Redknee Reports First Quarter Fiscal 2010 Financial Results

TORONTO, Feb. 10 /CNW/ - Redknee (TSX:RKN), a leading provider of business-critical software and services for communications service providers, including end-to-end converged billing, real-time charging, rating and personalization, today announced its results for the first quarter of fiscal 2010, ended December 31, 2009.

    
    Q1 Highlights:
    --------------

    -   First quarter 2010 revenue down 17% to $11.8M (Q1 2009: 14.2M)
    -   Gross margin increased to 77% (Q1 2009: 76%)
    -   EBITDA profit of $1.7M (Q1 2009: $0.9M)
    -   Operating profit of $0.8M (Q1 2009: $3.2M)
    -   Two new customers, one in North America and one in EMEA, as well as
        notable TCB license expansions across EMEA and APAC
    -   Launched Interconnect Billing (InBill) 6.0 version
    -   Patents: 17 issued, 53 pending applications
    -   Recipient of the 2009 INTERNET TELEPHONY BSS/OSS Excellence Award.
    

"Redknee delivered another consecutive profitable quarter on an EBITDA basis, while adding customers across our key markets. Our strategy has positioned us well to benefit from the opportunities in both the high growth markets of Africa, the Middle East and Asia Pacific and Tier-1 markets of Australia, Europe, and North America. The quarter-to-quarter revenue volatility and foreign exchange headwinds will continue to be present in the near term. We remain focused on growing our long-term scale in revenues and earnings, with emphasis on increasing our recurring revenues, while continuing to take share in the real-time billing market." noted Lucas Skoczkowski, CEO for Redknee.

Please see 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

    
    ----------------------------------
    (1) Earnings Before Interest Expense, Income Taxes, Depreciation, and
        Amortization (EBITDA) is a non-GAAP measure. While useful in
        understanding Company operational results, EBITDA is not standardized
        and may not be comparable to similar results reported by other
        companies. EBITDA described above is calculated as Income (loss) from
        operations, net of foreign exchange gain/loss, amortization and
        stock-based compensation.

    OVERVIEW
    --------
    

Redknee remains focused on the three core elements of its long-term corporate growth strategy:

    
    1.  Continued expansion and evolution of our business-critical solutions
        to our global customer base;
    2.  Market share growth and leadership in our served addressable market;
        and
    3.  An increasing proportion of sustainable recurring revenues.
    

Sales of Redknee's business-critical solutions have been robust in the context of economic and market uncertainties our customers operate in. Redknee's Turnkey Converged Billing and Next Generation Rating & Charging solutions contributed over 90% of first quarter revenue - in line with our plan. More specifically, the sales of Redknee's Turnkey Converged Billing and InBill solutions have grown the fastest in the quarter, largely thanks to winning new operator system replacements and expanding licenses in existing operators. This further underscores the advantages of the broad software system offering that Redknee is bringing to its target markets.

Redknee's market leading solutions continue to be recognized globally by telecom providers. Redknee has continued to take market share in its served addressable market by gaining two new customers across Americas and EMEA regions through a combination of deliveries to new operators, modular software delivery that integrate with existing systems, as well as replacement of competitors' end-to-end platforms. Technology Marketing Corporation (TMC) has named Redknee's One Call Resolution a recipient of the 2009 INTERNET TELEPHONY BSS/OSS Excellence Award presented by INTERNET TELEPHONY magazine.

Growth of recurring revenue was enhanced by managed service contracts and renewals of support services, software subscriptions and term licenses. On a four-quarter trailing basis, recurring revenues were at 43% of our overall revenues.

Redknee continues to have a strong employee base, a growing number of customers, and the right products with patents to meet our customers' demands. Market trends further support our approach; mobile data services continue to grow in Tier 1 markets, and wireless subscriber numbers continue to expand in the high growth markets of Africa, the Middle East and Asia Pacific.

    
    Financial Review
    ----------------
    

For the three-months ended December 31, 2009, the Company's revenue decreased by 17% to $11.8 million compared to $14.2 million in the first quarter of fiscal 2009.

The decrease in revenue for the quarter noted above relates primarily to the decline in revenue from initial deployments and upgrades. This can be attributed to general economic uncertainties, during which operators deferred project commitments and implementations and lowered license expansions in response to declining average revenue per subscriber, slower subscriber additions and foreign exchange fluctuations in their respective operating regions.

