Redknee Solutions Reports Third Quarter Fiscal 2016 Results

Quarter Highlighted by Return to Strong Momentum in New Orders and Record Backlog of More Than $180 Million

TORONTO, Aug. 3, 2016 /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, 2016. (All figures are in U.S. dollars unless otherwise stated.)

Fiscal Q3 2016 Financial Highlights
(Comparisons made between Fiscal Q3FY2016 and Fiscal Q3FY2015 results, unless otherwise noted)

  • Revenue totalled $40.5 million compared to $46.7 million;
  • Gross profit was $18.3 million (45% of total revenue) compared to $26.6 million (57% of total revenue);
  • Adjusted EBITDA loss was $1.9 million compared to Adjusted EBITDA of $5.3 million (11% of total revenue);
  • Recurring revenue was 63% of revenue, compared to 53%;
  • Net loss was $12.3 million, or $0.11 loss per share (including $4.1 million in restructuring costs) compared to a net loss of $5.5 million, or $0.05 loss per share;
  • Cash from operations $4.0 million (Adjusted cash from operations was $7.6 million); and,
  • Order backlog increased both year-over-year and sequentially to a record $180.7 million.

Fiscal Q3 2016 Operational Highlights

  • Continued to progress on its planned re-structuring, including reaching an agreement with the Work Council at the Company's Berlin, Germany site, that will reduce annual overall expenses by up to $25 million by Fiscal 2017 in comparison to an annualized Q1 Fiscal 2016.
  • Won new and renewed contracts with a value of over $60 million, including:
    • Multi-million dollar contract to monetize Tbaytel's multi-play services and support its digital transformation;
    • Three-year contract valued at more than $20 million with a leading Tier 1 communication service provider (CSP) in APAC to expand the Redknee Unified solution to deliver flexible rating and charging services and support the customer's transformation to a digital services model;
    • New $8 million contract to deploy Redknee Unified at a Tier 1 CSP in the Americas to execute upon its multi-brand strategy in multiple countries;
    • Multi-million dollars contract to deliver Redknee PCS, Redknee's policy management solution, to a large Tier 1 CSP in EMEA servicing up to 55 million subscribers;
    • Renewed multi-million services creation and services contract with a large Tier 1 CSP in Europe;
    • New multi-year services agreement with Lifecell, part of the Turkcell Group;
    • Renewed multi-year contract with TIM Brazil that will enhance its competitive positioning;
  • Completed an upgrade project and the launch of Redknee Unified at HT Croatia, part of the Deutsche Telekom Group (DT), enabling the creation of innovative services and real-time marketing campaigns and positioning the Company for future growth;
  • Established a new partnership with L&T Technology Services to deliver an Internet of Things (IoT) architecture and services in the transportation, energy and insurance sectors; and,
  • Named as one of the top Canadian ICT companies in the Branham Group's annual listing.

Management Commentary

"The third quarter was highlighted by strong momentum in new orders resulting in over $60 million of new bookings, further strengthening our order backlog at quarter end, which surpassed the $180 million mark for the first time," said Lucas Skoczkowski, President and CEO, Redknee Solutions Inc. "Delays in customer decisions continue to impact our revenues, but we expect that our backlog will contribute to increased revenue visibility for the fiscal year 2017, as implementation of these new contracts will begin.  More importantly, these wins further underscore the competitive strength of our solutions in supporting our customers, as they make the critical transition from traditional to real time digital business models.  Our customer discussions remain very active and we look forward to continuing to convert our robust sales pipeline into significant contract wins."

Fiscal Q3 2016 Financial Results

Revenue was $40.5 million compared to $46.7 million in the same year-ago quarter. The decrease resulted mainly from the impact of lower license revenue due to delays in customer purchasing decisions, compared to the same year-ago quarter.

Order backlog increased 11% to $180.7 million from $162.5 million in the same year-ago quarter, and, sequentially, increased 3% from $175.5 million from the second quarter of 2016.

Recurring revenue was 63% of total revenue, compared to 53% in the same year-ago quarter.

Gross margin was $18.3 million, or 45% of total revenue, compared to $26.6 million, or 57% of total revenue, in the same year-ago quarter.  The decrease resulted mainly from lower revenue from high-margin software license deals.

