Redknee Solutions Reports Fiscal Second Quarter 2014 Results

TORONTO, May 7, 2014 /CNW/ - Redknee Solutions Inc.  (TSX: RKN), a leading provider of business-critical software and solutions for communications service providers (CSPs), reported results for its fiscal second quarter ended March 31, 2014. All figures are in U.S. dollars.

Fiscal Q2 2014 Financial Highlights as Compared to the Same Year-ago Quarter

• Revenue totaled $72.4 million, up 514% from $11.8 million
• Gross profit was $34.7 million (48% of total revenue) compared to $7.2 million (61% of total revenue)
• Adjusted EBITDA totaled $5.7 million versus EBITDA loss of $1.5 million
• Net income totaled $4.8 million or $0.05 per share versus a net income of $2.4 million or $0.03 per share
• Cash at $116.0 million
• Order backlog at $164.7 million
• Completed a bought deal offering of 12,820,520 common shares for gross proceeds of Cdn $75.0 million.

Fiscal Q2 2014 Operational Highlights

• Won a new converged billing and customer care customer in EMEA.
• Signed a multi-year global framework agreement with Telekom Austria Group to provide support to its European operations.
• Signed significant upgrades to Redknee's software with Vipnet Croatia, a leading EMEA multi-play service provider, and TSTT, an operator in the Americas.
• Additional multi-million dollar customer contracts announced throughout the quarter across all regions.
• Advanced Redknee's presence in non-telecom vertical markets, including software upgrades deployed for customers of Redknee's solution for transportation and coverage by leading analysts of Redknee's solution for smart homes.
• Expanded global presence by opening local offices in Indonesia, Malaysia, and South Africa.
• Highlighted in the Stratecast Global OSS/BSS Top 10 to Watch in 2014; nominated for the TM Forum Solution Excellence Awards for Best Solution Provider and nominated for 2014 Frost & Sullivan Asia Pacific ICT Awards.
• All major activities regarding the integration of the Nokia Networks BSS acquisition are complete.
• 175+ patents granted and 55+ patents filed.

Management Commentary

"In the past twelve months our company has undergone significant growth, achieving revenues of $249 million, gross margin of 52% and adjusted EBITDA of 9% while successfully completing the integration of the BSS acquisition. More importantly, during the second quarter, we continued to demonstrate our ability to execute our growth strategy by increasing revenues, delivering strong order bookings and continuing to grow our sales pipeline," said Lucas Skoczkowski, CEO of Redknee. "With the completion of the integration, we are now focused on building upon our position as the largest independent real-time converged monetization software provider for communications. We also see increasing opportunities to leverage our leading software solutions to capitalize on the rise of the Internet of Things in non-telecom verticals such as transportation and smart homes. We are encouraged by the positive momentum the business is achieving with our on premise and virtualized solutions and look forward to continuing to execute on our strategic growth plan."

Fiscal Q2 2014 Financial Results
Revenue was $72.4 million compared to $11.8 million in the same year-ago quarter. The improvement was primarily due to increased revenue related to the BSS acquisition, as well as license expansions, license upgrades, and third-party hardware and software sales.

Recurring revenue was 36% of total revenue compared to 55% for the same year-ago quarter. The decline in the current quarter versus the prior period was due to an increase in total revenues as a result of a higher than average contribution from third party hardware and software license revenues in the period. Furthermore, recurring revenue in the quarter was also affected by delayed renewals of customer support services of approximately $3.5 million, which are expected to be closed in Q3 2014. Recurring revenue consists of support and maintenance, long-term service contracts, and revenue from term-based licenses.

Gross margin was 48% compared to 61% in the same year-ago quarter. The decrease relates to a change in revenue mix as a result of the acquisition of Nokia Networks BSS business unit.

Adjusted EBITDA was $5.7 million compared to adjusted EBITDA loss of $1.5 million in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net income totaled $4.8 million or $0.05 per diluted share compared to a net income of $2.4 million or $0.03 per diluted share in the same year-ago quarter. As presented in the "Reconciliation of Net Income (Loss) to Adjusted EBITDA" below, the Q2 2014 net income includes $2.4 million of costs linked directly to the BSS acquisition and revaluation of contingent consideration related to the acquisition of $7.0 million.

At March 31, 2014, cash and cash equivalents totaled $116.0 million. As at March 31, 2014, the Company's Days Sales Outstanding in Accounts Receivable remained flat at 101 days. Subsequent to March 31, 2014, the Company has collected $35.2 million against the trade receivables.

At March 31, 2014, contracted order backlog totaled $164.7 million.

Please refer to the section regarding forward-looking statements which form an integral part of this release. These results, along with the unaudited condensed consolidated interim financial statements and the company's unaudited 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 (Thursday, May 8, 2014) 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, May 8, 2014
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1 [phone]
International: 1 [phone]
Conference ID#: 31256955

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/1gBwj1A.

