001,706  
  Income taxes payable     3,719,843       3,199,295  
  Contingent consideration     -       870,789  
  Deferred revenue     9,512,456       5,848,086  
  Loans and borrowings     1,767,356       3,232,857  
      22,734,725       20,884,129  
                 
Deferred revenue     556,865       -  
Other liabilities     616,463       524,520  
Loans and borrowings     3,981,474       4,804,700  
Deferred income taxes     739,655       815,829  
      28,629,182       27,029,178  
                 
Shareholders' equity:                
  Share capital, net of employee share purchase loans     46,482,504       46,312,920  
  Treasury stock     (714,608 )     -  
  Contributed surplus     5,236,430       4,739,437  
  Deficit     (19,172,291 )     (23,192,172 )
  Accumulated other comprehensive income     13,469       13,469  
      31,845,504       27,873,654  
                 
    $ 60,474,686     $ 54,902,832  
                 
                 
                 
REDKNEE SOLUTIONS INC.  
Interim Condensed Consolidated Statement of Comprehensive Income (Loss)  
(Expressed in U.S. dollars)  
(Unaudited)  
                         
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2012     2011     2012     2011  
                                 
Revenue:                                
  Software, services and other   $ 8,975,327     $ 8,702,956     $ 25,589,951     $ 27,979,353  
  Support     5,871,850       5,476,797       17,329,066       15,812,867  
      14,847,177       14,179,753       42,919,017       43,792,220  
                                 
Cost of revenue     4,245,441       5,482,594       13,424,996       15,763,955  
                                 
Gross profit     10,601,736       8,697,159       29,494,021       28,028,265  
                                 
Operating expenses:                                
  Sales and marketing     4,068,675       4,027,724       11,168,586       11,219,153  
  General and administrative     2,469,876       3,466,962       6,491,404       8,545,013  
  Research and development     1,997,506       3,451,192       7,143,938       9,870,073  
      8,536,057       10,945,878       24,803,928       29,634,239  
                                 
Income (loss) from operations     2,065,679       (2,248,719 )     4,690,093       (1,605,974 )
                                 
Foreign exchange gain (loss)     (209,836 )     251,093       (216,682 )     (620,981 )
Other income (expense)     -       289,538       (13,938 )     535,625  
Finance income     31,444       36,414       71,657       116,631  
Finance costs     (79,226 )     (167,527 )     (297,173 )     (434,522 )
                                 
Income (loss) before income taxes     1,808,061       (1,839,201 )     4,233,957       (2,009,221 )
                                 
Income taxes (recovery):                                
  Current     289,153       151,635       513,210       526,987  
  Deferred     (219,686 )     (88,041 )     (299,134 )     (281,739 )
      69,467       63,594       214,076       245,248  
                                 
Net income (loss)     1,738,594       (1,902,795 )     4,019,881       (2,254,469 )
                                 
Other comprehensive income:                                
  Foreign currency translation adjustment     -       21,534       -       152,747  
                                 
Comprehensive income (loss)   $ 1,738,594     $ (1,881,261 )   $ 4,019,881     $ (2,101,722 )
                                 
Net income (loss) per common share:                                
  Basic     0.03       (0.03 )     0.06       (0.04 )
  Diluted     0.03       (0.03 )     0.06       (0.04 )
                                 
                                 
Weighted average number of common shares:                                
  Basic     64,142,461       64,194,871       64,252,923       64,154,532  
  Diluted     65,103,596       64,194,871       65,120,420       64,154,532  
                                   
                                   
                                   
                                   
REDKNEE SOLUTIONS INC.  
Interim Condensed Consolidated Statement of Cash Flows  
(Expressed in U.S. dollars)  
(Unaudited)  
         
  Nine months ended  
  June 30,  
  2012   2011  
             
Cash provided by (used in):            
             
Operating activities:            
  Net income (loss) $ 4,019,881   $ (2,254,469 )
  Adjustments for:            
    Depreciation of property and equipment   147,250     211,872  
    Amortization of intangible assets   553,121     1,128,707  
    Finance income   (71,657 )   (116,631 )
    Finance costs   297,173     434,522  
    Income tax expense   214,076     245,248  
    Unrealized foreign exchange loss   (84,376 )   921,515  
    Share-based compensation   654,566     640,512  
    Revaluation of contingent consideration   6,588     (535,624 )
  Changes in non-cash operating working capital   3,465,497     (3,819,537 )
      9,202,119     (3,143,885 )
               
  Interest paid   (35,974 )   (18,904 )
  Interest received   62,001     116,631  
  Income taxes paid   (78,672 )   (301,979 )
    9,149,474     (3,348,137 )
             
Financing activities:            
  Proceeds from Employee share purchase loans   -     5,048  
  Proceeds from exercise of stock options   107,443     157,612  
  Purchase of treasury stock   (714,608 )   -  
  Repayment of loans and borrowings   (2,465,544 )   (1,626,331 )
    (3,072,709 )   (1,463,671 )
             
Investing activities:            
  Proceeds from short-term investments   -     21,356  
  Purchase of property and equipment   (561,027 )   (39,722 )
  Purchase of intangible assets   (42,357 )   (29,916 )
  Decrease in restricted cash   66,560     35,816  
  Acquisition of Nimbus Systems   -     (257,222 )
  Settlement of Nimbus Systems contingent consideration   (877,377 )   -  
    (1,414,201 )   (269,688 )
             
Effect of foreign exchange rate changes on cash and cash equivalents   84,376     (178,490 )
             
Increase (decrease) in cash and cash equivalents   4,746,940     (5,259,986 )
             
Cash and cash equivalents, beginning of period   14,879,940     18,038,121  
             
Cash and cash equivalents, end of period $ 19,626,880   $ 12,778,135  
             
             
             
REDKNEE SOLUTIONS INC.  
Reconciliation of Net Income (Loss) to EBITDA  
(Expressed in U.S. dollars)  
(Unaudited)  
                         
    Three months ended     Nine months ended  
    June 30,     June 30,  
    2012     2011     2012     2011  
                                 
Net income (loss) for the period     1,738,594       (1,902,795 )     4,019,881       (2,254,469 )
                                 
Add back / (subtract):                                
  Amortization for property and equipment and intangible assets     231,989       441,057       700,371       1,340,579  
  Interest income     (31,444 )     (36,414 )     (71,657 )     (116,631 )
  Interest expense     79,226       167,527       297,173       434,522  
  Income taxes     69,467       63,594       214,076       245,248  
  Stock based compensation     154,075       134,590       654,566       640,512  
  Foreign exchange loss (gain)     209,836       (251,093 )     216,682       620,981  
                                 
EBITDA (1)   $ 2,451,743     $ (1,383,534 )   $ 6,031,092     $ 910,742  
                                 
  (1)   EBITDA represents net (loss) income from continuing operations excluding amounts for amortization, interest, income taxes, foreign exchange (gain) loss and stock 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
       
       
       

Contact Information

  • For further details please contact:

    Redknee Solutions Inc.
    Lucas Skoczkowski, Chief Executive Officer
    David Charron, Chief Financial Officer
    Tel: +1 905 625 2622

    Investor Relations
    Liolios Group, Inc.
    Matt Glover or Michael Koehler
    Tel: +1 949 574 3860