Recurring revenue was enhanced by sales and renewals of customer support services, software subscriptions and term licenses. On a four-quarter trailing basis, recurring revenues were at 43% of overall revenues.

Gross profit in the period decreased to $9.1 million or 77% of revenue from $10.8 million or 76% of revenue in the first quarter of fiscal 2009.

Redknee recorded an EBITDA profit of $1.7 million for the first quarter of fiscal 2010 as compared to an EBITDA gain of $0.9 million for the first quarter of fiscal 2009.

For the quarter ended December 31, 2009, the Company recognized a foreign currency exchange loss of $0.5 million, as compared to a foreign currency exchange gain of $2.6 million in the first quarter of fiscal 2009.

Net income in Q1 fiscal 2010 was $0.6 million or $0.01 per share, as compared to a gain of $2.9 million or $0.05 per share in Q1 fiscal 2009.

Cash and investments as at December 31, 2009 was $23.5 million versus $23.9 million as at December 31, 2008.

Organizational Evolution

In an event subsequent to the end of the fiscal quarter, Redknee announced today changes to its senior management team. Effective February 10, 2010, Redknee implemented changes to its organizational structure in order to continue to build on its successes. The new structure is part of the strategic plan that Redknee is executing in support of continued growth with a focus on annual profitability. Specific initiatives include the combination of global sales and marketing responsibility under a Vice President Sales & Marketing, and moving research and development responsibility, as well as global services organizations under a Vice President Global Operations. Further, General Managers for each key geographic market (Americas, EMEA and APAC) will be reporting directly to the Chief Executive Officer, and will assume enhanced responsibilities for the conduct of operations within their regions. As a result, Redknee is eliminating the positions of Vice President Marketing, Vice President Research and Development and Chief Human Resources Officer. Accordingly, Mr. Mark Yaphe, Mr. Gary Knee, and Mr. Jim Diotte have left the company to pursue other opportunities.

CONFERENCE CALL

The Company will discuss the results on a conference call and webcast at 7:30 a.m. ET time on Thursday February 11, 2010.

To participate in the conference call please dial the following numbers five minutes before the start of the call to ensure your participation:

    
    Local dial-in number              647-427-7450

    Toll-free North America         1-888-231-8191
    

A webcast will also be available at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2941620

A copy of the presentation for the call will be available at: http://www.redknee.com/investors/company_reports

    
    Conference Replay
    -----------------
    

The conference call will be archived for replay by telephone at: 416- 849-0833 or Toll-Free at 1-800-642-1687 (Passcode: 51955401) from 8:30 am on.

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:

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 70 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(R), 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 Consolidated Balance Sheet
    (Unaudited)
    -------------------------------------------------------------------------
    (expressed in Canadian dollars)

                                                       December    September
                                                       31, 2009     30, 2009
                                                              $            $
                                                    -------------------------
    Assets

    Current assets
    Cash and cash equivalents                        23,233,565   25,663,047
    Short-term investments                              278,211      107,049
    Trade accounts and other receivables              9,709,663    8,160,277
    Unbilled revenue                                  3,090,894    2,670,431
    Investment tax credits and income taxes
     receivable                                         600,000      600,000
    Prepaid expenses                                    939,376    1,027,056
    Goods in transit                                    140,118      242,099
                                                    -------------------------

                                                     37,991,827   38,469,959

    Restricted cash (note 7)                            151,671      322,722

    Property and equipment                              555,239      623,567

    Intangible assets                                 1,055,792    1,139,444

    Future income taxes                                 336,322      334,513

    Other assets                                        465,772      464,303
                                                    -------------------------

                                                     40,556,623   41,354,508
                                                    -------------------------
                                                    -------------------------

    Liabilities

    Current liabilities
    Accounts payable                                    781,883      907,694
    Accrued liabilities                               4,724,322    5,899,843
    Income taxes payable                              2,498,541    2,529,923
    Deferred revenue                                  6,693,351    6,988,512
                                                    -------------------------

                                                     14,698,097   16,325,972

    Long-term deferred revenue                          682,990    1,005,164
                                                    -------------------------

                                                     15,381,087   17,331,136
                                                    -------------------------
    Shareholders' Equity

    Share capital, net of employee share
     purchase loans                                  41,383,188   40,744,480
                                                    -------------------------

    Contributed surplus                               4,531,121    4,572,737
                                                    -------------------------

    Deficit                                         (20,580,250) (21,144,555)

