Redknee Solutions Reports Fiscal First Quarter 2016 Results

TORONTO, Feb. 10, 2016 /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, 2015. All figures are in U.S. dollars.

Fiscal Q1 2016 Financial Highlights
(Comparisons made between fiscal Q1FY2016 and fiscal Q1FY2015 results, unless otherwise noted)

  • Revenue totalled $50.1 million ($54.8 million, on a constant currency basis), compared to $62.6 million;
  • Gross profit was $29.7 million (59% of total revenue) compared to $36.6 million (58% of total revenue);
  • Adjusted EBITDA of $4.8 million (10% of total revenue) versus Adjusted EBITDA of $11.0 million (18% of total revenue);
  • Recurring was 52% of revenue, compared to 44%;
  • Net loss was $4.3 million or $0.04 loss per share versus a net income of $2.0 million or $0.02 income per share,
  • Available liquidity as at December 31, 2015 was $89.0 million, including $49.0 million of cash, and,
  • Order backlog of $166.8 million ($173.0 million on a constant currency basis).

Fiscal Q1 2016 Operational Highlights

  • Supported a Tier 1 Operator in North America with its Mobile Virtual Network Enabler (MVNE) strategy, including an extension of its contract with Redknee worth more than $5 million;
  • Delivered the latest version of Redknee Railway,  an Intelligent Network (IN) solution for GSM-Railway, to Prorail, a leading Dutch railway operator;
  • Launched the Redknee Connected Suite, a software platform designed to help enterprises monetize applications for the Internet of Things (IoT);
  • Recognized as a leader in the Canadian technology industry in the Deloitte's 2015 Technology Fast 50 and Fast 500; and,
  • Continued to expand patent portfolio with a total of 152 patents granted and 31 patents filed at quarter end, with additional patents still undergoing transfer following the Orga Systems acquisition.

Highlights Subsequent End of Q1 2016

  • As anticipated at the time of the Orga Systems acquisition and consistent with its acquisition and integration strategy, Redknee initiated its planned cost structure optimization as it finalizes the integration of Orga.  As a result of these efforts, the Company expects to close certain offices and refocus some of its activities in certain regions, resulting in headcount reductions of between 200 and 300 full-time equivalents globally.  The restructuring is expected to cost between $25 and $30 million and result in annualized savings of between $20 and $25 million.  The implementation will be executed on a timely basis and will be subject to the necessary consultation processes where required by local laws.
  • As of close of trading February 10, 2016, Redknee had purchased 1,246,590 shares for a total cost of approximately CAD$3.5 million under the Company's Normal Course Issuer Bid (NCIB) since the program's commencement on December 7, 2015.

Management Commentary

"The first quarter saw continued progress on our near-term priorities, highlighted by gross margin expansion, improving cash flows and a growing order book, notwithstanding a period in which the typical lumpiness in our software license revenue was exacerbated by several purchase decision delays, as well as the full cost structure of the Orga acquisition," said Lucas Skoczkowski, CEO of Redknee. "We are encouraged by both our strong first quarter bookings and our continuing engagement with these operators and we believe that we remain well positioned to secure these orders over the coming several quarters."

Mr. Skoczkowski continued, "With the integration of Orga Systems substantially complete, as per the plan we outlined at the time of acquisition, we have moved quickly and decisively on our cost structure optimization program.  The expected cost savings of $20 to $25 million annually will further contribute to long-term cash flow and profitability.  We continue to expect the acquisition of Orga to be accretive in fiscal 2016.  Importantly, we are confident the proposed changes will in no way impact our high standard of customer service or our product development, delivery or support."

"As we look out to the year ahead, amidst the expected ongoing softness in service provider spending, we will remain laser-focused on maximizing our profitability and cash flow generation, while growing our proportion of recurring revenue.  We remain steadfast in our commitment to continuing to advance our strong competitive position as the provider of choice for monetization and subscriber management solutions for service providers worldwide in our core communications market, while leveraging our reputation and experience in pursuit of the significant opportunities related to the Internet of Things."