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 TMX Equicom at 1 [phone], ext. 253.

A replay of the call will be available after 11:30 a.m. Eastern time on the same day through May 22, 2014.

Toll-Free Replay Number: 1 [phone]
International Replay Number: 1 [phone]
Replay PIN: 31256955

About Redknee Solutions Inc.

Redknee is a leading global provider of innovative communication software products, solutions and services. Redknee's award-winning solutions enable service providers to monetize new services, business models and content and to deliver a comprehensive customer experience. Redknee's revenue and subscriber management platform provides innovative converged billing, charging, customer care, and payments solutions for voice, messaging and data services to over 200 service providers in over 90 countries. 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

Beginning in the first fiscal quarter of 2013, the company has begun to report "Adjusted EBITDA", which is not a financial measure calculated and presented in accordance with International Financial Reporting Standards (IFRS), and should not be considered as an alternative to net income, operating income or any other financial measures so calculated and presented, or as an alternative to cash flow from operating activities as a measure of liquidity. The company defines adjusted EBITDA as net income (loss) from continuing operations excluding amounts for depreciation and amortization, other (income) / expenses, finance costs, finance income, income taxes, foreign exchange (gain) loss, share-based compensation, and acquisition and related costs. EBITDA is not a measure of financial performance under IFRS, and should not be considered in isolation or as a substitute for consolidated net income (loss) as a measure of performance.

"Recurring Revenue," is not a financial measure calculated and presented in accordance with IFRS and should not be considered as an alternative 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 as an alternative to revenue.

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 it 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. Investors should not consider adjusted EBITDA, recurring revenue, and order backlog in isolation or as a substitute for analysis of the company's results as reported under IFRS. 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 the statements regarding financial and other projections 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 inability of Redknee's products to perform as expected, 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.

Although the forward-looking statements contained in this document are based upon what Redknee believes are reasonable assumptions, Redknee cannot assure investors that our actual results will be consistent with these forward-looking statements. Redknee assumes no obligation to update or revise these forward-looking statements to reflect new events or circumstances, except as required by securities law.

Redknee Solutions Inc.
Condensed Consolidated Interim Statement of Financial Position
(Expressed in U.S. dollars)
(Unaudited)
		March 31, 2014	September 30, 2013
Assets
Current assets:
	Cash and cash equivalents	$114,803,920	$79,054,757
	Trade accounts and other receivables	97,073,068	66,393,041
	Unbilled revenue	46,785,669	39,421,584
	Prepaid expenses	4,382,408	1,943,986
	Other assets	856,345	832,516
	Inventories	8,092,183	6,644,580
	Total current assets	271,993,593	194,290,464
Restricted cash		1,178,490	1,011,361
Property and equipment		9,727,301	10,890,910
Deferred income taxes		1,938,871	1,923,409
Investment tax credits		422,445	378,923
Other assets		2,552,021	3,179,724
Intangible assets		36,198,243	38,732,447
Goodwill		7,638,590	7,638,590
Total assets		$331,649,554	$258,045,828
Liabilities and Shareholders' Equity
Current liabilities:
	Trade payables	$21,059,145	$15,707,464
	Accrued liabilities	56,407,819	59,532,922
	Provisions	-	1,201,050
	Income taxes payable	2,891,108	2,445,616
	Contingent consideration	8,305,192
	Deferred revenue	12,523,555	14,935,451
	Loans and borrowings	375,000	375,000
	Total current liabilities	101,561,819	94,197,503
Deferred revenue		2,928,270	4,149,940
Other liabilities		3,182,465	2,793,146
Pension and non-pension post-employment benefit obligation		1,648,902	814,335
Contingent consideration		10,727,110	24,833,537
Loans and borrowings		46,581,273	32,956,036
Deferred income taxes		690,418	744,652
Total liabilities		167,320,257	160,489,149
Shareholders' equity:
	Share capital	173,709,305	109,017,145
	Treasury stock	(29,549)	(132,050)
	Contributed surplus	4,626,180	4,357,175
	Deficit	(15,473,670)	(17,182,622)
	Accumulated other comprehensive income	1,497,031	1,497,031
	Total shareholders' equity	164,329,297	97,556,679
Total liabilities and shareholders' equity		$331,649,554	$258,045,828

 

