Redline Communications Reports 2012 Fourth Quarter and Year End Results

Company delivers solid operating results and a strengthened balance sheet

TORONTO, March 27, 2013 /CNW/ - Redline Communications (www.rdlcom.com Group Inc. TSX: RDL), a leading provider of broadband wireless solutions for machine-to-machine (M2M) communications, today announced operating results for the three and twelve month periods ended December 31, 2012.

Highlights for the fiscal year ended December 31, 2012 include:

Solid sales traction and operating results: 

• Record new Bookings² of $49.5 million of which approximately 45% were in Energy vertical
• Recognized revenue of $49.0 million
• $14.6 million Backlog² at December 31, 2012
• 63% gross margin on core Broadband Wireless Infrastructure (BWI) product sales, and 56% blended gross margin
• Operating expenses down 9% from fiscal 2011
• Adjusted EBITDA² of $3.8 million marking the third consecutive year of positive Adjusted EBITDA
• EPS of $0.29, excluding the non-cash expense relating to the fair market adjustment on the Debenture²

Strengthened Balance Sheet:

• Established Cdn. $10.0 million credit facility with HSBC Bank Canada
• Amended loan agreement with Ontario Ministry of Economic Development and Innovation reducing interest charges by $0.7 million
• Warrant exercises (during and subsequent to 2012) resulted in approximately Cdn. $13.4 million cash receipts to the Company

Financial Review

Order Bookings² for the year ended December 31, 2012 were a record $49.5 million and outpaced Shipments in the year of $35.9 million. This resulted in a healthy Backlog of $14.6 million at the end of the 2012 fiscal year, largely as a result of larger orders with associated longer delivery timeframes.  Bookings in 2012 were primarily driven from strong and growing sales to the energy sector, which represented approximately 45% of total Bookings, as well as continued strength in the telecom and public safety sectors.

BWI Revenue for the three months ended December 31, 2012 was $10.4 million, the strongest BWI quarterly revenue for fiscal 2012.   BWI Revenue was strengthened by several large contracts in oil and gas and telecom. BWI Revenue for the three months ended December 31, 2012 was down 8% from $11.3 million for the same period last year, primarily as a result of final acceptance on a large oil and gas project received in the fourth quarter of fiscal 2011 for work undertaken throughout 2011. Overall for the 2012 year, BWI Revenue was $30.0 million, down marginally from the $31.0 million reported for the 2011 year.

"I am very happy with our 2012 results.  Strong product performance, high customer satisfaction and a growing reputation helped us increase our sales momentum, our average contract size is larger, and our top-tier customers are expanding their networks," said Eric Melka, Redline's CEO. "These complex networks are providing significant long term opportunity for Redline as they roll out over time and I am very excited about the future."

Included in the definition of total Recognized Revenue is amortized deferred revenue from prior RedMAX™ sales.  As the timeframe associated with the recognition of amortized deferred revenue from prior RedMAX sales ended June 30, 2012, the lower amount of amortized revenue in 2012 lowered the year-over-year comparative performance of total Recognized Revenue.  Hence for the 2012 year, total Recognized Revenue was $49.0 million, a decrease from $58.0 million reported in 2011 which included $18.7 million of amortized deferred revenue, versus $9.0 million of amortized deferred revenue included in 2012. Similarly, total Recognized Revenue for the three months ended December 31, 2012 was $11.0 million, down $7.2 million from $18.2 million for the same period last year, which included $4.7 million of amortized deferred revenue.

Gross margin on core (BWI) product sales during the 2012 fourth quarter and for the 2012 year was 63%. Blended gross margin for the 2012 fourth quarter was 61%, an improvement of nine percentage points compared to blended gross margin of 52% reported for the fourth quarter of 2011. The increase was the result of a higher relative contribution of BWI sales in the comparative sales mix.  For the year, blended gross margin was 56% compared to a blended gross margin of 58% for the year ended December 31, 2011.  The small decrease is primarily a result of a higher relative mix of lower margin "other" products required to deliver complete solutions in 2012.

The Company's ongoing commitment to manage operating costs and improve operating efficiencies resulted in a decrease in overall operating expenses of 3% to $6.9 million for the three months ended December 31, 2012 compared to $7.1 million reported for the same period last year.  Overall operating expenses for the 2012 year were $25.3 million, 9% lower than the $27.8 million reported for the same period last year, largely the result of efficiencies from the implementation of new information technology, which allowed the Company to continue to reduce overall staffing levels.

