Redknee Reports Second Quarter Fiscal 2010 Financial Results

TORONTO, May 5 /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 second quarter of fiscal 2010, ended March 31, 2010.

    
    Q2 Highlights:
    --------------
    -   Second quarter 2010 revenue at $13.5M (Q2 2009: 13.8M)
    -   Gross margin at 72% (Q2 2009: 79%)
    -   EBITDA profit of $1.8M (Q2 2009: $1.1M)
    -   Order backlog of $30M
    -   Three new TCB customers from across APAC, Americas and EMEA markets,
        as well as software license expansions and functionality upgrades
    -   Signed agreement with Microsoft around our real-time turnkey
        converged billing
    -   Patents: 19 issued, over 58 pending
    -   Recipient of the 2010 Best Managed Companies in Canada and named in
        list of Top 10 Wireless Software Companies in Canada
    

"Redknee delivered another consecutive profitable quarter on an EBITDA basis, while both adding new customers and growing with our existing customers, capturing record order backlog of $30 million. Our strategy to focus on our core suite of monetization software products and services has positioned us well to benefit from the opportunities in each of our core markets. We expect the quarter-to-quarter revenue volatility and foreign exchange headwinds to continue in the near term. 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 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 market its customers operate in. 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 second quarter revenue - in line with its plan.

Redknee's market leading solutions continue to be recognized globally by telecom providers. Redknee has continued to take market share in its market by gaining three new real-time TCB customers across Americas, APAC and EMEA regions. Furthermore, Redknee announced an alliance with Microsoft that extends Redknee's reach into the global markets that Microsoft serves, while also enhancing the Microsoft portfolio of partner-led industry solutions.

On a four-quarter trailing basis, recurring revenues were at 41% 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 and content services continue to grow, and wireless subscriber numbers continue to expand globally.

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

For the second quarter of fiscal 2010, Redknee's revenue decreased by 2% to $13.5 million compared to revenue of $13.8 million in the second quarter of fiscal 2009. The majority of the Company's revenue is denominated in U.S. dollars and thus revenues are impacted by exchange rate fluctuations. On a comparative constant dollar basis, revenues in the second quarter would have been $15.8 million.

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 41% of overall revenues.

Gross profit in the period decreased to $9.7 million or 72% of revenue from $10.8 million or 79% of revenue in the second quarter of fiscal 2009.

Redknee recorded an EBITDA profit of $1.8 million for the second quarter of fiscal 2010 as compared to an EBITDA gain of $1.1 million for the second quarter of fiscal 2009.

For the quarter ended March 31, 2010, the Company recognized a foreign currency exchange loss of $1.2 million, as compared to a foreign currency exchange loss of $0.4 million in the second quarter of fiscal 2009.

Net income in Q2 fiscal 2010 was $0.4 million or $0.01 per share, as compared to a net profit of $0.2 million or $0.00 per share in Q2 fiscal 2009.

Cash and investments as at March 31, 2010 was $19.8 million versus $20.2 million as at March 31, 2009.

CONFERENCE CALL

The Company will discuss the results on a conference call and webcast at 8:30 a.m. EDT time on Thursday May 6, 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
    

The webcast can be accessed at: http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3004100

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. 64657530) from 9:00 am.

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)

                                                      March 31, September 30
                                                          2010          2009
                                                             $             $


    Assets

    Current assets
    Cash and cash equivalents                       19,776,406    25,663,047
    Short-term investments                                   -       107,049
    Trade accounts and other receivables            11,180,906     8,160,277
    Unbilled revenue                                 4,740,785     2,670,431
    Investment tax credits and income
     taxes receivable                                  400,000       600,000
    Prepaid expenses                                   748,976     1,027,056
    Goods in transit                                   239,354       242,099
                                                  ---------------------------

