Redknee Solutions Reports Fiscal Third Quarter 2015 Results

TORONTO, Aug. 5, 2015 /CNW/ - Redknee Solutions Inc.  (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal third quarter ended June 30, 2015. All figures are in U.S. dollars.

Fiscal Q3 2015 Financial Highlights
(Comparisons made between fiscal Q3FY2015 and fiscal Q3FY2014 results, unless otherwise noted)

  • Revenue totalled $46.7 million ($51.7 million, on a constant currency basis), compared to $63.9 million
  • Gross profit was $26.6 million (57% of total revenue) compared to $27.9 million (44% of total revenue)
  • Adjusted EBITDA of $5.3 million (11% of total revenue) versus Adjusted EBITDA loss of $3.2 million
  • Recurring revenue was 53% of total revenue, compared to 51%
  • Net loss totalled $5.5 million or $0.05 per share versus a net loss of $6.9 million or $0.06 loss per share
  • Total cash at June 30, 2015 was $103.0 million
  • Cash flow from operations was $5.3 million
  • Order backlog of $162.5 million at June 30, 2015 ($174.0 million, on a constant currency basis)

 

Fiscal Q3 2015 Operational Highlights

  • Announced the acquisition of Orga Systems ("Orga") for a total consideration of €38M. The acquisition will enhance Redknee's best-of-suite customer focused solutions and accelerate expansion into new vertical markets. The acquisition closed on July 31, 2015.
  • Finalized the agreement with Nokia Networks for all outstanding issues related to the BSS acquisition, including the final contingent earn out amount
  • Added three new customers in the Americas and EMEA
  • Won a $14 million deal to support a leading CSP in the Americas to accelerate its MVNE growth strategy
  • Announced a new cloud-based converged billing win supporting EcoMobile on the Sprint network with a fully managed end to end solution
  • Awarded the Frost & Sullivan APAC BSS Vendor of the Year award
  • Named as one of Canada's top technology companies by Branham Group's Top ICT Scorecard
  • 149 patents granted and 37 patents filed
  • After the end of the quarter, on August 4, 2015, Redknee entered into an amended and restated credit agreement with a syndicate of lenders led by Wells Fargo for a total credit facility of $100 million

 

Management Commentary

"In the third quarter we executed on our strategic plan, growing order bookings while revenue was impacted by software license lumpiness which is common to the telecom software market," said Lucas Skoczkowski, CEO of Redknee.  "We have begun to see the benefits of the cost structure realignment program that we implemented last year, and remain focused on enhancing our profitability, cash flow generation and growing our recurring revenues. The acquisition of Orga Systems lays a solid foundation for future growth, increasing our global reach, accelerating our revenue diversification beyond the telecom market, adding strength and depth to our team and expanding our product suite."

Mr. Skoczkowski added: "Our combined software products have increasingly been leveraged to support the rise of M2M and the Internet of Things (IoT) across our traditional customer base and non-telecom verticals including utilities, smart homes, and smart energy. We expect that this acquisition will be accretive in fiscal 2016, and will provide a further update when we release the Business Acquisition Report. "

Fiscal Q3 2015 Financial Results

Revenue was $46.7 million ($51.7 million on a constant currency basis) compared to $63.9 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.

Order backlog declined 6% to $162.5 million ($174.0 million on a constant currency basis) compared to $172.7 million in the same year-ago quarter, however sequentially order backlog  increased 3% from $157.2 million reported last quarter.

Recurring revenue was 53% of total revenue, compared to 51% in the same year-ago quarter.

Gross margin was 57% compared to 44% in the same year-ago quarter. The increase in gross margin was primarily attributable to a reduction in compensation and third party costs and the impact of foreign exchange.

Adjusted EBITDA was $5.3 million, or 11% of revenue, compared to Adjusted EBITDA loss of $3.2 million, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totalled $5.5 million, or $0.05 loss per basic and diluted share compared to a net loss of $6.9 million, or $0.06 income per basic and diluted share, in the same year-ago quarter.

At June 30, 2015, total cash ended at $103.0 million. Cash flow from operations totalled $5.3 million, excluding restructuring payments of $6.1 million incurred in the quarter.  The restricted cash on the balance sheet mainly relates to a purchase guarantee for the Orga acquisition.

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 (August 6, 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 August 6, 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#: 81749536

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/1JZx7dI.

