Redline Communications announces financial results for the three and nine months ended September 30, 2011

Company Continues to Deliver Positive Earnings and Increased Net Profit

TORONTO, Nov. 15, 2011 /CNW/ - Redline Communications Group Inc. (TSX: RDL) ("Redline" or the "Company"), a leading provider of specialized broadband wireless solutions, today announced continued positive operating income for the three and nine months ended September 30, 2011.

Financial highlights for the three and nine months ended September 30, 2011 include:

  • Net Income for the quarter was $1.8 million, and $3.0 million for the nine months ended September 30, 2011.  This represents an increase of 94% over the net income of $0.9 million reported in the same quarter in 2010, and an increase of 126% over the net income of $1.3 million for the same nine month period in 2010.
  • Earnings per share increased to $0.08 for the quarter and $0.14 for the nine months ended September 30, 2011 as compared to earnings per share of $0.04 and $0.06 respectively for the same periods in 2010. Diluted earnings per share were $0.04 for the quarter and $0.10 for the nine months ended September 30, 2011, as compared to diluted earnings per share of $0.06 for the same periods in 2010.
  • Adjusted EBITDA for the quarter was $1.4 million, and $4.5 million for the nine months ended September 30, 2011. This represents an increase of 13.3% over adjusted EDBITA of $1.2 million reported in the same quarter in 2010, and an increase of 139% over the adjusted EBITDA of $1.9 million for the same nine month period in 2010.
  • Gross margin increased to 61.2% for the quarter and to 60.9% for the nine months ended September 30, 2011, as compared to 57.0% and 56.6% respectively for the same periods in 2010.
  • Revenues were $13.7 million for the quarter and $39.9 million for the nine months ended September 30, 2011, as compared to $13.5 million and $38.8 million respectively for the same periods in 2010.
  • Cash, investments, and restricted investments decreased to $5.2 million from $6.1 million at the end of December 2010.

Revenues for the third quarter of 2011 were stable at $13.7 million, an increase of 1.5% from $13.5 million reported in the third quarter of 2010, with strong activity in both the Oil & Gas and Military vertical markets.

Gross margin for the three months ended September 30, 2011 was 61.2% or $8.4 million compared to 57.0% or $7.7 million for the same period during 2010. For the nine months ended September 30, 2011, gross margin was 60.9% or $24.3 million compared to 56.6% or $21.9 million for the same period during 2010.  Increase in gross margin for both periods is primarily the result of a change in product mix to a greater percentage of higher margin Virtual Fiber™ products.

Operating expenses increased by $0.9 million to $7.3 million for the three months ended September 30, 2011 as compared to $6.4 million for the corresponding period in 2010.  The increase was primarily a result of stock-based compensation costs, increased travel costs associated with sales and marketing activities and project-based consulting related to business system improvements. For the nine months ended September 30, 2011, operating expenses increased by $0.7 million to $20.8 million as compared to 20.1 million for the corresponding period in 2010.

Adjusted EBITDA increased by $0.2 million to $1.4 million for the three months ended September 30, 2011, as compared to $1.2 million for the corresponding period in 2010.  The increase was primarily a result of improved revenues and higher margins in the quarter partially offset by higher operating expenses.  Adjusted EBITDA increased by $2.6 million to $4.5 million for the nine months ended September 30, 2011, as compared to $1.9 million for the same period in 2010.  The increase is largely a result of improved gross margins in 2011.

"Our strategy over the past year-and-a-half has focused on selling and supporting high value solutions to specific vertical markets, and in doing so delivering sustainable profitable results." said Eric Melka, Redline CEO. "Our continued strong gross margins have helped us to realize our fifth consecutive profitable quarter."

All amounts reported in this press release are in US dollars unless otherwise stated.  For further details on the September 30, 2011 results, see the condensed consolidated interim statement of financial position, condensed consolidated interim statement of comprehensive income (loss), condensed consolidated interim statement of changes in equity and condensed consolidated interim statement of cash flows reproduced at the end of this press release. The selected financial information included in this release is qualified in its entirety by, and should be read together with the Condensed Consolidated Interim Financial Statements of the Company for the three and nine months ended September 30, 2011, and the Company's Management Discussion and Analysis for the three and nine months ended September 30, 2011 ("Q3 and nine months ended September 30, 2011 MD&A"), copies of which are available on SEDAR at www.sedar.com.