                                                    37,086,427    38,469,959

    Restricted cash (note 7)                           121,872       322,722

    Property and equipment                             498,344       623,567

    Intangible assets                                  979,894     1,139,444

    Future income taxes                                336,322       334,513

    Other assets                                       438,006       464,303
                                                  ---------------------------

                                                    39,460,865    41,354,508
                                                  ---------------------------
                                                  ---------------------------
    Liabilities

    Current liabilities
    Accounts payable                                   950,108       907,694
    Accrued liabilities                              3,893,537     5,899,843
    Income taxes payable                             2,142,443     2,529,923
    Deferred revenue                                 5,793,988     6,988,512
                                                  ---------------------------

                                                    12,780,076    16,325,972
                                                  ---------------------------

    Long-term deferred revenue                         379,239     1,005,164
                                                  ---------------------------

                                                    13,159,315    17,331,136
                                                  ---------------------------
    Shareholders' equity

    Share capital, net of employee share
     purchase loans                                 42,417,300    40,744,480
                                                  ---------------------------

    Contributed surplus                              4,238,389     4,572,737
                                                  ---------------------------

    Deficit                                        (20,179,303)  (21,144,555)

    Accumulated other comprehensive loss,
     net of income taxes                              (174,836)     (149,290)
                                                  ---------------------------

    Total deficit and accumulated other
     comprehensive loss                            (20,354,139)  (21,293,845)
                                                  ---------------------------

                                                    26,301,550    24,023,372
                                                  ---------------------------

                                                    39,460,865    41,354,508
                                                  ---------------------------
                                                  ---------------------------
    Guarantees and contingencies (note 7)

    Approved by the Board of Directors

    (signed) "Alan Michels"  Director  (signed) "Lucas Skoczkowski"  Director
    -----------------------            ----------------------------



    Redknee Solutions Inc.
    Interim Consolidated Statement of Operations
    (Unaudited)
    -------------------------------------------------------------------------

    (expressed in Canadian dollars)

                              Three months ended            Six months ended
                                        March 31,                   March 31,
                        -------------------------  --------------------------
                              2010          2009          2010          2009
                                 $             $             $             $

    Revenue
    Software,
     services
     and other           9,155,159     7,935,239    16,158,771    17,333,769
    Support and
     Subscription        4,311,077     5,814,811     9,087,542    10,633,381
                       ------------------------------------------------------

                        13,466,236    13,750,050    25,246,313    27,967,150

    Cost of revenue      3,733,881     2,922,273     6,453,176     6,292,204
                       ------------------------------------------------------

    Gross profit         9,732,355    10,827,777    18,793,137    21,674,946
                       ------------------------------------------------------

    Operating expenses
    Selling and
     marketing           3,522,365     3,895,255     6,678,936     8,275,201
    General and
     administrative      1,710,959     2,611,329     3,371,542     4,981,463
    Research and
     development
     (note 4)            2,631,224     3,316,527     5,374,547     6,659,864
    Amortization of
     property and
     equipment and
     intangible assets     162,585       119,892       321,306       312,129
    Foreign currency
     exchange (gain)
     loss                1,247,292       417,099     1,740,423    (2,220,860)
                       ------------------------------------------------------

                         9,274,425    10,360,102    17,486,754    18,007,797
                       ------------------------------------------------------

    Income from
     operations            457,929       467,675     1,306,383     3,667,149

    Interest income          5,215        15,707         6,889        40,783
    Interest expense        (4,713)       (2,170)      (17,508)       (4,199)
                       ------------------------------------------------------

    Income before
     income taxes          458,432       481,212     1,295,764     3,703,733

    Income taxes
    Current                 57,485       275,261       330,512       636,675
                       ------------------------------------------------------

    Net income for
     the period            400,947       205,951       965,252     3,067,058
                       ------------------------------------------------------
                       ------------------------------------------------------

    Net income per
     common share
     (note 2)
    Basic                     0.01          0.00          0.02          0.05
    Diluted                   0.01          0.00          0.02          0.05

