Redknee Solutions Reports Fiscal First Quarter 2015 Results

TORONTO, Feb. 4, 2015 /CNW/ - Redknee Solutions Inc.  (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal first quarter ended December 31, 2014. All figures are in U.S. dollars.

Fiscal Q1 2015 Financial Highlights
(Comparisons made between fiscal Q1 FY2015 and fiscal Q1 FY2014 results, unless otherwise noted)

  • Revenue totaled $62.6 million, up 4% from $60.4 million
  • Gross profit was $36.6 million (58% of total revenue) compared to $33.0 million (55% of total revenue)
  • Adjusted EBITDA of $11.0 million (18% of total revenue) versus Adjusted EBITDA of $5.4 million (9% of total revenue)
  • Net income totaled $2.0 million or $0.02 income per share versus a net loss of $3.1 million or $0.03 loss per share
  • Total cash at December 31, 2014 was $101.5 million
  • Order backlog of $171.0 million at December 31, 2014.

Fiscal Q1 2015 Operational Highlights

  • Announced a multi-million dollar contract with Omantel to support its 4G/LTE network
  • Enabled a service provider in the Americas to rapidly launch a new MVNO brand in weeks with minimal investment and no customization
  • Announced a strategic multi-year, multi-million dollar order with a leading APAC enterprise to support its introduction of an advanced real-time loyalty points and rewards program
  • Announced multi-million dollar customer orders throughout the quarter in APAC and EMEA 
  • Recognized as the best BSS/OSS provider by Telecom Review
  • Highlighted by Deloitte as one of the 500 fastest growing companies in the North America Region in 2014
  • Supported SingTel Optus Wholesale to deliver a scalable turnkey billing solution to meet their future growth demands using Redknee's fully managed, cloud-based software
  • 151 patents granted and 41 patents filed

Management Commentary

"In the first quarter of 2015, we continued to execute on our plan to improve revenue quality and ensure sustainable growth in order bookings, revenue and EBITDA," said Lucas Skoczkowski, CEO of Redknee. "We have made progress towards our targets and are in line with our three year objective, following the acquisition, for margin improvement. We see an opportunity to continue to improve our business in a disciplined way, while addressing the needs of our customers' through the delivery of our unified software platform. We have advanced our position as the largest independent real-time converged monetization software provider for communications, and are leveraging our capabilities to address the long term opportunity we see in the Internet of Things market."

Fiscal Q1 2015 Financial Results
Revenue was $62.6 million compared to $60.4 million in the same year-ago quarter. The revenue growth was primarily due to increased license revenue.

Order backlog grew 3% to $171.0 million compared to $166.8 million in the same year-ago quarter.

Isolating for the impact of fluctuating foreign exchange rates, on a constant currency basis, adjusted revenue was $63.7 million in the quarter. Applying the same principle, order backlog would otherwise have been $175.0 million.

Recurring revenue was 44% of total revenue, compared to 55% in the same year-ago quarter. The decline over the prior year period was the result of the transition of specific customer contracts off Redknee's platform; these customers had indicated their intent to leave prior to the acquisition. This is in line with Redknee's three-year post-acquisition plan.

Gross margin was 58% compared to 55% in the same year-ago quarter. The increase in gross margin was primarily attributable to the increase in revenue from high-margin software license deals and reduced costs of providing service and support.

Adjusted EBITDA was $11.0 million, or 18% of revenue, compared to Adjusted EBITDA of $5.4 million, or 9% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).  

Net income totaled $2.0 million, or $0.02 income per basic and diluted share, compared to a net loss of $3.1 million, or $0.03 loss per basic and diluted share, in the same year-ago quarter.

At December 31, 2014, total cash ended at $101.5 million. This reflects the impact of $3.5 million in restructuring charges as well as a $1.8 million decrease due to foreign exchange rate variation in the quarter.