Fiscal Q1 2016 Financial Results

Revenue was $50.1 million ($54.8 million on a constant currency basis) compared to $62.6 million in the same year-ago quarter. The change in revenue compared to the prior year period resulted mainly from the impact of foreign exchange variation and lower license revenue compared to the same year-ago quarter.

Order backlog increased 5% to $166.8 million ($173.0 million on a constant currency basis) from $158.5 million in the fourth quarter of fiscal 2015.

Recurring revenue was 52% of total revenue, compared to 44% in the same year-ago quarter.

Gross margin was 29.7 million or 59% compared to $36.6 million or 58% in the same year-ago quarter.

Adjusted EBITDA was $4.8 million, or 10% of revenue, compared to Adjusted EBITDA of $11.0 million, or 18% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totalled $4.3 million, or $0.04 loss per basic and diluted share compared to a net income of $2.0 million, or $0.02 income per basic and diluted share, in the same year-ago quarter.

At December 31, 2015, total cash ended at $49.0 million.

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 11, 2016) 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 11, 2016
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#: 26272800

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/1ZiGLO1.

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 NATIONAL | Equicom at 1 (416) 586-1955.

A replay of the call will be available until 12:00 midnight (EST) Thursday, February 18, 2016.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 26272800

About Redknee Solutions Inc.

Redknee monetizes today's digital world. We provide a complete portfolio of mission-critical monetization and subscriber management solutions and services that allow communications service providers, utility companies, auto makers and enterprise businesses of all types to charge for things in new and innovative ways. Redknee's real-time billing, charging, policy and customer care offerings provide the agility and scalability to drive a unique user experience, increase profitability and support any new product or business model. Available on premise, cloud-based, or as a Software-as-a-Service, Redknee's low-risk, flexible solutions power more than 250 businesses across the globe.  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 (loss), 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 income, 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.

The "constant currency" presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates.  The Company calculates constant currency by converting the current period local currency financial results using the comparative period exchange rates.

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 these 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 Q4 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,


September 30,



2015


2015






Assets










Current assets:






Cash and cash equivalents

$

43,225,618

$

55,047,577


Trade accounts and other receivables


65,212,319


67,439,885


Unbilled revenue


40,234,965


38,612,499


Prepaid expenses


2,649,713


2,535,936


Income taxes receivable


1,687,830


1,399,564


Other assets


376,114


392,195


Inventories


797,887


812,987


Total current assets


154,184,446


166,240,643






Restricted cash


5,810,179


5,972,087

Property and equipment


7,779,025


8,435,008

Deferred income taxes


3,712,970


4,286,459

Investment tax credits


336,978


351,385

Other assets


1,802,212


1,816,640

Intangible assets


42,179,057


44,821,478

Goodwill


31,281,092


31,281,092






Total assets

$

247,085,959

$

263,204,792






Liabilities and Shareholders' Equity










Current liabilities:






Trade payables

$

11,624,856

$

9,128,710


Accrued liabilities


29,965,445


32,305,136


Provisions


6,984,952


8,772,519


Income taxes payable


2,529,168


2,364,983


Settlement accrual and contingent consideration


3,604,425


10,244,224


Deferred revenue


12,244,252


13,363,696


Loans and borrowings


2,100,000


1,800,000


Total current liabilities


69,053,098


77,979,268






Deferred revenue


889,458


870,937

Other liabilities


1,743,704


2,615,163

Pension and other long-term employment benefit plans


11,691,735


11,417,481

Loans and borrowings


54,267,647


54,961,066

Provisions


2,961,754


4,006,354

Total liabilities


140,607,396


151,850,269






Shareholders' equity:






Share capital


173,308,039


174,082,815


Treasury stock


(141,917)


(141,917)


Contributed surplus


8,180,871


7,899,360


Deficit


(71,391,715)


(67,086,722)


Accumulated other comprehensive loss


(3,476,715)


(3,399,013)


Total shareholders' equity


106,478,563


111,354,523






Total liabilities and shareholders' equity

$

247,085,959

$

263,204,792

 

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

(Expressed in U.S. dollars)

(Unaudited)












Three months ended






December 31,






2015


2014









Revenue:









Software, services and other




$

25,118,234

$

37,955,600


Support and subscription





24,997,577


24,621,329






50,115,811


62,576,929









Cost of revenue





20,397,916


25,988,490









Gross profit





29,717,895


36,588,439









Operating expenses:









Sales and marketing





8,401,274


9,462,239


General and administrative





7,288,271


7,062,384


Research and development





12,755,071


12,329,782


Acquisition and related costs





833,704


415,051


Restructuring costs





278,546


336,714






29,556,866


29,606,170









Income from operations





161,029


6,982,269









Foreign exchange loss





(493,008)


(2,668,913)

Finance income





5,374


4,482

Finance costs





(1,048,531)


(898,217)









Income (loss) before income taxes





(1,375,136)


3,419,621









Income tax expense:









Current





2,381,289


1,399,795


Deferred





548,568


8,865






2,929,857


1,408,660









Net income (loss)





(4,304,993)


2,010,961









Other comprehensive loss:









Pension actuarial adjustment





(77,702)










Comprehensive income (loss)




$

(4,382,695)

$

2,010,961









Net income (loss) per common share:









Basic





(0.04)


0.02


Diluted





(0.04)


0.02

















Weighted average number of common shares outstanding:









Basic





109,136,362


108,944,276


Diluted





109,136,362


111,410,637










 

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in U.S. dollars)

(Unaudited)






Three months ended



December 31,



2015


2014






Cash provided by (used in):










Operating activities:






Net income (loss)

$

(4,304,993)

$

2,010,961


Adjustments for:







Depreciation of property and equipment


1,003,027


942,236



Amortization of intangible assets


2,287,866


1,812,382



Finance income


(5,374)


(4,482)



Finance costs


1,048,531


898,217



Pension expense


196,552


169,791



Income tax expense


2,929,857


1,408,660



Unrealized foreign exchange loss


1,103,147


1,865,646



Share-based compensation


249,609


465,166



Revaluation of contingent consideration



(576,243)



Change in provisions


(2,832,167)


(3,438,084)



Change in non-cash operating working capital


(719,629)


(9,096,004)



956,426


(3,541,754)


Interest paid


(320,768)


(49,754)


Interest received


11,685


49,504


Income taxes paid


(2,456,657)


(871,201)



(1,809,314)


(4,413,205)






Financing activities:






Proceeds from exercise of stock options


37,500


64,130


Purchase of shares under normal course issuer bid


(1,106,482)



Interest paid on loans and borrowings


(829,640)


(931,655)


Repayment of loans and borrowings


(450,000)


(375,000)


Transaction costs on loans and borrowings


(90,496)




(2,439,118)


(1,242,525)






Investing activities:






Purchase of property and equipment


(507,420)


(331,868)


Purchase of intangible assets


(11,259)


(136,296)


Decrease (increase) in restricted cash


161,908


(146,218)


Settlement accrual paid


(6,639,799)




(6,996,570)


(614,382)






Effect of foreign exchange rate changes on cash and cash equivalents


(576,957)


(1,865,646)






Decrease in cash and cash equivalents


(11,821,959)


(8,135,758)






Cash and cash equivalents, beginning of period


55,047,577


108,636,797






Cash and cash equivalents, end of period

$

43,225,618

$

100,501,039

 

REDKNEE SOLUTIONS INC.









Reconciliation of Net Income (Loss) to Adjusted EBITDA









(Expressed in U.S. dollars)









(Unaudited)
























Three months ended







December 31,







2015


2014










Net income (loss) for the period






(4,304,993)


2,010,961










Add back / (subtract):










Depreciation of property and equipment






1,003,027


942,236


Amortization of intangible assets






2,287,866


1,812,382


Finance income






(5,374)


(4,482)


Finance costs






1,048,531


898,217


Income tax expense






2,929,857


1,408,660


Share-based compensation






249,609


465,166


Foreign exchange loss






493,008


2,668,913


Restructuring costs






278,546


336,714


Acquisition and related costs






833,704


415,051










Adjusted EBITDA





$

4,813,781

$

10,953,818

 

SOURCE Redknee Solutions Inc.

For further information: Investor Relations: Lawrence Chamberlain, NATIONAL | Equicom, T: (416) 848-1457, lchamberlain@national.ca


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