    Weighted average
     number of common
     shares (note 2)
    Basic               59,603,526    56,880,822    59,603,526    56,809,155
    Diluted             61,738,910    57,210,822    61,259,237    57,210,822




    Redknee Solutions Inc.
    Interim Consolidated Statement of Comprehensive Income (Loss)
    (Unaudited)
    -------------------------------------------------------------------------

    (expressed in Canadian dollars)

                              Three months ended            Six months ended
                                        March 31,                   March 31,
                        -------------------------  --------------------------
                              2010          2009          2010          2009
                                 $             $             $             $

    Net income for
     the period            400,947       205,951       965,252     3,067,058

    Other comprehensive
     income, net of
     income taxes
      Foreign currency
       translation
       adjustment          (16,314)            -       (25,546)            -
                       ------------------------------------------------------

    Comprehensive
     income for
     the period            384,633       205,951       939,706     3,067,058
                       ------------------------------------------------------
                       ------------------------------------------------------



    Redknee Solutions Inc.
    Interim Consolidated Statement of Comprehensive Income (Loss)
    (Unaudited)
    -------------------------------------------------------------------------

    (expressed in Canadian dollars)

                              Three months ended            Six months ended
                                        March 31,                   March 31,
                        -------------------------  --------------------------
                              2010          2009          2010          2009
                                 $             $             $             $

    Cash provided by
     (used in)

    Operating activities
    Net income for
     the period            400,947       205,951       965,252     3,067,058
    Items not involving
     cash
      Amortization of
       property and
       equipment            86,687        82,100       185,998       198,999
      Amortization of
       intangible assets    59,410        37,792       118,820       113,130
      Unrealized foreign
       currency exchange
       loss (gain)       1,141,350      (930,918)    1,642,856    (3,448,008)
      Stock-based
       compensation
       (note 3)            (24,737)      134,885       138,247       323,123
    Change in non-cash
     operating working
     capital (note 5)   (5,332,574)   (2,876,365)   (9,218,434)    3,954,958
                       ------------------------------------------------------

                        (3,668,917)   (3,346,555)   (6,167,261)    4,209,260
                       ------------------------------------------------------

    Financing activities
    Collection of
     employee loans         32,500        41,378       466,608        59,029
    Proceeds from
     exercise of
     stock options         733,617             -       733,617             -
    Repayment of
     obligations under
     capital leases              -             -             -          (619)
                       ------------------------------------------------------

                           766,117        41,378     1,200,225        58,410
                       ------------------------------------------------------

    Investing activities
    (Purchase of)
     proceeds from
     short-term
     investments           278,210    (4,527,233)      107,049    (9,037,835)
    Purchase of
     property and
     equipment             (29,793)     (174,047)      (60,776)     (312,945)
    (Increase) decrease
     in other assets        27,768        10,671        26,298       (37,234)
    Increase in
     restricted cash        29,799      (245,524)      200,850      (246,765)
                       ------------------------------------------------------

                           305,984    (4,936,133)      273,421    (9,634,779)
                       ------------------------------------------------------

    Effect of foreign
     currency exchange
     rate changes on
     cash and cash
     equivalents          (860,343)       17,334    (1,193,026)    1,199,281
                       ------------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents during
     the period         (3,457,159)   (8,223,976)   (5,886,641)   (4,167,828)

    Cash and cash
     equivalents -
     Beginning of
     period             23,233,565    19,298,755    25,663,047    15,242,607
                       ------------------------------------------------------

    Cash and cash
     equivalents -
     End of period      19,776,406    11,074,779    19,776,406    11,074,779
                       ------------------------------------------------------
                       ------------------------------------------------------

    Supplemental cash
     flow information
    Interest paid            4,712         2,169        17,508         4,199
    Interest received        5,215        15,705         6,889        40,781
    Cash
     taxes/investment
     tax credits
     received, net of
     income taxes paid      86,071        53,753       170,646       226,937
    

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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