Automatic Share Purchase Plan

The Company also announced that it has entered into an issuer automatic purchase plan agreement (the "Plan") in respect of the Company's Normal Course Issuer Bid. GMP Securities L.P. has been appointed as the broker firm (the "Broker") responsible for making purchases of commons shares pursuant to the Plan. Under the Plan, the broker will have sole discretion to purchase common shares pursuant to the Bid during trading black-out periods established under the Company's Insider Trading Policy, subject to the price limitations and other terms of the Plan and the rules of the TSX. The Company may instruct the Broker to make specific purchases and suspend or terminate the Plan, provide in each case that the Company certifies to the Broker that it is not in possession of any material undisclosed information and such request is otherwise in compliance with the terms of the Plan.

As announced in May 2014, under the Company's Normal Course Issuer Bid, it may purchase, from time to time, up to an aggregate of 9,358,502 common shares on the TSX. Neither the Company nor the Broker will purchase more than 118,252 common shares on the same trading day, which represents 25% of the average daily trading volume of the common shares during the six months prior to the commencement of the Normal Course Issuer Bid. The Normal Course Issuer Bid will expire on the earlier of the date on which purchases under the Bid have been completed and June 2, 2015.

Please refer to the section regarding forward-looking statements which form an integral part of this release. These results, along with the annual audited 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.

Conference Call

The company will host a conference call tomorrow (February 5, 2015) to discuss these results. CEO Lucas Skoczkowski and CFO David Charron will host the presentation starting at 8:30 a.m. Eastern time. A question and answer session will follow management's presentation.

Date: Thursday February 5, 2015
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1 (888) 231-8191
International: 1 (647) 427-7450
Conference ID#: 65580239

The presentation will be webcast live and available for replay via either the Investors section of Redknee's website (www.redknee.com) or http://bit.ly/14wArN3.

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization.

If you have any difficulty connecting with the conference call, please contact TMX Equicom at 1 (416) 815-0700, ext. 253.

A replay of the call will be available until 12:00 midnight (EST) Thursday, February 12, 2015.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 65580239

About Redknee Solutions Inc.

Redknee is a leading global provider of innovative software products, solutions and services. Redknee's award-winning solutions enable service providers to monetize new services, business models and content and to deliver a connected customer experience - through either SaaS or on-premise based solutions. Redknee's real-time monetization and subscriber management platform provides innovative converged charging, billing, policy management, and customer care solutions for over 200 communications service providers and is supporting service providers to monetize digital services across utilities and smart meters, transportation, connected homes and vehicles, and other enterprises that are emerging from the growing ecosystem of the Internet of Things (IoT).  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 about Redknee and its solutions, please go to www.redknee.com.

Non-IFRS Measures

The Company reports "Adjusted EBITDA", which is not a financial measure calculated and presented in accordance with International Financial Reporting Standards (IFRS), and should not be considered in isolation or as a substitute to net income, operating income or any other financial measures of performance calculated and presented in accordance with IFRS, or as an alternative to cash flow from operating activities as a measure of liquidity. The Company defines Adjusted EBITDA as net income (loss) excluding amounts for depreciation and amortization, other expenses, finance costs, finance income, income tax expense (recovery), foreign exchange gain (loss), share-based compensation, restructuring costs and acquisition and related costs. "Recurring revenue," is not a financial measure calculated and presented in accordance with IFRS and should not be considered in isolation or as a substitute to revenue. Recurring revenue includes revenue from support and maintenance agreements, long term service agreements, and term-based product licenses and software subscription.

"Order backlog" relates to contractual commitments as at period end, pending to be delivered and will be recognized as revenue in future periods. Order backlog is not a financial measure calculated and presented in accordance with IFRS and should not be considered in isolation or as a substitute to revenue.

Other companies (including competitors) may define adjusted EBITDA, recurring revenue, and order backlog differently. The company presents adjusted EBITDA, recurring revenue, and order backlog because management believes it to be important supplemental measures of performance that are commonly used by securities analysts, investors and other interested parties in the evaluation of companies in Redknee's industry. Management uses this information internally for forecasting and budgeting. It may not be indicative of the historical operating results of Redknee nor is it intended to be predictive of potential future results. See "Reconciliation of Net Income (Loss) to adjusted EBITDA" below for further information on this non-IFRS measure.