Redknee Solutions Inc.
Condensed Consolidated Interim Statement of Comprehensive Income (Loss)
(Expressed in U.S. dollars)
(Unaudited)
		Three months ended		Three months ended
		March 31,		March 31,
		2014	2013	2014	2013
Revenue:
	Software, services and other	$47,271,200	$5,752,813	$75,125,083	$14,027,551
	Support	25,162,120	5,999,964	57,711,477	11,962,189
		72,433,320	11,752,777	132,836,560	25,989,740
Cost of revenue		37,720,340	4,532,850	65,100,275	9,852,258
Gross profit		34,712,980	7,219,927	67,736,285	16,137,482
Operating expenses:
	Sales and marketing	9,087,347	3,693,277	17,595,744	6,646,372
	General and administrative	7,667,655	2,421,998	15,842,404	4,818,601
	Research and development	15,953,669	3,406,669	30,838,008	6,606,330
	Acquisition and related costs	2,395,690	5,903,503	3,268,058	8,181,975
		35,104,361	15,425,447	67,544,214	26,253,278
Income (loss) from operations		(391,381)	(8,205,520)	192,071	(10,115,796)
Foreign exchange gain (loss)		582,571	(1,012,810)	(555,333)	(652,447)
Other income (expenses)		6,951,904	11,796,825	5,801,235	11,796,825
Finance income		9,427	7,166	24,186	19,347
Finance costs		(811,636)	(118,865)	(1,396,156)	(233,027)
Income before income taxes		6,340,885	2,466,796	4,066,003	814,902
Income taxes (recovery):
	Current	1,595,017	121,702	2,439,822	247,131
	Deferred	(23,653)	(19,870)	(82,771)	(58,361)
		1,571,364	101,832	2,357,051	188,770
Net comprehensive income		$4,769,521	$2,364,964	$1,708,952	$626,132
Net income per common share:
	Basic	$0.05	$0.03	$0.02	$0.01
	Diluted	0.05	0.03	0.02	0.01
Weighted average number of common shares:
	Basic	98,362,310	79,840,642	97,015,120	77,660,795
	Diluted	101,796,856	83,505,220	100,465,490	80,686,279

 

Redknee Solutions Inc.
Condensed Consolidated Interim Statement of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
			Six months ended
			March 31,
			2014	2013
Cash provided by (used in):
Operating activities:
	Net income		$1,708,952	$626,132
	Adjustments for:
		Depreciation of property and equipment	3,054,168	161,109
		Amortization of intangible assets	3,426,340	346,307
		Finance income	(24,186)	(19,347)
		Finance costs	1,396,156	233,027
		Income tax expense	2,357,051	188,770
		Unrealized foreign exchange loss	203,834	555,298
		Share-based compensation	1,216,806	914,989
		Revaluation of contingent consideration	(5,801,235)	-
		Bargain purchase gain from acquisition	-	(11,796,825)
	Changes in non-cash operating working capital		(43,757,333)	(280,927)
			(36,219,447)	(9,071,467)
	Interest paid		(636,472)	(180,514)
	Interest received		22,867	29,593
	Income taxes paid		(2,146,138)	(269,998)
			(38,979,190)	(9,492,386)
Financing activities:
	Issuance of share capital		63,833,834	18,731,390
	Proceeds from exercise of stock options		548,177	727,267
	Proceeds of loans and borrowings		13,500,000	-
			77,882,011	19,458,657
Investing activities:
	Purchase of property and equipment		(1,890,559)	(633,084)
	Purchase of intangible assets		(892,136)	(156,576)
	Increase (decrease) in restricted cash		(167,129)	53,338
	Acquisition of business		-	(4,571,451)
			(2,949,824)	(5,307,773)
Effect of foreign exchange rate changes on
cash and cash equivalents			(203,834)	(555,298)
Increase in cash and cash equivalents			35,749,163	4,103,200
Cash and cash equivalents, beginning of period			79,054,757	16,878,523
Cash and cash equivalents, end of period			$114,803,920	$20,981,723

 

Redknee Solutions Inc.
Reconciliation of Net Income (Loss) to EBITDA
(Expressed in U.S. dollars)
(Unaudited)
		Three months ended		Six months ended
		March 31,		March 31,
		2014	2013	2014	2013
Net income for the period		4,769,521	2,364,964	1,708,952	626,132
Add back / (subtract):
	Depreciation of property and equipment	1,451,105	89,951	3,054,168	161,109
	Amortization of intangible assets	1,736,206	181,515	3,426,340	346,307
	Revaluation of contingent consideration	(6,951,904)	-	(5,801,235)	-
	Bargain purchase gain from acquisition	-	(11,796,825)	-	(11,796,825)
	Finance income	(9,427)	(7,166)	(24,186)	(19,347)
	Finance costs	811,636	118,865	1,396,156	233,027
	Income tax expense	1,571,364	101,832	2,357,051	188,770
	Share-based compensation	546,600	522,335	1,216,806	914,989
	Foreign exchange loss (gain)	(582,571)	1,012,810	555,333	652,447
EBITDA		3,342,530	(7,411,719)	7,889,385	(8,693,391)
Adjustments
	Acquisition and related costs	2,395,690	5,903,503	3,268,058	8,181,975
Adjusted EBITDA		$5,738,220	($1,508,216)	$11,157,443	($511,416)

 

 

SOURCE: Redknee Solutions Inc.

Investor Relations:

Robert Kelly
TMX Equicom
T: [phone] ext. 253
[email protected]

Craig Armitage
TMX Equicom
T: [phone] ext. 278
[email protected]