Redknee Reports First Quarter Fiscal 2011 Financial Results

("Redknee" or "the Company")

TORONTO, Feb. 9 /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 the results for the first quarter of fiscal 2011 ended December 31, 2010. 

Q1 Highlights:

  • Revenue increased  by 20% to $14.1M (on constant currency basis $15.0M , Q1 2010: $11.8M)
  • Gross margin at 63% (Q1 2010: 77%)
  • EBITDA(1) of $0.4M (Q1 2010: $1.7M)
  • Operating loss of $0.7M (Q1 2010: operating income of $0.8M)
  • Order backlog of $37.3M
  • One MVNO billing contract in EMEA; data policy win in APAC;  large wholesale billing win in APAC,  and Tier 1 contracts in Americas
  • Patents: 30 issued, 73 pending and 3 in the grant/issuance process

"Redknee continues to deliver good progress on our strategic growth plan.  We have increased the proportion of initial deployments thereby compressing our gross margin in the short term, while providing opportunity for future license growth. We see opportunities to continue to win business with both existing and new customers in each of our core markets.  We remain focused on our long-term growth in revenues and earnings, with commitment to increasing our recurring revenues, while continuing to take share in the real-time monetization 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

OVERVIEW

Redknee remains focused on the three core elements of our 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.

Redknee continues to compete successfully in the markets that we service.  Redknee's monetization suite of products and services (real-time Turnkey Converged Billing and Next Generation Rating Charging & Policy solutions) contributed to over 90% of first quarter revenue - in line with our plan. 

Redknee's market leading solutions continue to be recognized globally by telecom providers. Redknee has continued to take market share by winning contracts with: additional EMEA MVNO contract, a large APAC wholesale billing and content settlement win, APAC data policy win, as well as real-time subscriber system wins with multiple Tier 1 operators in the Americas region. As strategic transactions, Redknee believes these new contracts will enable us to continue to build significant market share in both Tier 1 and 2 operators over the coming years.

Redknee's recurring revenue streams continue to strengthen, despite the appreciation in the Canadian dollar. In the first quarter, the recurring revenues grew by 15% to 42% of revenues. On a four-quarter trailing basis, recurring revenues were at 41% of 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 and content services continue to grow, and wireless subscriber numbers continue to expand globally.

Financial Review

For the three-month period ended December 31, 2010, the Company's revenue increased by 20% to $14.1M from $11.8M in the first quarter of fiscal 2010.

The gross margin for the first quarter of fiscal 2011 was 63% as compared to 77% for the first quarter of fiscal 2010.  The decrease in gross margin can be attributed to the mix of products sold in Q1 2011, as 13% of the revenue this quarter results from the sale of third party hardware and software components.  These components were sold as part of Redknee's initial deployments which will provide opportunities for future license growth.

For the three-month period ended December 31, 2010, operating expenses, excluding amortization and foreign exchange loss, declined to 61% of revenue as compared to 64% of revenue in the same period last year. 

The net loss in Q1 fiscal 2011 was $0.9M or $(0.01) per share as compared to a net profit of $0.6M or $0.01 per share in Q1 fiscal 2010.

CONFERENCE CALL

The Company will discuss the results on a conference call and webcast at 8:30 a.m. EDT time on Thursday February 10, 2011.

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

The webcast can be accessed at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3387780

Conference Replay
The conference call will be archived to replay by telephone at: 416-849-0833 or Toll-Free at 1-800-642-1687 (Passcode No. 40420096) from 11:30 a.m.

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 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.

______________________________________

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.


Interim consolidated Balance Sheets (unaudited)    
For the period ended December 31, 2010 September 30, 2010
  $ $
Assets     
     
Current assets    
Cash and cash equivalents 16,626,228 18,738,958
Short-term investments 0 22,186
Trade accounts and other receivables 14,752,041 14,959,777
Unbilled revenue 6,408,867 7,196,714
Prepaid expenses 1,533,809 1,371,960
Goods in transit 190,920 256,709
     
                      39,511,865                     42,546,304
     
Restricted cash                       1,885,865                          811,979
     
Property and equipment                           573,219                          635,526
     
Intangible assets                       5,447,495                       5,861,248
Goodwill                       7,854,531                       7,668,157
Future income taxes and investment tax credits                       1,019,139                          795,196
Other assets                           498,560                          518,655
     
  56,790,674 58,837,065
     
Liabilities    
     
Current liabilities    
Accounts payable 3,141,782 2,624,339
Accrued liabilities 3,819,600 3,703,055
Income taxes payable 2,736,502 2,730,670
Deferred revenue 4,565,910 6,031,551
Current portion of long term debt 2,957,436 3,071,885
Current portion of obligations under capital leases  18,811 24,197
     
  17,240,041 18,185,697
     
Long term deferred revenue                                      -  
Other long term liabilities 479,677 468,505
Obligations under capital leases 25,887 32,178
Long term portion of loans payable 6,613,827 7,094,087
Future income taxes 1,185,397 1,265,159
Total liabilities 25,544,829 27,045,626
     
Shareholders' Equity    
     
Share capital, net of employee share purchase loans 47,788,794 47,662,953
     
Contributed surplus 4,484,787 4,345,128
     
Deficit (20,954,906) (20,050,301)
     
Accumulated and other comprehensive loss (72,830) (166,341)
     
  (21,027,736) (20,216,642)
     
  31,245,845 31,791,439
     
  56,790,674 58,837,065
     

     
Interim consolidated Statements of Operations    
(unaudited)
     
For the three months ended December 31, 2010 2009
  $ $
     
Revenue    
  Software, services and other 8,558,671 7,003,612
  Support 5,569,273 4,776,465
  14,127,944 11,780,077
     
Cost of revenue 5,198,602 2,719,296
Gross profit 8,929,342 9,060,78
     
Operating expenses    
  Selling and marketing 3,519,257 3,156,571
  General and administrative 2,075,999 1,660,581
  Research and development  3,044,295 2,743,323
  Amortization 478,173          158,721
  Foreign currency exchange loss          545,566          493,131
  9,663,290 8,212,327
     
(Loss) Income from operations       (733,949)        848,454
  Interest income            38,328              1,674
  Interest expense         (143,988)          (12,796)
(Loss) Income before income taxes       (839,609)        837,332
  Income taxes             64,996          273,027
(Loss) Income for the period       (904,605)        564,305
     
Shares     63,941,381     58,800,461
EPS              (0.01)               0.01

SOURCE Redknee Solutions Inc.

For further information:

Redknee Solutions Inc.

Lucas Skoczkowski, Chief Executive Officer
David Charron, Chief Financial Officer

Tel: +1 905 625 2622
Fax: +1 905 625 2773


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