Redknee Solutions Inc. - Redknee Reports Revenue Growth and Profitability in Second Quarter 2009



    TORONTO, May 12 /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
2009, ended March 31, 2009.

    
    Q2 Highlights:
    --------------
    -   Second quarter 2009 revenue up 9% to $13.8 million (Q2 2008: $12.6
        million)
    -   Gross margin increases to 79% (Q2 2008: 71%)
    -   EBITDA of $1.1 million (Q2 2008: loss of $0.6 million)
    -   Operating profit of $0.5 million (Q2 2008: operating profit of $0.9
        million)
    -   Signed multi-million dollar contract with Bintel Ltd.
    -   Platinum award for 50 Best Managed Companies in Canada for
        consecutive six years
    -   Cash and investments at $20.2 million (September 30, 2008: $15.3
        million)
    -   16 issued patents, 51 pending applications, and 1further patent
        application at various stages of the grant/issuance process
    

    "Redknee continues to deliver on its stated corporate strategy. We have
continued to invest in the high growth markets of Africa, the Middle East, and
Asia Pacific, while building support among Tier 1 operators in Europe and
North America." stated Lucas Skoczkowski, CEO for Redknee. He added "Our
strategy execution and disciplined cost-management have resulted in increased
revenue, a strong cash position, and another profitable quarter. We remain
focused on profitable growth in fiscal 2009."
    Please see section regarding Forward-Looking Statements which forms 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 corporate
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 continued to grow in
the second quarter of fiscal 2009, with our Turnkey Converged Billing
solutions contributing more than 55% of revenue. Sales of Redknee's Next
Generation Rating & Charging solutions also grew contributing an additional
33% of our quarterly revenue.
    Industry analyst, Frost and Sullivan, named Redknee as an innovative
leader and top performer in our space, one of the top ten companies to watch
for in 2009. Redknee's focus on market-driven innovation led us to announce a
BlackBerry(R) charging solution that enables subscribers to use BlackBerry(R)
Smartphones on a prepaid basis; a high-value service when upwards of 90% of
subscribers in high-growth markets use prepaid mobile phones.
    Global telecom carriers continue to recognize Redknee's market leading
solutions. In the second quarter of fiscal 2009, the Company signed a
multi-million dollar Turnkey Converged Billing contract with Bintel, a
fast-growing telecommunications service provider based in Bahrain and rolling
out services in Africa. Redknee continued to expand upon its existing customer
base in the high growth markets through the expansion of existing licenses and
the sale of additional solutions.
    Growth of 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 36% of overall
revenues.
    Redknee continues to have a strong employee base, a growing number of
customers, and the right product offering to meet our customers' demands.
Market trends further support our approach; 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 second quarter of fiscal 2009, Redknee's revenue grew by 9% to
$13.8 million compared to revenue of $12.6 million in the second quarter of
fiscal 2008. The majority of the Company's revenue is denominated in U.S.
dollars and thus revenues may be impacted by exchange rate fluctuations.
    Gross margin in the period increased to $10.8 million or 79% of revenue
from $9.0 million or 71% of revenue in the second quarter of fiscal 2008.
    Redknee recorded an EBITDA profit of $1.1 million for the second quarter
of fiscal 2009 as compared to an EBITDA loss of $0.6 million for the second
quarter of fiscal 2008.
    For the six month period ended March 31, 2009, the Company experienced a
foreign exchange gain of $2.2 million. For the quarter ended March 31, 2009,
the Company recognized a foreign currency exchange loss of $0.4 million, as
compared to a foreign currency exchange gain of $1.8 million in the same
period of fiscal 2008.
    Net income in Q2 fiscal 2009 was $0.2 million or $0.00 per share, as
compared to $0.7 million or $0.01 per share in Q2 fiscal 2008
    Cash and investments as at March 31, 2009 was $20.2 million versus $15.3
million as at September 30, 2008.

    CONFERENCE CALL

    The Company will discuss the results on a conference call and webcast at
8:30 a.m. EST time on Wednesday, May 13, 2009.
    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             416-644-3431
           Toll-free North America          800-587-1893
           Toll-free United Kingdom         00 800 2288 3501

    A webcast will also be available at:
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2659140

    Conference Replay
    -----------------
    
    The conference will be archived for replay by telephone at: 416-640-1917
or Toll-Free at 1-877-289- 8525 (passcode 21305612 followed by the number
sign) from 10:30 am on May 13, to 11:59 pm on May 27, 2009.