Non-IFRS Measures

The Company prepares its financial statements in accordance with IFRS. This press release also includes certain measures which have not been prepared in accordance with IFRS such as Adjusted EBITDA and Adjusted EBITDA margin used to evaluate the Company's operating performance as a complement to results provided in accordance with IFRS.

The term Adjusted EBITDA refers to net Profit before deducting share-based payment expense, interest expense, finance costs, foreign exchange gain (loss), FMV gain (loss) on debenture, depreciation and income taxes. Adjusted EBITDA margin refers to the percentage that Adjusted EBITDA represents as a portion of total revenue.  We believe that Adjusted EBITDA and Adjusted EBITDA margin are useful supplemental information as they provide an indication of the results generated by the Company's main business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration share-based payment expense and the other items listed above. Accordingly, we believe that these measures may also be useful to investors in enhancing their understanding of the Company's operating performance.

Adjusted EBITDA and Adjusted EBITDA margin are not measures recognized by IFRS and do not have standardized meanings prescribed by IFRS. Therefore, Adjusted EBITDA and Adjusted EBITDA margin may not be comparable to similar measures presented by other issuers. Investors are cautioned that Adjusted EBITDA and Adjusted EBITDA margin should not be construed as an alternative to net profit as determined in accordance with IFRS.

                                       
          Three months ended       Nine months ended
          September 30       September 30
          (unaudited)       (unaudited)
          2011     2010         2011     2010
(in thousands)                 (restated)               (restated)
                                       
Revenue         $   13,693     $   13,501       $   39,864     $   38,780
                                       
Net profit and comprehensive income         $  1,800     $   925       $   2,991     $   1,321
                                       
Add back:                                      
  Share based payments           296       (22)         1,031       74
  Finance costs           298       83         513       259
  Gain on disposal of asets           -       (2)         (2)       (2)
  Loss on fair market value of Debenture           37       -         620       -
  Foreign exchange (gain) loss           (1,038)       245         (614)       251
Adjusted EBITDA         $   1,393     $   1,229       $   4,539     $   1,903
Adjusted EBITDA margin           10.2%       9.1%         11.4%       4.9%

About Redline Communications
Redline Communications (www.rdlcom.com) the innovator of Virtual Fiber™, a specialized broadband wireless solution used by companies and governments worldwide to cost-effectively deploy distributed services and applications.  Redline wireless Virtual Fiber™ solutions are used to facilitate and enhance public safety networks, deploy and extend secure networks, connect digital oil fields and smart grids, and bring dedicated internet access wherever and whenever it's needed. Redline has been delivering powerful, versatile and reliable wireless systems to governments, the military, Oil & Gas, and the telecom industry for over a decade through certified partners in the Americas, the Middle East, and Africa.

NOTES:
All registered and unregistered trademarks mentioned in this release are the property of their respective owners.

Forward Looking Statements

Certain statements in this release may constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws.  In some cases, forward-looking statements can be identified by terms such as "could", "expect", "may", "will", "anticipate", "believe", "intend", "estimate", "plan", "potential", "project" or other expressions concerning matters that are not historical facts.  Readers are cautioned not to place undue reliance upon any such forward-looking statements.

Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause the actual results, performance, achievements or developments of Redline to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements, by their nature, are based on certain assumptions regarding expected growth, management's current plans, estimates, projections, beliefs, opinions and business prospects and opportunities (collectively, the "Assumptions").  While the Company considers these Assumptions to be reasonable, based on the information currently available, they may prove to be incorrect.