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, August 13, 2015.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 81749536

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 Q2 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 Statement of Financial Position



(Expressed in U.S. dollars)





(Unaudited)







June 30,
2015


September 30,
2014

Assets










Current assets:






Cash and cash equivalents

$

87,008,429

$

108,636,797


Trade accounts and other receivables


61,582,005


71,393,983


Unbilled revenue


35,265,770


42,396,988


Prepaid expenses


2,752,205


4,339,650


Other assets


765,320


898,871


Inventories


2,175,299


5,199,362


Total current assets


189,549,028


232,865,651






Restricted cash 


16,018,998


881,940

Property and equipment 


6,573,912


8,708,115

Deferred income taxes


1,736,582


1,939,416

Investment tax credits


373,850


416,222

Other assets


1,665,478


2,089,688

Intangible assets


28,104,180


32,819,313

Goodwill


7,638,590


7,638,590






Total assets 

$

251,660,618

$

287,358,935






Liabilities and Shareholders' Equity










Current liabilities:






Trade payables

$

8,082,607

$

9,538,161


Accrued liabilities


26,167,779


38,566,558


Provisions


6,429,991


14,967,576


Income taxes payable


733,537


1,595,569


Acquisition related liabilities


14,582,578


14,454,527


Deferred revenue


17,202,927


20,743,769


Loans and borrowings


4,125,000


750,000


Total current liabilities


77,324,419


100,616,160






Deferred revenue


2,940,486


3,601,859

Other liabilities


3,129,913


2,281,341

Pension and non-pension post-employment benefit obligation


10,711,932


10,258,900

Loans and borrowings


41,817,836


45,809,713

Provisions


1,584,277


6,608,270

Deferred income taxes



36,016






Total liabilities


137,508,863


169,212,259






Shareholders' equity:






Share capital


174,082,815


173,757,863


Treasury stock


(141,917)


(21,226)


Contributed surplus


7,040,194


5,665,135


Deficit


(62,654,388)


(57,080,147)


Accumulated other comprehensive loss


(4,174,949)


(4,174,949)


Total shareholders' equity


114,151,755


118,146,676






Total liabilities and shareholders' equity

$

251,660,618

$

287,358,935

 

 

Redknee Solutions Inc.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

(Expressed in U.S. dollars)

(Unaudited)



Three months ended


Nine months ended



June 30,


June 30,



2015


2014


2015


2014










Revenue:










Software, services and other

$

24,939,646

$

31,169,747

$

94,115,569

$

105,241,205


Support and subscription


21,720,499


32,753,587


68,864,412


91,518,689



46,660,145


63,923,334


162,979,981


196,759,894










Cost of revenue


20,078,956


36,012,726


67,068,027


101,113,001










Gross profit


26,581,189


27,910,608


95,911,954


95,646,893










Operating expenses:










Sales and marketing


8,025,752


9,129,659


25,188,455


26,725,403


General and administrative


5,807,683


9,008,501


20,381,648


24,850,905


Research and development


11,222,883


16,770,558


34,949,693


47,608,566


Restructuring costs


570,203



1,158,552



Acquisition and related costs


4,517,200


623,458


5,211,683


3,891,516



30,143,721


35,532,176


86,890,031


103,076,390










Income (loss) from operations


(3,562,532)


(7,621,568)


9,021,923


(7,429,497)










Foreign exchange gain (loss)


962,015


770,947


(6,885,397)


215,614

Other income



113,351



5,914,586

Finance income


3,812


19,860


15,486


44,046

Finance costs


(944,577)


(869,435)


(2,959,038)


(2,265,591)










Loss before income taxes


(3,541,282)


(7,586,845)


(807,026)


(3,520,842)










Income taxes (recovery):










Current


2,151,081


(690,743)


4,921,660


1,749,079


Deferred


(146,856)


(18,118)


(154,445)


(100,889)



2,004,225


(708,861)


4,767,215


1,648,190










Net loss and comprehensive loss

$

(5,545,507)

$

(6,877,984)

$

(5,574,241)

$

(5,169,032)

Net loss per common share:










Basic

$

(0.05)

$

(0.06)

$

(0.05)

$

(0.05)


Diluted


(0.05)


(0.06)


(0.05)


(0.05)



















Weighted average number of common shares:










Basic


109,179,897


108,891,887


109,072,383


100,988,698


Diluted


109,179,897


108,891,887


109,072,383


100,988,698











 

 

Redknee Solutions Inc.









