Redline Communications Reports Q3 2016 Financial Results

TORONTO, Nov. 2, 2016 /CNW/ - Redline Communications (www.rdlcom.com) Group Inc. (TSX: RDL), a leading provider of mission-critical wireless networks, today announced unaudited operating results¹ for the three months ended September 30, 2016 (Q3 2016).

Q3 2016 Financial Highlights

  • $5.2M Total Revenue, up 4% quarter over quarter
  • 56% Gross Margin
  • $0.9M Adjusted EBITDA² loss
  • $1.2M Net Loss
  • $10.6M Cash
  • $4.2M new Order Bookings²
  • $9.2M Order Backlog²

Total revenue for Q3 2016 was $5.2 million, up 4% over Q2 2016 and down 18% over the same period last year as the Company continued to focus on diversification of its market strategy given the ongoing softness in the energy sector, historically the Company's largest market.

Overall gross margin for Q3 2016 was 56%, up 7 percentage points quarter over quarter, and up 9 percentage points over the same period last year. The improvement in gross margin in Q3 2016 can be largely attributed to reduced manufacturing costs and a favorable shift in product mix in the quarter.

Overall operating expenses were $4.1 million for Q3 2016, down 18% quarter over quarter and down 10% over the same period last year. As part of the Company's commitment to profitable operations, the Company has undertaken a comprehensive right-sizing designed to reduce operating costs by approximately $3.6 million annually after a one-time charge of approximately $0.3 million to be taken in the fourth quarter of 2016. While the majority of this right-sizing program has been implemented, the remaining cost reductions are expected to be completed by the end of the year.

Slightly higher revenues, improved gross margins and lower operating expenses in Q3 2016 led to a $1.3 million improvement in Adjusted EBITDA loss over Q2 2016. The Adjusted EBITDA loss of $0.9 million in Q3 2016 was also an improvement of $0.4 million over the Adjusted EBITDA loss of $1.3 million reported in the same period last year.

"Redline continues to execute on its strategy of market diversification supported by the ongoing development and marketing of our LTE product line, introduced in August 2016," said Robert Williams, Redline CEO.  "We are encouraged by early feedback on both elements of our strategy and particularly from  initial public safety pilots with LTE.  When combined with the positive cash flow we expect from our right-sizing program, we believe that we are well positioned for profitable growth."

Net loss for Q3 2016 was $1.2 million or ($0.07) per share, an improvement of $1.3 million over the net loss of $2.5 million or ($0.15) per share in Q2 2016, and an improvement of $0.5 million over the $1.7 million loss ($0.10) in the same period in 2015.

As of September 30, 2016 the Company had a cash balance of $10.6 million, a decrease of approximately $0.5 million over the cash balance as at June 30, 2016.

The Company had 17,215,469 common shares outstanding as of September 30, 2016.

Conference Call – November 3rd, 2016 at 10:00 a.m. ET

A conference call to discuss the Company's financial results has been scheduled for November 3rd, 2016 at 10:00 a.m. Eastern Time.  To participate in the call, please dial 1-647-427-7450 approximately 10 minutes before the conference call, and provide passcode 5651867.  A recording of the call will be available through November 11, 2016. To listen to the rebroadcast please dial 1-416-849-0833 and enter passcode 5651867.

A transcript of the call will be available via Redline's website

About Redline Communications

Redline Communications (www.rdlcom.com) is the creator of powerful wide-area wireless networks for the most challenging applications and locations. Used by oil and gas companies to manage their assets, militaries for secure battlefield communications, public safety organizations to coordinate responses across agencies, municipalities to remotely monitor highways, utilities and other infrastructures, and telecom service providers to deliver premium services, Redline's powerful and versatile networks reliably and securely deliver voice, data, M2M and video communications for mission-critical applications.

For more information visit www.rdlcom.com.

NOTES:

1

All amounts reported in this press release are in US dollars unless otherwise stated.