    FORWARD-LOOKING STATEMENTS

    Certain statements in this Release which are not historical facts may
constitute forward-looking statements or forward-looking information within
the meaning of applicable securities laws ("forward-looking statements"). Any
statements related to Redknee's projected revenues, earnings, growth rates,
revenue mix, staffing and resources, and product plans are forward looking
statements as are any statements relating to future events, conditions or
circumstances. The use of terms such as "believes", "anticipated", "expected",
"projected", "targeting", "estimate", "intend" and similar terms are intended
to assist in identification of these forward-looking statements. Readers are
cautioned not to place undue reliance upon any such forward-looking
statements. Such forward-looking statements are not promises or guarantees of
future performance and involve both known and unknown risks and uncertainties
that may cause the actual results, performance, achievements or developments
of Redknee to differ materially from the results, performance, achievements or
developments expressed or implied by such forward-looking statements.
    Forward-looking statements are based on management's current plans,
estimates, projections, beliefs and opinions. Except as required by law,
Redknee does not undertake any obligation to update forward-looking statements
should assumptions related to these plans, estimates, projections, beliefs and
opinions change.
    The Company undertakes no obligation, except as required by law, to
update publicly or otherwise any forward-looking information, whether as a
result of new information, future events or otherwise, or the above list of
factors affecting this information.
    Many factors could cause the actual results of Redknee to differ
materially from the results, performance, achievements or developments
expressed or implied by such forward-looking statements, including, without
limitation, each of the following factors, which are further discussed in the
section of the Company's AIF entitled Risk Factors, and which is available on
SEDAR at www.sedar.com and on the Company's web-site at www.redknee.com.

    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. Established in 1999, Redknee Solutions Inc. (TSX: RKN) is
the parent of the wholly-owned operating subsidiary Redknee Inc. and its
various subsidiaries. References to Redknee refer to the combined operations
of those entities. For more information, visit www.redknee.com.



    
    Redknee Solutions Inc.
    Interim Consolidated Balance Sheet
    (Unaudited)
    -------------------------------------------------------------------------
    (expressed in Canadian dollars)
                                                    March  31,  September 30,
                                                         2009           2008
                                                            $              $
    Assets

    Current assets
    Cash and cash equivalents                      11,074,779     15,242,607
    Short-term investments                          9,094,198         56,363
    Trade accounts and other receivables           11,964,465     11,192,182
    Unbilled revenue                                3,150,512      6,060,452
    Investment tax credits and
     income taxes receivable                          650,000        600,000
    Prepaid expenses                                  749,798      1,066,584
    Goods in transit                                  528,628        325,716
                                                 ----------------------------

                                                   37,212,380     34,543,904

    Restricted cash (note 7)                          656,685        409,919

    Property and equipment                            693,998        580,053

    Intangible assets                               1,275,631      1,388,761

    Other assets                                      565,529        528,294
                                                 ----------------------------

                                                   40,404,223     37,450,931
                                                 ----------------------------
                                                 ----------------------------

    Liabilities

    Current liabilities
    Accounts payable                                1,385,073      2,172,268
    Accrued liabilities                             7,617,854      8,678,539
    Income taxes payable                            2,685,858      2,100,785
    Deferred revenue                                5,851,795      5,084,287
    Current portion of obligations
     under capital leases                                   -            619
                                                 ----------------------------

                                                   17,540,580     18,036,498
                                                 ----------------------------

    Shareholders' Equity

    Share capital, net of employee
     share purchase loans                          40,263,430     39,686,701
                                                 ----------------------------

    Contributed surplus                             4,216,100      4,410,677
                                                 ----------------------------

    Deficit                                       (21,404,928)   (24,471,986)

    Accumulated other comprehensive
     loss, net of income taxes                       (210,959)      (210,959)
                                                 ----------------------------

    Total deficit and accumulated
     other comprehensive loss                     (21,615,887)   (24,682,945)
                                                 ----------------------------

                                                   22,863,643     19,414,433
                                                 ----------------------------

                                                   40,404,223     37,450,931
                                                 ----------------------------
                                                 ----------------------------
    Guarantees and contingencies (note 7)



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

                                  Three months ended        Six months ended
                                            March 31,               March 31,
                             ------------------------ -----------------------

                                    2009        2008        2009        2008
                                       $           $           $           $
    Revenue
    Software, services
     and other                 7,935,239   9,127,667  17,333,769  17,346,907
    Support                    5,814,811   3,482,729  10,633,381   6,741,232
                             ------------------------------------------------

                              13,750,050  12,610,396  27,967,150  24,088,139

    Cost of revenue            2,922,273   3,644,074   6,292,204   7,386,090
                             ------------------------------------------------

    Gross profit              10,827,777   8,966,322  21,674,946  16,702,049
                             ------------------------------------------------

