Redknee Reports Third Quarter Fiscal 2010 Financial Results

TORONTO, Aug. 11 /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 third quarter of fiscal 2010, ended June 30, 2010.

    
    Q3 Highlights:
    --------------

    -   Third quarter 2010 revenue at $10.6M (on constant dollar basis
        $12.1M, Q3 2009: $14.5M)
    -   Gross margin at 71% (Q3 2009: 79%)
    -   EBITDA(1) loss of $0.4M (Q3 2009: profit of $2.3M)
    -   Operating loss of $0.2M (Q3 2009: profit of $0.8M)
    -   Order backlog of $27.5M
    -   Announced intent to acquire Nimbus Systems, a Tier 1 billing and
        customer care specialist
    -   Following quarter end, Redknee has finalized two multi-year, multi-
        million dollar service contracts
    -   Patents: 19 issued, over 58 pending
    -   Redknee's real-time data rating, charging and policy solution was
        awarded the Best Service Enablement Tool at the Billing & OSS World
        Excellence Awards
    

"Redknee delivered good progress on its strategic growth plan, while I am disappointed in this quarter's revenue and profitability. We believe that our strategy to focus on our core suite of monetization software products and services has positioned us well long-term, which has been further enhanced through the acquisition of Nimbus Systems. We expect the quarter-to-quarter revenue volatility and foreign exchange headwinds to continue. We remain focused on our long-term growth in revenues and earnings, with commitment to increasing our recurring revenues," 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.
    

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 third quarter revenue - in line with its plan.

Redknee's market leading solutions continue to be recognized globally by telecom providers. Redknee's announcement to acquire Nimbus Systems will further strengthen its operating model and market share, particularly in global group operators, including Telefonica, Orange and Vodafone, while providing future opportunities to expand into the Latin American markets. The market, product and cultural synergies between the two companies will elevate Redknee's capabilities and market presence to better serve its customers, create cross-sell opportunities for joint product and service portfolio, while positioning the company to engage and win new customers.

On a four-quarter trailing basis, recurring revenues were at 43% of our overall revenues. Ahead of our plan year to date, Redknee has secured two multi-year multi-million service agreements adding forward visibility, while enhancing our recurring revenues.

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

For the third quarter of fiscal 2010, Redknee's revenue decreased by 27% to $10.6 million compared to revenue of $14.5 million in the third 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 constant currency basis, revenues for the quarter would have been $12.1 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 43% of overall revenues.

Gross profit in the period decreased to $7.5 million or 71% of revenue from $11.5 million or 79% of revenue in the third quarter of fiscal 2009.

Redknee recorded an EBITDA loss of $0.4 million for the third quarter of fiscal 2010 as compared to an EBITDA gain of $2.3 million for the third quarter of fiscal 2009. A one-time bad debt expense of $0.5 million was recorded for a customer in the Americas.

For the quarter ended June 30, 2010, the Company recognized a foreign currency exchange gain of $0.5 million, as compared to a foreign currency exchange loss of $1.3 million in the third quarter of fiscal 2009.

Net loss in Q3 fiscal 2010 was $0.2 million or $0.00 per share, as compared to a net profit of $0.5 million or $0.01 per share in Q3 fiscal 2009.

Cash and investments as at June 30, 2010 was $19.8 million versus $19.8 million as at March 31, 2010.

CONFERENCE CALL

The Company will discuss the results on a conference call and webcast at 8:30 a.m. EDT time on Thursday August 12, 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=3166240

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. 90397420) 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 80 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.

    
    (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.