2

To better assess the health and growth of the Redline's business, the Company reports on several key metrics, including "Orders or Bookings", "Backlog", "EBITDA", "Adjusted EBITDA", "EPS excluding the non-cash expense relating to the fair market adjustment on financial instruments", and "Amortized Deferred Revenue".  Further information including definitions of these categories can be found in the Company's Management Discussion and Analysis for the three months ended September 30, 2016 ("Q3 2016 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three month results ended September 30, 2016 can be found in the condensed consolidated interim statement of financial position, condensed consolidated interim statement of comprehensive 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 months ended September 30, 2016 and the Q3 2016 MD&A.

 

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 effects 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.rdlcom.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 Statements of Financial Position




(Unaudited, expressed in U.S. dollars)

















September 30,
2016


December 31,
2015

ASSETS






Current assets:







Cash 



$

10,553,579


$

14,548,954


Trade receivables



7,967,509


8,187,806


Other receivables



604,773


466,668


Inventories 



7,078,357


7,100,207


Prepaid expenses and other deposits



320,161


266,578





26,524,379


30,570,213

Non-current assets:







Property, plant and equipment



1,235,166


1,389,727


Intangible assets



1,625,430


1,974,672


Other assets 



80,486


64,755





2,941,082


3,429,154

Total Assets



$

29,465,461


$

33,999,367








LIABILITIES AND SHAREHOLDERS' EQUITY 






Current liabilities:







Trade and other payables



$

5,122,552


$

4,475,662


Income tax payable



94,063


94,063


Deferred revenue



819,727


1,534,731


Convertible debenture (principal and interest)



-


224,595


Fair market value adjustment on convertible debenture



-


11,817


Borrowings



798,739


2,833,752





6,835,081


9,174,620

Non-current liabilities:







Borrowings



2,057,757


-


Other payables



275,509


322,116





2,333,266


322,116

Total Liabilities



9,168,347


9,496,736








SHAREHOLDERS' EQUITY






Share capital 



172,929,341


172,662,177

Warrant 



-


310,000

Contributed surplus



8,950,735


8,457,415

Deficit



(161,582,962)


(156,926,961)





20,297,114


24,502,631

Total liabilities and equity



$

29,465,461


$

33,999,367

 

 

REDLINE COMMUNICATIONS GROUP INC.







Condensed Consolidated Interim Statements of Comprehensive Loss






(Unaudited, expressed in U.S. dollars)
























Three months ended September 30,


Nine months ended September 30,




2016


2015


2016


2015












Revenue




$

5,209,736


$

6,368,540


$

16,431,949


$

24,994,234

Cost of revenue




2,309,535


3,378,249


7,395,306


10,915,898

Gross profit




2,900,201


2,990,291


9,036,643


14,078,336













Expenses:












Research and development




703,902


938,985


2,275,254


2,329,310


Administration and finance




1,228,582


1,249,466


4,683,001


4,384,587


Sales and marketing




1,894,061


2,028,462


5,923,678


6,655,008


Operations and customer support




267,126


344,978


836,502


975,035






4,093,671


4,561,891


13,718,435


14,343,940

Loss before undernoted items




(1,193,470)


(1,571,600)


(4,681,792)


(265,604)













Other expenses (income):












Finance (income) expense




22,887


28,652


(178,846)


83,583


Restructuring costs




-


235,155


-


235,155


(Gain) loss on fair market value of financial instruments




-


(40,008)


16,314


(37,532)


Foreign exchange (gain) loss




(34,585)


(162,549)


108,313


(272,032)






(11,698)


61,250


(54,219)


9,174

Loss before income taxes




(1,181,772)


(1,632,850)


(4,627,573)


(274,778)

Income tax expense




653


43,834


28,428


47,362

Net loss and total comprehensive loss




$

(1,182,425)


$

(1,676,684)


$

(4,656,001)


$

(322,140)

























Loss per share












Basic and diluted




$

(0.07)


$

(0.10)


$

(0.27)


$

(0.02)

 

 

REDLINE COMMUNICATIONS GROUP INC.