Adjusted EBITDA for the three months ended December 31, 2012 was $0.3 million, a decrease of $2.6 million over the $2.9 million for the corresponding period in 2011.  Adjusted EBITDA for the year ended December 31, 2012 was $3.8 million, a decrease of $4.0 million compared to $7.8 million for the corresponding period in 2011. The decrease is a direct result of the decrease in revenue as a result of the completion of the amortization period of all RedMAX Amortized Deferred Revenue at the end of June 30, 2012.

A non-cash loss of $6.4 million in the fourth quarter of 2012 relating to the fair market value adjustment on the Debenture resulted in a Net Loss for the period of $5.6 million, or ($0.58) per share as compared to a profit of $1.1 million, or $0.20 per share in the fourth quarter of 2011. For the full year, Redline reported a Net Loss of $9.5 million, or ($1.00) per share, as compared to a Net Profit of $4.1 million, $0.76 per share in 2011. The difference is attributed to a $12.3 million non-cash expense in 2012 relating to the fair market value adjustment on the Debenture and the effects of substantial deferred amortized revenue present in 2011 and not equally present for 2012. Excluding the non-cash expense relating to the fair market adjustment on the Debenture, net income for the 2012 year was $2.8 million or $0.29 per share, and for the three months ended December 31, 2012 was $0.9 million or $0.09 per share.

During 2012, the Company received approximately Cdn. $10.5 million in consideration from the exercise of warrants associated with the Debenture. Subsequent to December 31, 2012 the Company received an additional approximately Cdn. $2.9 million from the exercise of additional warrants, also associated with the Debenture. The Company also obtained a demand operating facility of Cdn. $10.0 million with HSBC Bank Canada ("HSBC"), providing additional working capital.

"Redline's balance sheet has been greatly strengthened this year providing working capital for our anticipated growth," added Melka.  "The conversion of almost all of the outstanding Debenture and associated warrants has added to our cash and has also significantly reduced the non-cash charges, which have obscured otherwise positive net income for the second year in a row."

At December 31, 2012, Redline held cash of approximately $8.3 million, up $3.5 million from the cash and short term investments balance of $4.8 million at December 31, 2011.

2012 business highlights included:

Selected Customer Wins:

• The Company received and shipped a large BWI product order to complete a major expansion of its wireless project for Shell Oil joint venture Petroleum Development Oman LLC (PDO), making it the Company's largest oil field deployment with over 5000 radios.
• Redline's wireless products were chosen by the Abu Dhabi Company for Onshore Oil Operations in the United Arab Emirates as part of an integrated digital oil field system to be delivered by systems integrator Alcatel-Lucent.
• Redline received a contract representing approximately 10% of Redline's annual revenue for 2012 with an existing oil and gas customer. Redline will be their prime contractor for a high-capacity wireless network in their new location in Oman.
• Redline received and shipped a $2 million order for its RAS system to a major US-based oil and gas company, providing high-capacity, high-availability mobile communications for drilling rigs.
• In the service provider space, Redline won a multi-million dollar multi-phase order for BWI product from an existing customer in Pakistan.

Partnerships:

• Redline joined the Cisco Developer Network as a Solution Developer and  Redline's RDL-3000 system successfully completed interoperability testing with Cisco Access Points.
• Redline joined Honeywell's PKS Advantage™ program, together demonstrating complete integrated M2M solutions for the oil and gas industry.

Product Milestones:

• In the third quarter of fiscal 2012, Redline announced the availability and shipment of over 300 of their ruggedized nomadic RAS Solution, the first wireless broadband networking system to automatically locate, and connect to a network base station, providing automatic, reliable wireless connectivity for mobile rigs and vehicles.
• In November 2012, Redline's RAS Nomadic Platform won top honors in the Backhaul Innovation category of the Fierce Innovation Awards.

Quality Recognition:

• Redline once again completed its ISO 9001 certification, receiving a perfect score.
• Subsequent to the end of 2012, Redline won the BSI Group Award of Excellence in recognition of its commitment to quality and business excellence in all aspects of its operation.