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. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Persons reading this news release are cautioned that such information may not be appropriate for other purposes.

Such forward-looking statements include statements respecting anticipated revenues in Q1 FY15 under a new license expansion contract, reduction in annual expenses in fiscal 2015 and 2016 and no direct impact on customer service or the Company's product development, expansion of adjusted EBITDA, future opportunities in the company's core communication and non-telecom monetization businesses, improvement in margin with an increase in revenue from higher-margin software license deals as well as statements regarding Redknee's future plans, objectives or performance for the current period and subsequent periods and regarding the markets for our products. 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 failure of demand for Redknee's products to develop as anticipated, the failure to obtain customer orders or meet customer requirements, the inability of Redknee's products to perform as expected, the inability of Redknee to achieve anticipated cost savings in the time frames and to the extent anticipated, unanticipated negative impacts on customer service or product development as a result of costs savings implemented, a material adverse change in the affairs of Redknee, and the factors discussed under the "Risk Factors" section of Redknee's most recently filed AIF which is available on SEDAR at www.sedar.com and on Redknee's web-site at www.redknee.com. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Redknee does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

Redknee Solutions Inc.



Condensed Consolidated Interim Statements of Financial Position


(Expressed in U.S. dollars)



(Unaudited)




December 31,

2014

September 30,

2014

Assets






Current assets:




Cash and cash equivalents

$

100,501,039

$

108,636,797


Trade accounts and other receivables

75,958,406

71,393,983


Unbilled revenue

43,605,473

42,396,988


Prepaid expenses

2,543,200

4,339,650


Other assets

824,526

898,871


Inventories

2,597,918

5,199,362


Total current assets

226,030,562

232,865,651




Restricted cash 

1,028,158

881,940

Property and equipment 

8,097,747

8,708,115

Deferred income taxes

1,797,684

1,939,416

Investment tax credits

402,772

416,222

Other assets 

1,931,128

2,089,688

Intangible assets

31,143,227

32,819,313

Goodwill

7,638,590

7,638,590




Total assets 

$

278,069,868

$

287,358,935




Liabilities and Shareholders' Equity






Current liabilities:




Trade payables

$

11,321,111

$

9,538,161


Accrued liabilities

32,026,622

38,566,558


Provisions

13,787,684

14,967,576


Income taxes payable

2,063,385

1,595,569


Contingent consideration

13,878,284

14,454,527


Deferred revenue

18,403,685

20,743,769


Loans and borrowings

2,625,000

750,000


Total current liabilities

94,105,771

100,616,160




Deferred revenue

2,566,603

3,601,859

Other liabilities

2,182,295

2,281,341

Pension and non-pension post-employment benefit obligation

10,428,691

10,258,900

Loans and borrowings 

43,729,396

45,809,713

Provisions

4,350,078

6,608,270

Deferred income taxes

8,396

36,016

Total liabilities

157,371,230

169,212,259




Shareholders' equity:




Share capital

173,865,718

173,757,863


Treasury stock

(21,226)

(21,226)


Contributed surplus

6,098,281

5,665,135


Deficit

(55,069,186)

(57,080,147)


Accumulated other comprehensive income

(4,174,949)

(4,174,949)


Total shareholders' equity

120,698,638

118,146,676




Total liabilities and shareholders' equity

$

278,069,868

$

287,358,935

 

 

Redknee Solutions Inc.