Adjusted EBITDA loss was $1.9 million compared to Adjusted EBITDA of $5.3 million, or 11% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss was $12.3 million, or $0.11 loss per basic and diluted share, compared to a net loss of $5.5 million, or $0.05 loss per basic and diluted share, in the same year-ago quarter. Net loss included $4.1 million of restructuring costs.  The Company expects its restructuring program will reduce annual overall expenses by up to $25 million by Fiscal 2017, with partial savings occurring through the last quarter of Fiscal 2016.

At June 30, 2016, total cash ended at $43.0 million. Cash flow from operations was a $4.0 million.  Adjusted cash flow from operations was at $7.6 million (see discussion about the presentation of Adjusted cash flow from operations, a non-IFRS measure, below).

Please refer to the section regarding Forward-Looking Statements below 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.

Financial Guidance

The Company is providing the following financial guidance for Fiscal 2016 and Fiscal 2017:

  • Fiscal 2016
    • Revenue of between $170 million and $172 million; and,
    • Adjusted EBITDA of between $1 million and $3 million.
  • Fiscal 2017
    • Revenue of between $170 million and $180 million; and,
    • Adjusted EBITDA of between $15 million and $20 million.

Mr. Skoczkowski commented: "As we look out to the remainder of this year and into next, while we continue to be confident in our ability to win new contracts, we expect delays in customer decisions will persist, tempering software license sales and constraining near-term top-line growth. With strong visibility afforded by the expansion of our order backlog throughout Fiscal 2016 and supported by last year's restructuring and our ongoing disciplined cost management, in Fiscal 2017 we expect to generate adjusted EBITDA in the range of $15 to $20 million dollars."

"As we move forward, we remain firmly focused on maximizing customer retention as well as our near-term business priorities of expanding gross margin, growing recurring revenue and generating cash flow."

This financial guidance constitutes forward-looking information within the meaning of applicable securities laws and is based on a number of assumptions and subject to a number of risks. Actual results could vary materially as a result of numerous factors, including certain risk factors, many of which are beyond Redknee's control. Please refer to the section regarding Forward-Looking Statements below. All numbers provided in this section are approximate.

Conference Call

The Company will host a conference call tomorrow (August 4, 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, August 4, 2016
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1 (888) 231-8192
International: 1 (647) 427-7451
Conference ID#: 52994380

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/2a5IkjP.

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, August 11, 2016.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 52994380

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," which 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.

"Adjusted cash flow from operations", which is a non-IFRS measure, is defined as cash flow from operations excluding amounts for restructuring payments made in the period.

"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-IFRS 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, Adjusted cash flow from operations, recurring revenue, and order backlog differently. The Company presents Adjusted EBITDA, Adjusted cash flow from operations, 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 order backlog contributing to increased revenue visibility for the Fiscal 2017; conversion of the Company's sales pipeline into contract wins; expectations regarding the impact of restructuring on reducing expenses; expected delays in customer decisions; and financial guidance for Fiscal 2016 and 2017; 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. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to, assumptions respecting : (i) the conversion of sales pipeline into orders and orders into revenue based on the extent and timing of historical conversion; (ii)  the anticipated mix of the sale of products and services of the Company and associated margin being consistent with that realized in the past; (iii) the ability of Redknee to bring new products and services to market and to increase sales; (iv) the strength of the Company's product development pipeline; (v) the estimated size and growth prospects of the markets Redknee seeks to address; (vi) the Company's competitive position in those markets and its ability to take advantage of future opportunities in those markets; (vii) the benefits of the Company's products and services to be realized by its customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products and services; (ix) the Company's financial condition and capital requirements; * the stability of general economic and market conditions; (xi) currency exchange rates and interest rates; and (xii) capital markets continuing to provide the Company with access to capital.  The risks and uncertainties that may affect forward-looking statements include, but are 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)





June 30,

September 30,


2016

2015




Assets






Current assets:




Cash and cash equivalents

$

37,612,153

$

55,047,577


Trade accounts and other receivables

52,611,316

67,439,885


Unbilled revenue

32,671,702

38,282,163


Prepaid expenses

3,358,415

2,535,936


Income taxes receivable

3,601,834

1,399,564


Other assets

373,584

392,195


Inventories

724,582

812,987


Total current assets

130,953,586

165,910,307




Restricted cash 

5,397,158

5,972,087

Property and equipment 

7,070,294

8,435,008

Deferred income taxes

1,576,901

2,086,025

Investment tax credits

361,077

351,385

Other assets 

1,648,806

1,816,640

Intangible assets

38,334,990

46,362,262

Goodwill

32,271,078

32,271,078




Total assets

$

217,613,890

$

263,204,792




Liabilities and Shareholders' Equity






Current liabilities:




Trade payables

$

12,543,898

$

9,128,710


Accrued liabilities

23,765,806

32,305,136


Provisions

25,716,638

8,772,519


Income taxes payable

1,589,618

2,364,983


Settlement accrual

-

10,244,224


Deferred revenue

19,259,627

13,363,696


Loans and borrowings

7,700,000

1,800,000


Total current liabilities

90,575,587

77,979,268




Deferred revenue

401,270

870,937

Other liabilities

2,242,464

2,615,163

Pension and other long-term employment benefit plans

11,769,414

11,417,481

Loans and borrowings 

48,052,172

54,961,066

Provisions 

5,890,363

4,006,354

Total liabilities

158,931,270

151,850,269




Shareholders' equity:




Share capital

172,427,017

174,082,815


Treasury stock

(141,917)

(141,917)


Contributed surplus

9,145,023

7,899,360


Deficit

(119,270,788)

(67,086,722)


Accumulated other comprehensive loss

(3,476,715)

(3,399,013)


Total shareholders' equity

58,682,620

111,354,523




Total liabilities and shareholders' equity

$

217,613,890

$

263,204,792

 

 

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Comprehensive Loss

(Expressed in U.S. dollars)

(Unaudited)







Three months ended

Nine months ended


June 30,

June 30,


2016

2015

2016

2015






Revenue:






Software, services and other

$

17,165,876

$

24,939,646

$

59,389,563

$

94,115,569


Support and subscription

23,354,180

21,720,499

71,038,796

68,864,412


40,520,056

46,660,145

130,428,359

162,979,981






Cost of revenue

22,181,399

20,078,956

60,932,909

67,068,027






Gross profit

18,338,657

26,581,189

69,495,450

95,911,954






Operating expenses:






Sales and marketing

6,685,766

8,025,752

22,903,762

25,188,455


General and administrative

7,362,852

5,807,683

23,280,531

20,381,648


Research and development

9,904,602

11,222,883

35,213,390

34,949,693


Restructuring costs

4,115,721

570,203

28,936,176

1,158,552


Acquisition and related costs

172,893

4,517,200

1,123,371

5,211,683


28,241,834

30,143,721

111,457,230

86,890,031






Income (loss) from operations

(9,903,177)

(3,562,532)

(41,961,780)

9,021,923






Foreign exchange gain (loss)

(155,023)

962,015

(619,799)

(6,885,397)

Finance income

41,050

3,812

64,154

15,486

Finance costs

(1,889,017)

(944,577)

(4,696,951)

(2,959,038)






Loss before income taxes

(11,906,167)

(3,541,282)

(47,214,376)

(807,026)






Income tax expense (recovery):






Current

367,839

2,151,081

4,367,190

4,921,660


Deferred

(19,073)

(146,856)

602,500

(154,445)



348,766

2,004,225

4,969,690

4,767,215






Net loss

(12,254,933)

(5,545,507)

(52,184,066)

(5,574,241)






Other comprehensive income (loss):






Pension actuarial adjustment

(77,702)






Comprehensive loss

$

(12,254,933)

$

(5,545,507)

$

(52,261,768)

$

(5,574,241)






Net loss per common share:






Basic

$

(0.11)

$

(0.05)

$

(0.48)

$

(0.05)


Diluted

(0.11)

(0.05)

(0.48)

(0.05)











Weighted average number of common shares:






Basic

108,238,408

109,179,897

108,556,804

109,072,383


Diluted

108,238,408

109,179,897

108,556,804

109,072,383







 

 

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in U.S. dollars)

(Unaudited)