    Operating expenses
    Selling and marketing      3,895,255   4,334,486   8,275,201   8,111,071
    General and
     administrative            2,611,329   2,225,235   4,981,463   4,839,551
    Research and
     development (note 4)      3,316,527   3,239,860   6,659,864   6,521,134
    Amortization of property
     and equipment and
     intangible assets           119,892      64,417     312,129     127,095
    Foreign currency
     exchange (gain) loss        417,099  (1,818,404) (2,220,860) (1,709,004)
                             ------------------------------------------------

                              10,360,102   8,045,594  18,007,797  17,889,847
                             ------------------------------------------------

    Income (loss)
     from operations             467,675     920,728   3,667,149  (1,187,798)

    Interest income               15,707     133,422      40,783     334,208
    Interest expense              (2,170)    (10,595)     (4,199)     (9,592)
                             ------------------------------------------------

    Income (loss) before
     income taxes                481,212   1,043,555   3,703,733    (863,182)

    Income taxes
    Current                      275,261     300,694     636,675     592,375
                             ------------------------------------------------

    Net income (loss)
     for the period              205,951     742,861   3,067,058  (1,455,557)
                             ------------------------------------------------
                             ------------------------------------------------

    Net income (loss) per
     common share (note 2)
    Basic                           0.00        0.01        0.05       (0.03)
    Diluted                         0.00        0.01        0.05       (0.03)

    Weighted average number
     of common shares
     (note 2)
    Basic                     56,880,822  56,318,907  56,809,155  56,318,907
    Diluted                   57,210,822  57,203,907  57,210,822  57,203,907




    Redknee Solutions Inc.
    Interim Consolidated Statement of Cash Flows
    (Unaudited)
    -------------------------------------------------------------------------
    (expressed in Canadian dollars)

                                  Three months ended        Six months ended
                                            March 31,               March 31,
                             ------------------------ -----------------------

                                    2009        2008        2009        2008
                                       $           $           $           $

    Cash provided by (used in)

    Operating activities
    Net income (loss)
     for the period              205,951     742,861   3,067,058  (1,455,557)
    Items not involving cash
      Amortization of
       property and equipment     82,100      64,417     198,999     127,095
      Amortization of
       intangible assets          37,792           -     113,130           -
      Unrealized foreign
       currency exchange gain   (930,918) (1,404,957) (3,448,008) (1,451,991)
      Stock-based
       compensation (note 3)     134,885     274,099     323,123     477,594
    Change in non-cash
     operating working
     capital (note 5)         (2,876,365)   (119,099)  3,954,958  (3,942,941)
                             ------------------------------------------------

                              (3,346,555)   (442,679)  4,209,260  (6,245,800)
                             ------------------------------------------------

    Financing activities
    Collection of
     employee loans               41,378           -      59,029           -
    Repayment of obligations
     under capital leases              -     (10,036)       (619)    (25,087)
                             ------------------------------------------------

                                  41,378     (10,036)     58,410     (25,087)
                             ------------------------------------------------

    Investing activities
    (Purchase of) proceeds
     from short-term
     investments              (4,527,233)  3,267,231  (9,037,835)  7,401,094
    Purchase of property
     and equipment              (174,047)   (109,862)   (312,945)   (176,205)
    (Increase) decrease
     in other assets              10,671     201,516     (37,234)   (358,151)
    Loan to Argent
     Networks PTY Ltd.                 -           -           -    (529,463)
    Collection of loan from
     Argent Networks PTY Ltd.          -     526,754           -     526,754
    Increase in
     restricted cash            (245,524)   (379,186)   (246,765)   (379,186)
    Acquisition of Argent
     Networks PTY Ltd., net
     of cash acquired                  -  (1,084,255)          -  (1,084,255)
                             ------------------------------------------------

                              (4,936,133)  2,422,198  (9,634,779)  5,400,588
                             ------------------------------------------------

    Effect of foreign
     currency exchange
     rate changes on cash
     and cash equivalents         17,334     571,150   1,199,281     621,000
                             ------------------------------------------------

    Increase (decrease) in
     cash and cash
     equivalents during the
     period                   (8,223,976)  2,540,633  (4,167,828)   (249,299)

    Cash and cash
     equivalents - Beginning
     of period                19,298,755   6,137,838  15,242,607   8,927,770
                             ------------------------------------------------

    Cash and cash
     equivalents -
     End of period            11,074,779   8,678,471  11,074,779   8,678,471
                             ------------------------------------------------
                             ------------------------------------------------

    Supplemental cash
     flow information
    Interest paid                  2,169       8,589       4,199       9,592
    Interest received             15,705     131,416      40,781     334,208
    Cash taxes/investment
     tax credits received,
     net of income
     taxes paid                   53,753           -     226,937           -
    





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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