Conference Call and Webcast - March 27th, 2013 at 10:00 a.m. ET

A conference call and webcast to discuss the results will be held March 27, 2013 at 10:00 a.m. ET.  To participate in the conference call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call, and provide passcode 99021008.  A recording of the call will be available through April 4, 2012. To listen to the rebroadcast please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 99021008.  A webcast of the call will also be available on Redline's website at http://www.rdlcom.com/en/about/investors/webcasts.

The selected financial information included in this release is qualified in its entirety by, and should be read together with the Consolidated Financial Statements of the Company for the year ended December 31, 2012 and the Company's Management Discussion and Analysis for the three and twelve month periods ended December 31, 2012 ("2012 MD&A"), copies of which are available on SEDAR at www.sedar.com.

About Redline Communications

Redline Communications (www.rdlcom.com) the innovator of Virtual Fiber™, a specialized wireless broadband system used by companies and governments worldwide to cost-effectively deploy distributed services and applications.  Redline 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 and gas, and the telecom industry for over a decade through its global network of certified partners. 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", "Shipped or Shipments", "Backlog", "EBITDA", "EPS excluding the non-cash expense relating to the fair market adjustment on the Debenture", 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 and twelve months ended December 31, 2012 ("Q4 and 2012 Year MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three and twelve month results ended December 31, 2012 can be found in the condensed consolidated annual audited statement of financial position, condensed consolidated annual audited statement of comprehensive income, condensed consolidated annual audited statement of changes in equity and condensed consolidated annual auditedstatement 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 Audited Financial Statements of the Company for the three and twelve months ended December 31, 2012 and the  Q4 and 2012 Year 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 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.
Consolidated Statements of Financial Position
(Expressed in U.S. dollars)
				December 31, 2012			December 31, 2011
ASSETS
Current assets:
	Cash		$	8,286,732		$	4,651,284
	Short-term investment			-			92,144
	Restricted short-term investments			-			33,003
	Trade receivables			12,639,570			9,913,208
	Other receivables			571,382			340,499
	Inventories			6,973,414			7,851,884
	Deferred RedMAX cost of revenue			-			7,484,581
	Deferred cost of revenue			905,250			333,287
	Prepaid expenses and other deposits			1,061,622			2,214,309
				30,437,970			32,914,199
Non-current assets:
	Property, plant and equipment			875,352			1,026,480
	Intangible assets			107,593			158,239
	Other assets			99,180			97,365
				1,082,125			1,282,084
Total Assets			$	31,520,095		$	34,196,283
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities
	Bank indebtedness		$	2,296,855		$	-
	Trade and other payables			4,249,973			9,081,197
	Income tax payable			292,927			292,927
	Deferred RedMAX revenue			-			14,213,501
	Deferred revenue			2,796,497			2,285,406
	Current portion of borrowings			5,116,527			6,182,398
				14,752,779			32,055,429
Non-current liabilities
	Other payables			418,622			-
	Convertible debenture (principal and interest)			1,100,788			1,344,095
	Fair market value adjustment on convertible debenture			8,357,396			2,918,446
				9,876,806			4,262,541
Total Liabilities				24,629,585			36,317,970
SHAREHOLDERS' EQUITY (DEFICIENCY)
Share capital				152,123,803			134,336,023
Share purchase loan				(365,780)			(365,780)
Warrant				310,000			310,000
Contributed surplus				8,361,465			7,635,506
Deficit				(153,538,978)			(144,037,436)
				6,890,510			(2,121,687)
Total liabilities and equity			$	31,520,095		$	34,196,283

 

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Comprehensive (Loss) Income
(Expressed in U.S. dollars)
				2012			2011
Revenue			$	49,041,485		$	58,023,426
Cost of revenue				21,373,057			24,248,263
Gross profit				27,668,428			33,775,163
Expenses:
	Research and development			6,240,559			5,776,334
	Finance and administration			7,572,283			9,489,000
	Sales and marketing			9,685,446			10,314,476
	Operations and customer support			1,790,628			2,303,826
	Gain on disposal of assets			-			(51,519)
				25,288,916			27,832,117
Profit before other expenses (income)				2,379,512			5,943,046
Other expenses (income)
	Finance (income) expense			(390,804)			749,295
	Loss on fair market value of Debenture			12,287,156			1,285,811
	Foreign exchange loss (gain)			110,288			(274,214)
				12,006,640			1,760,892
(Loss) profit before income taxes				(9,627,128)			4,182,154
Income tax (recovery) expense				(125,586)			120,000
Net (loss) profit and total comprehensive (loss) income			$	(9,501,542)		$	4,062,154
Earnings (loss) per share
	Basic		$	(1.00)		$	0.76
	Diluted		$	(1.00)		$	0.71