    Redknee Solutions Inc.
    Interim Consolidated Balance Sheet
    (Unaudited)
    -------------------------------------------------------------------------
    (expressed in Canadian dollars)

                                                           June    September
                                                             30,          30,
                                                           2010         2009
                                                              $            $
    Assets

    Current assets
    Cash and cash equivalents                        19,812,246   25,663,047
    Short-term investments                                    -      107,049
    Trade accounts and other receivables             10,672,901    8,160,277
    Unbilled revenue                                  4,706,969    2,670,431
    Investment tax credits and income taxes
     receivable                                         200,000      600,000
    Prepaid expenses                                  1,001,083    1,027,056
    Goods in transit                                     85,116      242,099
                                                    -------------------------

                                                     36,478,315   38,469,959

    Restricted cash (note 7)                            127,272      322,722

    Property and equipment                              432,309      623,567

    Intangible assets                                   905,016    1,139,444

    Future income taxes                                 337,529      334,513

    Other assets                                        466,630      464,303
                                                    -------------------------

                                                     38,747,071   41,354,508
                                                    -------------------------
                                                    -------------------------
    Liabilities

    Current liabilities
    Accounts payable                                  1,034,435      907,694
    Accrued liabilities                               3,249,623    5,899,843
    Income taxes payable                              2,260,920    2,529,923
    Deferred revenue                                  5,471,520    6,988,512
                                                    -------------------------

                                                     12,016,498   16,325,972
                                                    -------------------------

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

                                                     12,016,498   17,331,136
                                                    -------------------------
    Shareholders' equity

    Share capital, net of employee share purchase
     loans                                           43,094,235   40,744,480
                                                    -------------------------

    Contributed surplus                               4,175,711    4,572,737
                                                    -------------------------

    Deficit                                         (20,409,087) (21,144,555)

    Accumulated other comprehensive loss, net of
     income taxes                                      (130,286)    (149,290)
                                                    -------------------------

    Total deficit and accumulated other
     comprehensive loss                             (20,539,373) (21,293,845)
                                                    -------------------------

                                                     26,730,573   24,023,372
                                                    -------------------------

                                                     38,747,071   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         Nine months ended
                                           June 30,                  June 30,
                          ------------------------- -------------------------
                                 2010         2009         2010         2009
                                    $            $            $            $
    Revenue
    Software, services and
     other                  5,738,695    8,861,397   21,897,466   26,195,166
    Support and
     Subscription           4,892,963    5,618,489   13,980,505   16,251,870
                          ---------------------------------------------------

                           10,631,658   14,479,886   35,877,971   42,447,036

    Cost of revenue         3,112,879    3,008,663    9,566,056    9,300,867
                          ---------------------------------------------------

    Gross profit            7,518,779   11,471,223   26,311,915   33,146,169
                          ---------------------------------------------------

    Operating expenses
    Selling and marketing   2,804,084    3,765,183    9,483,020   12,040,384
    General and
     administrative         2,400,288    2,470,037    5,771,829    7,451,500
    Research and
     development (note 4)   2,810,904    2,931,780    8,185,452    9,591,644
    Amortization of
     property and
     equipment and
     intangible assets        164,872      169,897      486,178      482,026
    Foreign currency
     exchange (gain) loss    (504,352)   1,311,451    1,236,071     (909,409)
                          ---------------------------------------------------

                            7,675,796   10,648,348   25,162,550   28,656,145
                          ---------------------------------------------------

    Income (loss) from
     operations              (157,017)     822,875    1,149,365    4,490,024

    Interest income            22,710        4,968       29,600       45,751
    Interest expense           (3,827)     (10,681)     (21,335)     (14,880)
                          ---------------------------------------------------

    Income (loss) before
     income taxes            (138,134)     817,162    1,157,630    4,520,895

    Income taxes
    Current                    91,650      309,147      422,162      945,822
                          ---------------------------------------------------

    Net income (loss) for
     the period              (229,784)     508,015      735,468    3,575,073
                          ---------------------------------------------------
                          ---------------------------------------------------

    Net income (loss) per
     common share (note 2)
    Basic                        0.00         0.01         0.01         0.06
    Diluted                      0.00         0.01         0.01         0.06