    Accumulated other comprehensive loss, net
     of income taxes                                   (158,523)    (149,290)
                                                    -------------------------

    Total deficit and accumulated other
     comprehensive loss                             (20,738,773) (21,293,845)
                                                    -------------------------

                                                     25,175,536   24,023,372
                                                    -------------------------

                                                     40,556,623   41,354,508
                                                    -------------------------
                                                    -------------------------

    Guarantees and contingencies (note 7)



    Redknee Solutions Inc.
    Interim Consolidated Statement of Operations
    (Unaudited)
    For the three months ended December 31
    -------------------------------------------------------------------------
    (expressed in Canadian dollars)

                                                           2009         2008
                                                              $            $

    Revenue
    Software, services and other                      7,003,612    9,398,531
    Support and Subscription                          4,776,465    4,818,570
                                                    -------------------------

                                                     11,780,077   14,217,101

    Cost of revenue                                   2,719,296    3,369,931
                                                    -------------------------

    Gross profit                                      9,060,781   10,847,170
                                                    -------------------------

    Operating expenses
    Selling and marketing                             3,156,571    4,379,946
    General and administrative                        1,660,581    2,370,134
    Research and development (note 4)                 2,743,323    3,343,337
    Amortization of property and equipment and
     intangible assets                                  158,721      192,237
    Foreign currency exchange (gain) loss               493,131   (2,637,959)
                                                    -------------------------

                                                      8,212,327    7,647,695
                                                    -------------------------

    Income from operations                              848,454    3,199,475

    Interest income                                       1,674       25,076

    Interest expense                                    (12,796)      (2,030)
                                                    -------------------------

    Income before income taxes                          837,332    3,222,521

    Income taxes
    Current                                             273,027      361,415
                                                    -------------------------

    Net income for the period                           564,305    2,861,106
                                                    -------------------------
                                                    -------------------------

    Net income per common share (note 2)
    Basic                                                  0.01         0.05
    Diluted                                                0.01         0.05

    Weighted average number of common shares (note 2)
    Basic                                            58,800,461   56,643,532
    Diluted                                          60,923,165   57,111,032



    Redknee Solutions Inc.
    Interim Consolidated Statement of Cash Flows
    (Unaudited)
    For the three months ended December 31
    -------------------------------------------------------------------------
    (expressed in Canadian dollars)
                                                           2009         2008
                                                              $            $
    Cash provided by (used in)

    Operating activities
    Net income for the period                           564,305    2,861,106
    Items not involving cash
      Amortization of property and equipment             99,311      116,899
      Amortization of intangible assets                  59,410       75,338
      Unrealized foreign currency exchange loss (gain)  501,505   (2,517,090)
      Stock-based compensation (note 3)                 162,984      188,239
    Change in non-cash operating working capital
     (note 5)                                        (3,885,860)   6,831,323
                                                    -------------------------

                                                     (2,498,345)   7,555,815
                                                    -------------------------

    Financing activities
    Collection of employee share purchase loans         434,108       17,651
    Repayment of obligations under capital leases             -         (619)
                                                    -------------------------

                                                        434,108       17,032
                                                    -------------------------

    Investing activities
    Purchase of short-term investments                 (171,161)  (4,510,602)
    Purchase of property and equipment                  (30,983)    (138,898)
    Increase in other assets                             (1,469)     (47,905)
    Increase (decrease) in restricted cash              171,051       (1,241)
                                                    -------------------------

                                                        (32,562)  (4,698,646)
                                                    -------------------------

    Effect of foreign currency exchange rate
     changes on cash and cash equivalents              (332,683)   1,181,947
                                                    -------------------------

    Increase (decrease) in cash and cash
     equivalents during the period                   (2,429,482)   4,056,148

    Cash and cash equivalents - Beginning of period  25,663,047   15,242,607
                                                    -------------------------

    Cash and cash equivalents - End of period        23,233,565   19,298,755
                                                    -------------------------
                                                    -------------------------

    Supplemental cash flow information
    Interest paid                                         1,674        2,030
    Interest received                                    12,796       25,076
    Cash taxes/investment tax credits received,
     net of income taxes paid                            84,575      173,184
    

SOURCE Redknee Solutions Inc.

For further information: For further information: Redknee Solutions Inc., Lucas Skoczkowski, Chief Executive Officer; David Charron, Chief Financial Officer, Tel: (905) 625-2622, Fax: (905) 625-2773


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