Consolidated  Statement of Cash Flows









(Expressed in U.S. dollars)









(Unaudited)












Three months ended


Six months ended




June 30,


June 30,



2015


2014


2015


2014










Cash provided by (used in):









Operating activities: 










Net loss

$

(5,545,507)

$

(6,877,984)

$

(5,574,241)

$

(5,169,032)


Adjustments for:











Depreciation of property and equipment


1,190,536


1,365,161


3,268,188


4,419,329



Amortization of intangible assets


1,628,468


1,792,754


4,968,057


5,219,094



Finance income


(3,812)


(19,860)


(15,486)


(44,046)



Finance costs


944,577


869,435


2,959,038


2,265,591



Pensions


688,179


414,892


453,032


1,249,459



Income tax expense (recovery)


2,004,225


(708,861)


4,767,215


1,648,190



Unrealized foreign exchange loss (gain)


(466,177)


(1,789,445)


5,294,876


(1,585,611)



Share-based compensation


937,943


629,152


3,136,124


1,845,958



Settlement of acquisition related liabilities


4,105,974


(113,351)


1,962,921


(5,914,586)



Change in provisions


(4,978,333)



(13,561,578)


(1,201,050)



Change in non-cash operating working capital


1,405,179


(11,212,920)


2,452,437


(54,603,770)



1,911,252


(15,651,027)


10,110,583


(51,870,474)



Interest paid


(31,497)


(128,570)


(120,333)


(765,042)



Interest received


6,701


19,681


18,375


42,548



Income taxes paid


(2,681,294)


(1,124,093)


(5,590,925)


(3,270,231)



(794,838)


(16,884,009)


4,417,700


(55,863,199)










Financing activities:











Issuance of share capital





63,833,834



Proceeds from exercise of stock options


151,881


23,207


231,106


571,384



Purchase of treasury stock




(536,507)




Interest paid on loans and borrowings


(826,787)


(636,472)


(1,758,442)


(636,472)



Proceeds from loans and borrowings





13,500,000



Repayment of loans and borrowings


(375,000)



(1,125,000)




(1,049,906)


(613,265)


(3,188,843)


77,268,746










Investing activities:











Purchase of property and equipment


(699,646)


(1,055,655)


(1,496,618)


(2,946,214)



Purchase of intangible assets


(41,114)


(213,342)


(804,171)


(1,105,478)



Increase in restricted cash


(14,578,519)


(867)


(15,137,058)


(167,996)



Payment of acquisition related liabilities


(1,038,382)



(1,038,382)




(16,357,661)


(1,269,864)


(18,476,229)


(4,219,688)










Effect of foreign exchange rate changes on










cash and cash equivalents


859,130


1,789,445


(4,380,996)


1,585,611










Increase (decrease) in cash and cash equivalents


(17,343,275)


(16,977,693)


(21,628,368)


18,771,470










Cash and cash equivalents, beginning of period


104,351,704


114,803,920


108,636,797


79,054,757










Cash and cash equivalents, end of period

$

87,008,429

$

97,826,227

$

87,008,429

$

97,826,227

 

 

Redknee Solutions Inc.









Reconciliation of Net Income (Loss) to EBITDA









(Expressed in U.S. dollars)









(Unaudited)











Three months ended


Six months ended



June 30,


June 30,



2015


2014


2015


2014



















Net loss for the period


(5,545,507)


(6,877,984)


(5,574,241)


(5,169,032)










Add back / (subtract):










Depreciation of property and equipment


1,190,536


1,365,161


3,268,188


4,419,329


Amortization of intangible assets


1,628,468


1,792,754


4,968,057


5,219,094


Other income



(113,351)



(5,914,586)


Finance income


(3,812)


(19,860)


(15,486)


(44,046)


Finance costs


944,577


869,435


2,959,038


2,265,591


Income tax expense


2,004,225


(708,861)


4,767,215


1,648,190


Share-based compensation


937,943


629,152


3,136,124


1,845,958


Foreign exchange loss (gain)


(962,015)


(770,947)


6,885,397


(215,614)


Restructuring costs


570,203



1,158,552



Acquisition and related costs


4,517,200


623,458


5,211,683


3,891,516










Adjusted EBITDA

$

5,281,818

$

(3,211,043)

$

26,764,527

$

7,946,400

 

SOURCE Redknee Solutions Inc.



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


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