Condensed Consolidated Interim Statements of Changes in Equity



(Unaudited, expressed in U.S. dollars)
















Share
capital

Warrant

Contributed
surplus

Deficit

Total

Balance at
January 1, 2015


$

172,617,023

$

310,000

$

8,167,450

$

(155,176,462)

$

25,918,011


Net loss


-

-

-

(322,140)

(322,140)


Exercise of options


45,154

-

(24,791)

-

20,363


Share-based payments


-

-

274,408

-

274,408

Balance at
September 30, 2015


$

172,662,177

$

310,000

$

8,417,067

$

(155,498,602)

$

25,890,642

Balance at
January 1, 2016


$

172,662,177

$

310,000

$

8,457,415

$

(156,926,961)

$

24,502,631


Net loss


-

-

-

(4,656,001)

(4,656,001)


Conversion of debenture


267,164

-

-

-

267,164


Expiry of warrants


-

(310,000)

310,000

-

-


Share-based payments


-

-

183,320

-

183,320

Balance at
September 30, 2016


$

172,929,341

$

-

$

8,950,735

$

(161,582,962)

$

20,297,114

 

 

REDLINE COMMUNICATIONS GROUP INC.





Condensed Consolidated Interim Statements of Cash Flows





(Unaudited, expressed in U.S. dollars)
















Three months ended September 30,


Nine months ended September 30,


2016

2015


2016

2015

Cash flows from operating activities:








Net loss


$

(1,182,425)

$

(1,676,684)


$

(4,656,001)

$

(322,140)


Adjustments to reconcile net loss to net cash from operating activities:









Finance (income) expense


22,887

28,652


(178,846)

83,583



Depreciation and amortization of non-current assets


255,677

215,475


771,969

640,150



Gain on disposal of assets


(10,213)

-


(10,213)

(9,950)



Recognition of share based payments


79,558

63,081


183,320

274,408



Foreign exchange (gain) loss on cash held in foreign currency


19,644

151,560


(89,797)

510,594



Foreign exchange (gain) loss on borrowings


(43,830)

(280,871)


172,584

(613,274)



(Gain) loss on fair market value of financial instruments


-

(40,008)


16,314

(37,532)





(858,702)

(1,538,795)


(3,790,670)

525,839


Change in non-cash operating assets and liabilities: 









Decrease (increase) in deferred revenue


(100,520)

210,928


(715,004)

(143,790)



Change in other non-cash operating assets and liabilities 


529,348

(1,574,261)


635,011

(2,925,216)

Cash used in operating activities


(429,874)

(2,902,128)


(3,870,663)

(2,543,167)








Cash flows used in investing activities:








Acquisition of property, plant and equipment


(53,573)

(69,773)


(196,816)

(168,889)


Proceeds on sale of property, plant and equipment


20,300

-


20,300

9,950


Acquisition of intangible assets


-

(28,011)


(81,437)

(229,355)

Cash used in investing activities


(33,273)

(97,784)


(257,953)

(388,294)








Cash flows from financing activities:








Finance income


5,858

7,476


43,444

27,810


Proceeds from exercise of options


-

20,363


-

20,363


Repayment of borrowings


-

(103,312)


-

(103,312)

Cash from (used in) financing activities


5,858

(75,473)


43,444

(55,139)

Foreign exchange gain (loss) on cash held in foreign currency


(19,644)

(151,560)


89,797

(510,594)

Decrease in cash


(476,933)

(3,226,945)


(3,995,375)

(3,497,194)

Cash, beginning of the period


11,030,512

16,093,828


14,548,954

16,364,077

Cash, end of the period


$

10,553,579

$

12,866,883


$

10,553,579

$

12,866,883

 

 

SOURCE Redline Communications Group Inc.

For further information: Redline Contact(s): Jane Todd, Chief Financial & Operating Officer, +1-905-479-8344, mailto:jtodd@rdlcom.com; Cory Pala, Investor Relations, +1-416-657-2400, cory.pala@evestor.com

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