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Changes in Equity
(Expressed in U.S. dollars)
				Share capital			Share purchase loan			Warrant			Contributed surplus			Deficit			Total
Balance at December 31, 2010			$	128,532,124		$	(365,780)		$	310,000		$	6,387,487		$	(148,099,590)		$	(13,235,759)
	Net profit			-			-			-			-			4,062,154			4,062,154
	Shares issued on   conversion of debenture			5,562,950			-			-			-			-			5,562,950
	Share-based payments			-			-			-			1,382,301			-			1,382,301
	Exercise of options			240,949			-			-			(134,282)			-			106,667
Balance at December 31, 2011			$	134,336,023		$	(365,780)		$	310,000		$	7,635,506		$	(144,037,436)		$	(2,121,687)
Balance at December 31, 2011			$	134,336,023		$	(365,780)		$	310,000		$	7,635,506		$	(144,037,436)		$	(2,121,687)
	Net loss			-			-			-			-			(9,501,542)			(9,501,542)
	Shares issued on   conversion of debenture			905,627			-			-			-			-			905,627
	Shares issued on   conversion of warrants			16,709,436			-			-			-			-			16,709,436
	Exercise of options			172,717			-			-			(92,929)			-			79,788
	Share-based payments			-			-			-			818,888			-			818,888
Balance at December 31, 2012			$	152,123,803		$	(365,780)		$	310,000		$	8,361,465		$	(153,538,978)		$	6,890,510

 

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
					2012			2011
Cash flows from operating activities:
	Net profit (loss)			$	(9,501,542)		$	4,062,154
	Adjustments to reconcile profit (loss) before taxes to net cash from operating activities
		Finance expense			(390,804)			749,295
		Depreciation and amortization of non-current assets			413,177			438,715
		Gain on disposal of asset			-			(51,519)
		Recognition of share based payments			818,888			1,382,301
		Foreign exchange (gain) loss on cash held in foreign currency			(29,199)			824
		Foreign exchange loss (gain) on borrowings			100,955			(578,584)
		Loss on fair market value of Debenture			12,287,156			1,285,811
		Income tax			(125,586)			120,000
					3,573,045			7,408,997
	Change in non-cash operating assets and liabilities
		Decrease in deferred cost of revenue			6,912,618			10,997,382
		Decrease in deferred revenue			(13,702,410)			(20,554,729)
		Change in other non-cash operating assets and liabilities			(5,340,505)			(6,882,569)
Cash used in operating activities					(8,557,252)			(9,030,919)
Cash flows from investing activities:
	Acquisition of property, plant and equipment				(156,692)			(583,582)
	Acquisition of intangible assets				(54,711)			(272,056)
	Proceeds from the disposal of property, plant and equipment				-			51,519
	Redemption (purchase) of investments				125,147			(32,707)
Cash (used in) from investing activities					(86,256)			(836,826)
Cash flows from financing activities:
	Finance costs				21,234			(66,424)
	Proceeds from exercise of options				79,788			106,667
	Proceeds from conversion of warrants				10,513,308			-
	Proceeds from bank indebtedness				2,296,855			-
	Proceeds of borrowings				103,488			8,534,848
	Repayment of borrowings				(764,916)			(78,308)
Cash from (used in) financing activities					12,249,757			8,496,783
Foreign exchange gain (loss) on cash held in foreign currency					29,199			(824)
Increase (decrease) in cash					3,635,448			(1,371,786)
Cash, beginning of the period					4,651,284			6,023,070
Cash, end of the period				$	8,286,732		$	4,651,284

 

 

SOURCE: Redline Communications Group Inc.

Redline Contact(s)

Lynda Partner
Communications
[phone]
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George Kypreos
Chief Financial Officer
[phone]
[email protected]

Cory Pala
Investor Relations
[phone]
[email protected]

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