Three months ended

Nine months ended


June 30,

June 30,


2016

2015

2016

2015






Cash provided by (used in):










Operating activities: 






Net loss

$

(12,254,933)

$

(5,545,507)

$

(52,184,066)

$

(5,574,241)


Adjustments for:







Depreciation of property and equipment

945,334

1,190,536

3,133,761

3,268,188



Amortization of intangible assets

2,478,532

1,628,468

7,214,128

4,968,057



Finance income

(41,050)

(3,812)

(64,154)

(15,486)



Finance costs

1,889,017

944,577

4,696,951

2,959,038



Pensions

(1,102,968)

688,179

274,231

453,032



Income tax expense

348,766

2,004,225

4,969,690

4,767,215



Unrealized foreign exchange loss (gain)

1,068,227

(466,177)

2,144,918

5,294,876



Share-based compensation

315,079

937,943

2,071,724

3,136,124



Settlement of acquisition related liabilities

4,105,974

1,962,921



Change in provisions

(288,484)

(4,978,333)

18,828,128

(13,561,578)



Change in non-cash operating working capital

13,734,661

1,405,179

18,563,441

2,452,437


7,092,181

1,911,252

9,648,752

10,110,583



Interest paid

(10,131)

(31,497)

(444,348)

(120,333)



Interest received

36,236

6,701

59,687

18,375



Income taxes paid

(3,114,105)

(2,681,294)

(7,319,716)

(5,590,925)


4,004,181

(794,838)

1,944,375

4,417,700






Financing activities:







Proceeds from exercise of stock options

2,340

151,881

240,400

231,106



Purchase of treasury stock

(536,507)



Purchase of shares under NCIB

(2,556,966)



Interest and fees paid on loans and borrowings

(1,064,028)

(826,787)

(2,852,621)

(1,758,442)



Repayment of loans and borrowings

(450,000)

(375,000)

(1,350,000)

(1,125,000)



Transaction costs on loans and borrowings

(90,496)


(1,511,688)

(1,049,906)

(6,609,683)

(3,188,843)






Investing activities:







Purchase of property and equipment

(518,298)

(699,646)

(2,140,218)

(1,496,618)



Purchase of intangible assets

(16,283)

(41,114)

(41,318)

(804,171)



Increase (decrease) in restricted cash

(203,093)

(14,578,519)

574,929

(15,137,058)



Payment of settlement accrual

(2,531,829)

(1,038,382)

(10,244,224)

(1,038,382)


(3,269,503)

(16,357,661)

(11,850,831)

(18,476,229)






Effect of foreign exchange rate changes on







cash and cash equivalents

(719,685)

859,130

(919,285)

(4,380,996)






Decrease in cash and cash equivalents

(1,496,695)

(17,343,275)

(17,435,424)

(21,628,368)






Cash and cash equivalents, beginning of period

39,108,848

104,351,704

55,047,577

108,636,797






Cash and cash equivalents, end of period

$

37,612,153

$

87,008,429

$

37,612,153

$

87,008,429

 

 

REDKNEE SOLUTIONS INC.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(Expressed in U.S. dollars)

(Unaudited)







Three months ended

Nine months ended


June 30,

June 30,


2016

2015

2016

2015






Net loss for the period

(12,254,933)

(5,545,507)

(52,184,066)

(5,574,241)






Add back / (subtract):






Depreciation of property and equipment

945,334

1,190,536

3,133,761

3,268,188


Amortization of intangible assets

2,478,532

1,628,468

7,214,128

4,968,057


Finance income

(41,050)

(3,812)

(64,154)

(15,486)


Finance costs

1,889,017

944,577

4,696,951

2,959,038


Income tax expense

348,766

2,004,225

4,969,690

4,767,215


Share-based compensation

315,079

937,943

2,071,724

3,136,124


Foreign exchange loss (gain)

155,023

(962,015)

619,799

6,885,397


Restructuring costs

4,115,721

570,203

28,936,176

1,158,552


Acquisition and related costs

172,893

4,517,200

1,123,371

5,211,683






Adjusted EBITDA

$

(1,875,618)

$

5,281,818

$

517,380

$

26,764,527

 

SOURCE Redknee Solutions Inc.

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


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