Condensed Consolidated Interim Statement of Comprehensive Income (Loss)


(Expressed in U.S. dollars)



(Unaudited)




Three months ended


December 31,


2014

2013




Revenue:




Software, services and other

$

37,955,600

$

27,375,215


Support

24,621,329

33,028,025


62,576,929

60,403,240




Cost of revenue

25,988,490

27,379,935




Gross profit

36,588,439

33,023,305




Operating expenses:




Sales and marketing

9,462,239

8,508,397


General and administrative

7,062,384

8,174,749


Research and development

12,329,782

14,884,339


Acquisition and related costs

415,051

872,368


Restructuring costs

336,714


29,606,170

32,439,853




Income from operations

6,982,269

583,452




Foreign exchange loss

(2,668,913)

(1,137,904)

Other expenses

(1,150,669)

Finance income

4,482

14,759

Finance costs

(898,217)

(584,520)




Income (loss) before income taxes

3,419,621

(2,274,882)




Income tax expense (recovery):




Current

1,399,795

844,805


Deferred

8,865

(59,118)


1,408,660

785,687




Net income (loss) and comprehensive income (loss)

$

2,010,961

$

(3,060,569)




Net income (loss) per common share:




Basic

0.02

(0.03)


Diluted

0.02

(0.03)







Weighted average number of common shares outstanding:




Basic

108,944,276

95,529,355


Diluted

111,410,637

95,529,355







 

 

Redknee Solutions Inc.



Condensed Consolidated Interim Statements of Cash Flows



(Expressed in U.S. dollars)



(Unaudited)




Three months ended


December 30,


2014

2013




Cash provided by (used in):



Operating activities:




Net income

$

2,010,961

$

(3,060,569)


Adjustments for:





Depreciation of property and equipment

942,236

1,603,063



Amortization of intangible assets

1,812,382

1,690,134



Finance income

(4,482)

(14,759)



Finance costs

898,217

584,520



Pensions

169,791

404,506



Income tax expense

1,408,660

785,687



Unrealized foreign exchange loss (gain)

1,865,646

45,701



Share-based compensation

465,166

670,206



Revaluation of contingent consideration

(576,243)

1,150,669



Change in provisions

(3,438,084)



Change in non-cash operating working capital

(9,096,004)

(20,427,490)


(3,541,754)

(16,568,332)


Interest paid

(49,754)

(953)


Interest received

49,504

14,759


Income taxes paid

(871,201)

(92,259)


(4,413,205)

(16,646,785)




Financing activities:




Proceeds from exercise of stock options

64,130

40,773


Interest paid on loans and borrowings

(931,655)



Proceeds from loans and borrowings

10,000,000


Repayment of loans and borrowings

(375,000)


Transaction costs of loans and borrowings

(10,032)


(1,242,525)

10,030,741




Investing activities:




Purchase of property and equipment

(331,868)

(1,071,966)


Purchase of intangible assets

(136,296)

(156,428)


Increase in restricted cash

(146,218)

(15,227)


(614,382)

(1,243,621)




Effect of foreign exchange rate changes on




cash and cash equivalents

(1,865,646)

(45,701)




Decrease in cash and cash equivalents

(8,135,758)

(7,905,366)




Cash and cash equivalents, beginning of period

108,636,797

79,054,757




Cash and cash equivalents, end of period

$

100,501,039

$

71,149,391

 

 

Redknee Solutions Inc.



Reconciliation of Net Income (Loss) to Adjusted EBITDA



(Expressed in U.S. dollars)



(Unaudited)




Three months ended


December 31,


2014

2013







Net income (loss) for the period

2,010,961

(3,060,569)




Add back / (subtract):




Depreciation of property and equipment

942,236

1,603,063


Amortization of intangible assets

1,812,382

1,690,134


Other expenses

1,150,669


Finance income

(4,482)

(14,759)


Finance costs

898,217

584,520


Income tax expense

1,408,660

785,687


Share-based compensation

465,166

670,206


Foreign exchange loss (gain)

2,668,913

1,137,904




EBITDA

10,202,053

4,546,855




Adjustments




Restructuring costs

336,714


Acquisition and related costs

415,051

872,368




Adjusted EBITDA

$

10,953,818

$

5,419,223

SOURCE Redknee Solutions Inc.

For further information: Investor Relations: Robert Kelly, TMX Equicom, T: (416) 815-0700 ext. 253, rkelly@tmxequicom.com


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