Many risks, uncertainties and other factors could cause the actual results of Redline to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include but are not limited to the following: significant competition, competitive pricing practices, cautious capital spending by customers, industry consolidations, rapidly changing technologies, evolving industry standards, frequent new product introductions, short product life cycles and other trends and industry characteristics affecting the telecommunications industry; any material, adverse affects on Redline's performance if its expectations regarding market demand for particular products prove to be wrong; any negative developments associated with Redline's suppliers and contract manufacturing agreements including the Company's reliance on certain suppliers for key components; potential penalties, damages or cancelled customer contracts from failure to meet delivery and installation deadlines and any defects or errors in Redline's current or planned products; fluctuations in foreign currency exchange rates; potential higher operational and financial risks associated with Redline's efforts to expand internationally; a failure to protect Redline's intellectual property rights, or any adverse judgments or settlements arising out of disputes regarding intellectual property; changes in regulation of the wireless industry or other aspects of the industry; any failure to successfully operate or integrate strategic acquisitions, or failure to consummate or succeed with strategic alliances; and Redline's potential inability to attract or retain the personnel necessary to achieve its business objectives or to maintain an effective risk management strategy (collectively, the "Risks"). For additional information on these Risks, see Redline's most recently filed Annual Information Form ("AIF") and Annual MD&A, which are available on SEDAR at www.sedar.com and on the Company's website at www.redlinecommunications.com. Redline assumes no obligation to update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by law. All forward looking statements contained in this release are expressly qualified in their entirety by this cautionary statement.



REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statement of Financial Position
(Unaudited, expressed in U.S. dollars)


                             
            September 30,
2011
      December 31,
2010
      January 1,
2010
ASSETS                          
                             
Current assets:                          
  Cash       $    5,067,195     $   6,023,070     $   4,758,719
  Restricted short-term investments         125,440       92,440       92,266
  Trade receivables         8,928,468       6,714,090       4,860,646
  Other receivables         1,340,252       604,725       78,445
  Inventories          6,565,275       4,752,656       9,275,410
  Deferred cost of revenue         11,614,769       12,722,036       9,995,981
  Prepaid expenses and other deposits         1,787,523       2,134,360       682,645
            35,428,922       33,043,377       29,744,112
Non-current assets:                          
  Deferred cost of revenue         -       6,093,214       14,200,887
  Property, plant and equipment         654,527       691,936       919,121
  Intangible assets         186,326       75,860       257,116
  Other assets          103,913       99,733       87,288
            944,766       6,960,743       15,464,412
Total Assets       $   36,373,688     40,004,120     $   45,208,524
                             
LIABILITIES AND SHAREHOLDERS' DEFICIENCY                          
                             
Current liabilities                          
  Trade and other payables        $   7,770,932     10,024,992     $   7,738,887
  Deferred revenue         22,907,251       25,581,597       22,304,330
  Current portion of obligations under finance leases       -       -       25,852
  Current portion of borrowings         5,941,167       6,161,251       4,806,054
            36,619,350       41,767,840       34,875,123
Non-current liabilities                          
  Deferred revenue          194,314       11,472,039       25,438,931
  Borrowings         8,733,425       -       73,916
  Obligations under finance leases         -       -       15,397
            8,927,739       11,472,039       25,528,244
Total Liabilities         45,547,089       53,239,879       60,403,367
                             
SHAREHOLDERS' DEFICIENCY                          
                             
Share capital          128,612,476       128,532,124       128,532,124
Share purchase loan          (365,780)       (365,780)       (365,780)
Warrant          310,000       310,000       310,000
Contributed surplus         7,378,085       6,387,487       6,286,044
Deficit         (145,108,182)       (148,099,590)       (149,957,231)
            (9,173,401)       (13,235,759)       (15,194,843)
Total liabilities and equity       $   36,373,688     $   40,004,120     $   45,208,524

 



REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statement of Comprehensive Income
(Unaudited, expressed in U.S. dollars)

                                   
        Three months ended September 30,     Nine months ended September 30,
          2011       2010       2011       2010
                                   
Revenue     $ 13,693,374     $ 13,500,618     $ 39,864,450     $   38,780,260
Cost of revenue       5,306,689       5,809,737       15,583,161       16,830,969
Gross profit       8,386,685       7,690,881       24,281,289       21,949,291
                                   
Expenses:                                
  Research and development       1,685,648       1,647,592       4,278,290       5,850,295
  Finance and administration       2,284,886       1,734,377       7,415,319       4,828,808
  Sales and marketing       2,794,955       2,360,376       7,214,042       7,159,223
  Operations and customer support       523,641       696,090       1,865,186       2,281,051
          7,289,130       6,438,435       20,772,837       20,119,377
Income before the undernoted       1,097,555       1,252,446       3,508,452       1,829,914
                                   
