Redknee Solutions Reports Fiscal Fourth Quarter 2015 Results

TORONTO, Dec. 2, 2015 /CNW/ - Redknee Solutions Inc. (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal fourth quarter and annual financial results for the year ended September 30, 2015. All figures are in U.S. dollars.

Fiscal Q4 2015 Financial Highlights
(Comparisons made between fiscal Q4FY2015 and fiscal Q4FY2014 results, unless otherwise noted)

  • Revenue totalled $59.8 million ($67.1 million, on a constant currency basis), compared to $60.9 million
  • Gross profit was $34.6 million (58% of total revenue) compared to $36.1 million (59% of total revenue)
  • Adjusted EBITDA of $7.7 million (13% of total revenue) versus Adjusted EBITDA of $5.8 million (10% of total revenue)
  • Recurring revenue was 44% of total revenue, compared to 47%
  • Net loss was $4.4 million or $0.04 loss per share versus a net loss of $34.7 million or $0.32 loss per share
  • Available liquidity as at September 30th, 2015 of $101 million, including $61 million of cash

Fiscal 2015 Financial Highlights
(Comparisons made between fiscal 2015 and fiscal 2014 results, unless otherwise noted)

  • Revenue totalled $222.7 million ($246.3 million, on a constant currency basis) compared to $257.7 million
  • Gross profit was $130.5 million (59% of total revenue) compared to $131.8 million (51% of total revenue)
  • Adjusted EBITDA of $34.4 million (15% of total revenue) versus Adjusted EBITDA of $13.8 million (5% of total revenue)
  • Recurring revenue was 46% of total revenue, compared to 47%
  • Net loss was $10 million or $0.09 loss per share versus a net loss of $39.9 million or $0.39 loss per share
  • Order backlog of $158.5 million at September 30, 2015 ($166.6 million, on a constant currency basis)

Fiscal Q4 2015 Operational Highlights

  • Won a multi-million dollar contract to assist a North American Operator with its MVNE strategy
  • Announced a partnership with Elster to offer a combined prepaid energy solution
  • VMware awarded Redknee the IT Excellence Award for Software Defined Networking
  • Recognized as one of the fastest growing North American companies in the 2015 Deloitte Fast 50 and Fast 500
  • Won the 2015 Stratecast | Frost & Sullivan Competitive Strategy Innovation and Leadership Award for CSP Billing
  • 151 patents granted and 37 patents filed
  • Completed Orga Systems acquisition on July 31, 2015

Management Commentary

"In fiscal 2015, we have achieved our strategic priorities, winning five new customers, closing the Orga Systems acquisition, and driving meaningful improvements in margins, business mix, and cash flow," said Lucas Skoczkowski, CEO of Redknee. "Moreover, we have grown our core business organically year over year in excess of the estimated BSS market growth of 3-5%, after taking into consideration the impact of both FX and expected discontinued customer business acquired from NSN.  With the integration of Orga Systems well underway, we have already begun to see the benefit from the stronger presence, additional resources and products gained from this acquisition. Redknee is uniquely positioned to pursue opportunities across our core communications market in addition to supporting the monetization opportunity related to the Internet of Things."

Mr. Skoczkowski added: "Redknee continues to receive strong validation for our innovative software offering, having won a number of industry awards as well as being recognized in Deloitte's Fast 50 and Fast 500 as one of the fastest growing companies in North America this year. We look forward to an exciting year in 2016, as we continue to deliver innovative software solutions, high quality customer service and focus on continuing the business improvements we have delivered in 2015."

Fiscal Q4 2015 Financial Results

Revenue was $59.8 million ($67.1 million on a constant currency basis) compared to $60.9 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, as well as lower support revenue due to the expected non-renewal of certain support contracts, offset by additional revenue from the Orga acquisition.

Recurring revenue was 44% of total revenue, compared to 47% in the same year-ago quarter.

Gross margin was 34.6 million or 58% compared to $36.1 million or 59% in the same year-ago quarter.

Adjusted EBITDA was $7.7 million, or 13% of revenue, compared to Adjusted EBITDA of $5.8 million, or 10% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totalled $4.4 million, or $0.04 loss per basic and diluted share compared to a net loss of $34.7 million, or $0.32 loss per basic and diluted share, in the same year-ago quarter. The net loss in fiscal 2014 included $22.5 million of restructuring.

Fiscal 2015 Financial Results

Revenue was $222.7 million ($246.3 million on a constant currency basis) compared to $257.7 million in fiscal 2014. The change in revenue compared to the prior year period resulted mainly from the impact of foreign exchange variation, as well as lower support revenue due to the expected non-renewal of certain support contracts.

Order backlog declined 6% to $158.5 million ($166.6 million on a constant currency basis) compared to $169.2 million in fiscal 2014.

Recurring revenue was 46% of total revenue, compared to 47% in fiscal 2014.

Gross margin was $130.5 million or 59% compared to $131.8 million or 51% in fiscal year 2014.