    Weighted average
     number of common
     shares (note 2)
    Basic                  60,078,132   57,107,659   60,078,132   57,107,659
    Diluted                60,078,132   59,122,135   61,785,769   58,226,223



    Redknee Solutions Inc.
    Interim Consolidated Statement of Comprehensive Income (Loss)
    (Unaudited)
    -------------------------------------------------------------------------
    (expressed in Canadian dollars)

                                Three months ended         Nine months ended
                                           June 30,                  June 30,
                          ------------------------- -------------------------
                                 2010         2009         2010         2009
                                    $            $            $            $
    Net income (loss) for
     the period              (229,784)     508,015      735,468    3,575,073

    Other comprehensive
     income, net of income
     taxes
      Foreign currency
       translation
       adjustment              44,550       57,994       19,004       57,994
                          ---------------------------------------------------

    Comprehensive income
     (loss) for the period   (185,234)     566,009      754,472    3,633,067
                          ---------------------------------------------------
                          ---------------------------------------------------



    Redknee Solutions Inc.
    Notes to Interim Consolidated Financial Statements
    (Unaudited)
    June 30, 2010
    -------------------------------------------------------------------------

                                Three months ended         Nine months ended
                                           June 30,                  June 30,
                          ---------------------------------------------------
                                 2010         2009         2010         2009
                                    $            $            $            $
    Cash provided by
     (used in)

    Operating activities
    Net income (loss) for
     the period              (229,784)     508,015      735,468    3,575,073
    Items not involving
     cash
      Amortization of
       property and
       equipment              105,462      112,115      307,948      311,114
      Amortization of
       intangible assets       59,410       57,782      178,230      170,912
      Unrealized foreign
       currency exchange
       loss (gain)           (377,156)   2,114,121    1,265,700   (1,333,887)
      Stock-based
       compensation
       (note 3)               137,442      189,935      275,689      513,058
    Change in non-cash
     operating working
     capital (note 5)        (19,236)     (417,866)  (9,237,670)   3,537,092
                          ---------------------------------------------------

                            (323,862)    2,564,102   (6,474,635)   6,773,362
                          ---------------------------------------------------

    Financing activities
    Collection of employee
     loans                    12,797       109,621      479,405      168,650
    Proceeds from exercise
     of stock options        464,018        15,224    1,197,635       15,224
    Repayment of
     obligations under
     capital leases                -                          -         (619)
                          ---------------------------------------------------

                             476,815       124,845    1,677,040      183,255
                          ---------------------------------------------------

    Investing activities
    (Purchase of) proceeds
     from short-term
     investments                   -     4,958,910      107,049   (4,078,925)
    Purchase of property
     and equipment           (39,427)      (88,088)    (116,690)    (401,033)
    (Increase) decrease
     in other assets         (28,625)        8,118       (2,327)     (29,116)
    (Increase) decrease
     in restricted cash       (5,400)       50,911      195,450     (195,854)
                          ---------------------------------------------------

                             (73,450)    4,929,851      183,482   (4,704,928)
                          ---------------------------------------------------

    Effect of foreign
     currency exchange
     rate changes on
     cash and cash
     equivalents              (43,662)    (419,179)  (1,236,688)     780,102
                          ---------------------------------------------------

    Increase (decrease)
     in cash and cash
     equivalents during
     the period                35,840    7,199,619   (5,850,801)   3,031,791

    Cash and cash
     equivalents -
     Beginning of period   19,776,406   11,074,779   25,663,047   15,242,607
                          ---------------------------------------------------
    Cash and cash
     equivalents -
     End of period         19,812,246   18,274,398   19,812,246   18,274,398
                          ---------------------------------------------------
                          ---------------------------------------------------

    Supplemental cash flow
     information
    Interest paid               3,827       10,681       21,335       14,880
    Interest received          22,711        4,968       29,600       45,751
    Net income taxes
     paid                      99,298      130,895      269,944      328,531
    

SOURCE Redknee Solutions Inc.

For further information: 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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