Other expenses (income)                                
  Finance costs       297,721       83,232       512,957       258,733
  Gain on disposal of assets       -       (2,206)       (1,519$)       (2,206)
  Loss on fair market value of Debenture       37,298       -       620,089       -
  Foreign exchange (gain) loss       (1,037,559)       245,064       (614,483)       250,591
          (702,540)       326,090       517,044       507,118
Profit before income taxes       1,800,095       926,356       2,991,408       1,322,796
Income tax expense       -       1,666       -       1,986
Net profit and comprehensive income      $ 1,800,095     $ 924,690     $ 2,991,408     $   1,320,810
                                   
                                   
Earnings per share                                
  Basic     $   0.08     $   0.04     $   0.14     $   0.06
  Diluted     $   0.04     $   0.04     $   0.10     $   0.06

 


REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statement of Changes in Equity
(Unaudited, expressed in U.S. dollars)

                                                   
        Share
capital
    Share purchase
loan
    Warrant     Contributed
surplus
    Deficit     Total
Balance at January 1, 2010     $ 128,532,124     $ (365,780)     $ 310,000     $ 6,286,044     $ (149,957,231)     $ (15,194,843)
  Net profit       -       -       -       -       1,320,810       1,320,810
  Share-based payments       -       -       -       73,805       -       73,805
Balance at September 30, 2010     $ 128,532,124     $ (365,780)     $ 310,000     $ 6,359,849     $ (148,636,421)     $ (13,800,228)
                                                   
Balance at December 31, 2010     $ 128,532,124     $ (365,780)     $ 310,000     $ 6,387,487     $ (148,099,590)     $ (13,235,759)
  Net profit       -       -       -       -       2,991,408       2,991,408
  Share-based payments       -       -       -       1,031,431       -       1,031,431
  Exercise of options       80,352       -       -       (40,833)       -       39,519
Balance at September 30, 2011     $ 128,612,476     $ (365,780)     $ 310,000     $ 7,378,085     $ (145,108,182)     $   (9,173,401)

 






REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statement of Cash Flows
(Unaudited, expressed in U.S. dollars)

                     
          Nine months ended September 30,
          2011     2010
                     
Cash flows from operating activities:                
  Net profit     $ 2,991,408      $ 1,320,810
  Adjustments to reconcile income to net cash used in operating activities                
    Finance costs       71,986       98,975
    Accrued interest on borrowings       440,971       159,758
    Depreciation and amortization of non-current assets       312,747       391,756
  Items not affecting cash:                
    Recognition of share based payments       1,031,431       73,805
    Foreign exchange loss (gain) on cash held in foreign currency       1,913       (2,427)
    Foreign exchange (gain) loss on borrowings       (1,004,167)       91,858
    Loss on fair market value of Debenture       620,089       -
            1,474,970       813,725
    Change in non-cash operating assets and liabilities        (13,425,517)       (708,638)
Cash used in operating activities       (8,959,139)       1,425,897
Cash flows from investing activities:                
  Acquisition of property, plant and equipment and intangibles       (385,804)       (25,926)
  Increase in investments       (33,000)       (61)
Cash used in investing activities       (418,804)       (25,987)
Cash flows from financing activities:                
  Proceeds from exercise of options       39,519       -
  Finance costs       (71,986)       (98,975)
  Proceeds of borrowings       8,534,848       940,353
  Repayment of borrowings       (78,400)       (163,309)
  Principal payment of obligations under finance leases       -       (41,249)
Cash from financing activities       8,423,981       636,820
Foreign exchange (loss) gain on cash held in foreign currency       (1,913)       2,427
(Decrease) increase in cash        (955,875)       2,039,157
Cash, beginning of the period       6,023,070       4,758,719
Cash, end of period     $ 5,067,195     $   6,797,876

 

SOURCE Redline Communications Group Inc.

For further information:

Redline Communications
George Kypreos
gkypreos@rdlcom.com
Tel: +1-905-479-8344


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