Adjusted EBITDA was $34.4 million, or 15% of revenue, compared to Adjusted EBITDA of $13.8 million, or 5% of revenue, in fiscal 2014 (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totalled $10.0 million, or $0.09 loss per basic and diluted share compared to a net loss of $39.9 million, or $0.39 loss per basic and diluted share, in fiscal 2014. The net loss included $22.5 million of restructuring costs incurred over the last year.

At September 30, 2015, total cash ended at $61.0 million. Cash from operations totalled $13.7 million, excluding restructuring payments of $14.5 million incurred in the year.

Normal Course Issuer Bid

The Company also announced acceptance by the Toronto Stock Exchange ("TSX") of the Company's notice of intention to make a normal course issuer bid (the "NCIB") in the open market through the facilities of the TSX and alternative Canadian trading systems.   

Pursuant to the TSX notice, the Company proposes to purchase, from time to time, up to an aggregate of 9,437,270 common shares on the TSX, which is the maximum number of shares permitted to be purchased under the TSX rules, being 10% of the public float for the Company's common shares of 94,372,700 common shares.

The specific timing and number of common shares purchased pursuant to the NCIB will vary based on market conditions, regulatory requirements and other factors. The Company will not purchase more than 62,698 common shares on the same trading day, which represents 25% of the average daily trading volume of the common shares during the last six months of 250,794 common shares. The price that the Company will pay for any common shares will be the prevailing market price of such shares on the TSX at the time of acquisition. The purchases will be made by the Company in accordance with the TSX rules and policies. All common shares purchased by the Company pursuant to the NCIB will be cancelled. The Company did not purchase any common shares during its previous normal course issuer bid.

The Board of Directors of the Company believes that, from time to time, the market price of the common shares may not reflect their underlying value and, therefore, that the NCIB is in the best interests of the Company and is a desirable use of corporate funds. 

Purchases over the TSX may commence on December 7, 2015 and the NCIB will expire on December 6, 2016.  As of November 24, 2015, the Company had 109,230,576 issued and outstanding common shares.

The Company has entered into an issuer automatic purchase plan agreement (the "Plan") in respect of the NCIB with a broker firm (the "Broker") responsible for making purchases of common shares pursuant to the Plan. Under the Plan, the Broker will have sole discretion to purchase common shares pursuant to the NCIB 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 Plan has been approved by the TSX.

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 (December 3, 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 December 3, 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#: 56592314

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/1FTbFsM.

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) 815-0700, ext. 253.

A replay of the call will be available until 12:00 midnight (EST) Thursday, December 10, 2015.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 56592314

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.









Consolidated Statements of Financial Position









(Expressed in U.S. dollars)


















September 30, 2015 and 2014























2015



2014










Assets


















Current assets:










Cash and cash equivalents




$

55,047,577


$

108,636,797


Trade accounts and other receivables





67,439,885



71,393,983


Unbilled revenue





38,612,499



42,396,988


Prepaid expenses





2,535,936



4,339,650


Income taxes receivable





1,399,564



426,478


Other assets





392,195



898,871


Inventories





812,987



5,199,362


Total current assets





166,240,643



233,292,129










Restricted cash 





5,972,087



881,940

Property and equipment 





8,435,008



8,708,115

Deferred income taxes





4,286,459



1,939,416

Investment tax credits





351,385



416,222

Other assets 





1,816,640



2,089,688

Intangible assets





44,821,478



32,819,313

Goodwill





30,829,220



7,638,590










Total assets 




$

262,752,920


$

287,785,413










Liabilities and Shareholders' Equity


















Current liabilities:










Trade payables




$

9,128,710


$

9,538,161


Accrued liabilities





32,305,136



38,566,558


Provisions





8,772,519



14,967,576


Income taxes payable





2,364,983



2,022,047


Deferred revenue





12,911,824



20,743,769


Settlement accrual and contingent consideration





10,244,224



14,454,527


Loans and borrowings





1,800,000



750,000


Total current liabilities





77,527,396



101,042,638










Deferred revenue





870,937



3,601,859

Other liabilities





2,615,163



2,281,341

Pension and other long-term employment benefit plans 





11,417,481



10,258,900

Loans and borrowings 





54,961,066



45,809,713

Provisions





4,006,354



6,608,270

Deferred income taxes





-



36,016

Total liabilities





151,398,397



169,638,737










Shareholders' equity:










Share capital





174,082,815



173,757,863


Treasury stock





(141,917)



(21,226)


Contributed surplus





7,899,360



5,665,135


Deficit





(67,086,722)



(57,080,147)


Accumulated other comprehensive income





(3,399,013)



(4,174,949)


Total shareholders' equity





111,354,523



118,146,676










Total liabilities and shareholders' equity




$

262,752,920


$

287,785,413

 

REDKNEE SOLUTIONS INC.







Consolidated Statements of Comprehensive Loss







(Expressed in U.S. dollars, except per share and share amounts)














Years ended September 30, 2015 and 2014

















2015



2014








Revenue:








Software, services and other


$

130,179,681


$

138,821,757


Support and subscription



92,560,729



118,875,723




222,740,410



257,697,480








Cost of revenue



92,192,264



125,911,517








Gross profit



130,548,146



131,785,963








Operating expenditures:








Sales and marketing



34,128,382



37,599,559


General and administrative



28,364,951



32,387,711


Research and development



48,030,270



62,214,327


Acquisition and related costs



6,212,222



7,197,617


Restructuring costs



1,095,454



22,524,612




117,831,279



161,923,826








Income (Loss) from operations



12,716,867



(30,137,863)








Foreign exchange loss



(9,948,211)



(5,590,285)

Other income 





4,065,422

Finance income 



31,633



45,129

Finance costs 



(5,172,039)



(3,047,129)








Loss before income taxes



(2,371,750)



(34,664,726)








Income tax expense (recovery):








Current



7,754,139



4,001,874


Deferred



(119,314)



1,230,925




7,634,825



5,232,799








Loss for the year



(10,006,575)



(39,897,525)








Other comprehensive income (loss):








Items that will not be reclassified to net income:









Actuarial gain (loss) on pension and non-pension










post-employment benefit plans, (net of income










tax (recovery) expense of nil (2014 - ($2,063,711))



775,936



(5,671,980)








Total comprehensive loss


$

(9,230,639)


$

(45,569,505)








Loss per common share:








Basic


$

(0.09)


$

(0.39)


Diluted



(0.09)



(0.39)















Weighted average number of common shares:








Basic



109,111,052



102,921,881


Diluted



109,111,052



102,921,881









 

REDKNEE SOLUTIONS INC.









Consolidated Statements of Cash Flows









(Expressed in U.S. dollars)


















Years ended September 30, 2015 and 2014























2015



2014










Cash provided by (used in):


















Operating activities:










Loss for the year




$

(10,006,575)


$

(39,897,525)


Adjustments for:











Depreciation of property and equipment





3,694,373



5,454,417



Amortization of intangible assets





7,189,337



7,046,386



Finance income





(31,633)



(45,129)



Finance costs





5,172,039



3,047,129



Income tax expense





7,634,825



5,232,799



Unrealized foreign exchange loss





6,284,482



1,745,691



Share-based compensation





3,539,364



1,678,600



Pensions





1,768,978



1,708,874



Provisions





(16,272,604)



20,374,796



Revaluation of contingent consideration





1,962,921



(5,556,594)


Change in non-cash operating working capital





(3,555,770)



(30,278,863)






7,010,377



(29,489,419)


Interest paid





(412,465)



(70,602)


Interest received





31,727



49,504


Income taxes paid





(7,392,374)



(4,887,313)






(762,735)



(34,397,830)










Financing activities:










Proceeds from public offering





-



63,833,834


Purchase of treasury stock





(536,507)



-


Proceeds from exercise of stock options





231,106



577,694


Interest paid on loans and borrowings





(2,572,761)



(2,338,099)


Proceeds from loans and borrowings





12,463,507



13,500,000


Repayment of loans and borrowings





(1,575,000)



(750,000)


Transaction costs on loans and borrowings





(1,280,254)



-






6,730,091



74,823,429










Investing activities:










Purchase of property and equipment





(2,774,266)



(3,271,622)


Purchase of intangible assets





(941,171)



(1,133,252)


Increase (decrease) in restricted cash





(5,090,147)



129,421


Payment of settlement accrual and contingent consideration





(5,376,736)



(4,822,415)


Acquisition of businesses, net of cash acquired





(40,312,896)



-






(54,495,216)



(9,097,868)










Effect of foreign exchange rate changes on










cash and cash equivalents





(5,061,360)



(1,745,691)










Increase (decrease) in cash and cash equivalents





(53,589,220)



29,582,040










Cash and cash equivalents, beginning of period





108,636,797



79,054,757










Cash and cash equivalents, end of period




$

55,047,577


$

108,636,797

 

REDKNEE SOLUTIONS INC.









Reconciliation of Net Income (Loss) to Adjusted EBITDA









(Expressed in U.S. dollars)









(Unaudited)




















Three months ended


Twelve months ended



September 30,


September 30,



2015


2014


2015


2014



















Net loss for the period


(4,432,334)


(34,728,493)


(10,006,575)


(39,897,525)










Add back / (subtract):










Depreciation of property and equipment


426,185


1,035,088


3,694,373


5,454,417


Amortization of intangible assets


2,221,280


1,827,292


7,189,337


7,046,386


Other expenses (income)



1,849,164



(4,065,422)


Finance income


(16,147)


(1,083)


(31,633)


(45,129)


Finance costs


2,213,001


781,538


5,172,039


3,047,129


Income tax expense


2,867,610


3,584,609


7,634,825


5,232,799


Share-based compensation


403,240


(167,358)


3,539,364


1,678,600


Foreign exchange loss


3,062,814


5,805,899


9,948,211


5,590,285


Restructuring costs


(63,098)


22,524,612


1,095,454


22,524,612


Acquisition and related costs


1,000,539


3,306,101


6,212,222


7,197,617










Adjusted EBITDA

$

7,683,090

$

5,817,369

$

34,447,617

$

13,763,769

 

SOURCE Redknee Solutions Inc.

For further information: Investor Relations: Robert Kelly, NATIONAL | Equicom, T: (416) 848-1382, rkelly@national.ca


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