Redknee Solutions Reports Fiscal Third Quarter 2014 Results

August 6, 2014

TORONTO, Aug. 6, 2014 /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, 2014. All figures are in U.S. dollars.

Fiscal Q3 2014 Financial Highlights

(Comparisons made between fiscal Q3 FY2014 and fiscal Q3 FY2013 results,
unless otherwise noted)

        --  Revenue totaled $63.9 million, up 9% from $58.6 million
        --  $9 million of revenue from a software license capacity increase
            issued but not recognized in the quarter that is expected to be
            recognized in Q1 FY15
        --  Gross profit was $27.9 million (44% of total revenue) compared
            to $32.0 million (55% of total revenue)
        --  Adjusted EBITDA loss of $3.2 million versus Adjusted EBITDA of
            $7.3 million
        --  Net loss totaled $6.9 million or $0.06 loss per share versus a
            net income of $0.1 million or $0.00 per share
        --  Cash at $99.0 million
        --  Order backlog at $172.7 million, the highest level in Redknee's
        --  Accounts receivable decreased by $11.4 million to $85.7M as at
            June 30, 2014, as compared to Q2 FY2014

Fiscal Q3 2014 Operational Highlights

        --  Announced the availability of Redknee Unified 10, the latest
            release of Redknee's integrated charging, billing, policy
            management and customer care solution for communications and
            connected industries.
        --  Awarded the Most Outstanding OSS/BSS Vendor Leading Lights
            Award by Light Reading.
        --  Secured significant upgrades to the latest version of Redknee
            Unified platform.
        --  Announced multi-million dollar customer orders throughout the
            quarter across all regions, while advancing Redknee's strategy
            to increase support value, sell upgrades and upsell additional
            software functionality to Redknee customers.
        --  Signed a multi-million dollar software, services, and support
            agreement with a Tier 1 service provider in APAC to support the
            growth and profitability of their 4G/ LTE strategy.
        --  Redknee's cloud-based Unified charging solution was selected by
            Vodafone Germany to support the operator's virtualization
            strategy, to optimize existing communication services and to
            future-proof its 4G / LTE network investments.
        --  169+ patents granted and 50+ patents filed.

Management Commentary

“During the third quarter of fiscal 2014, we continued to execute on
Redknee’s growth plan achieving record order backlog to date and
growing our revenues faster than our market. On a fiscal year to date
basis, we are in-line with our plan for both revenues and order growth
expansion. We are continuing to increase support value, upgrade
software to our existing customers and upsell our full portfolio to
over 200 telecom service providers,” said Lucas Skoczkowski, CEO of
Redknee. “We are focused on continuing to drive our share of higher
margin revenues and, with the integration of the Nokia Networks BSS
acquisition complete, we have initiated the next phase of our plan to
optimize our operating structure and strategically reduce our cost
base. Redknee is now well positioned to fully leverage our global
platform and looking forward we see a clear path toward expanding
Adjusted EBITDA into our target range over the next four quarters. We
remain committed to bringing the highest level of service to our
customers and see a great opportunity ahead in both our core
communication business, as well as non-telecom monetization to serve
the evolving Internet of Things market.”

Fiscal Q3 2014 Financial Results

Revenue was $63.9 million compared to $58.6 million in the same year-ago
quarter. The revenue growth was primarily due to increased license and
third-party sales.

Redknee enjoyed strong order bookings in the quarter driving order
backlog to grow to a record $172.7 million. Order backlog includes the new license expansion contract signed that due to its terms
did not contribute revenue in the current period, but is expected to
result in the recognition of approximately $9 million of incremental
high margin license revenue in Q1 FY15.

Recurring revenue was 51% of total revenue compared to 54% for the same
year-ago quarter. Recurring revenue consists of support and
maintenance, long-term service contracts, and revenue from term-based

Gross margin was 44% compared to 55% in the same year-ago quarter. The
change in gross margin was primarily attributable to an increase in the
use of subcontractors as the company expands into new regions. Over the
coming quarters, the Company expects margin to improve as costs of
providing service are improved and revenue mix shifts as a result of an
expected increase in revenue from high-margin software license deals.

Accounts receivable was $85.7M at the end of the quarter as compared to
$66.4 million as at September 30, 2013. On a quarter over quarter basis
accounts receivables have declined by $11.4 million, or 13%, from $97.1
million as at March 31, 2014, reflecting the positive impact of changes
the Company has implemented in its billing practices earlier this year.

Adjusted EBITDA loss was $3.2 million compared to Adjusted EBITDA of
$7.3 million in the same year-ago quarter (see discussion about the
presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totaled $6.9 million, or $0.06 loss per diluted share, compared
to a net income of $0.1 million, or $0.00 per diluted share, in the
same year-ago quarter. The “Reconciliation of Net Income (Loss) to
Adjusted EBITDA” is presented below.

At June 30, 2014, cash and cash equivalents totaled $99.0 million.

Expense Realignment

The Company has commenced a comprehensive review of its cost structure
in light of its recent completion of the Nokia Networks BSS asset
integration. Over the next 12 to 18 month period, the Company intends
to reduce its reliance on external contractors, eliminate satellite
office locations, concentrate R&D and support staff into existing
locations and consolidate activities to lower cost centres. The Company
expects this process will reduce its annual overall expenses by $30
million to $35 million by fiscal 2016, with partial savings occurring
throughout fiscal 2015. A onetime charge of approximately $15 million
to $20 million is expected to be incurred over Q4 2014 and Q1 2015.

“Having completed the integration of the Nokia Networks asset, it is a
logical time to assess our global operations in order to ensure the
business meets the objectives we’ve set in terms of top-line growth,
profitability and cash flow,” said Lucas Skoczkowski, CEO of Redknee.
“As a requirement of the integration, we opened additional work centres
and took on external contractors. Now that integration is complete, we
are taking appropriate and disciplined steps to streamline our global
operations and further optimize our cost structure.”

The proposed changes are expected to have no direct impact on customer
service or the Company’s product development, delivery or support.

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, August 7,
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, August 7, 2014

Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)

Dial-In Number: 1 (888) 231-8191

International: 1 (647) 427-7450

Conference ID#: 63133440

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/1xNf97S

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 (416) 815-0700, ext. 253.

A replay of the call will be available after 11:30 a.m. Eastern time on
the same day through August 14, 2014.

Toll-Free Replay Number: 1 (855) 859-2056

International Replay Number: 1 (416) 849-0833

Replay PIN: 63133440

About Redknee Solutions Inc.

Redknee is a leading global provider of innovative 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 connected customer experience – through either SaaS or
on-premise based solutions. Redknee’s real-time monetization and
subscriber management platform provides innovative converged charging,
billing, policy management and customer care solutions for over 200
communications service providers and is supporting service providers to
monetize the growing ecosystem of the Internet of Things. 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, 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) 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.

“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 in
isolation or as a substitute 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. 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
anticipated revenues in Q1 FY15 under a new license expansion contract,
reduction in annual expenses in fiscal 2015 and 2016 and no direct
impact on customer service or the Company’s product [development],
expansion of [adjusted] EBITDA, future opportunities in the company’s
core communication and non-telecom monetization businesses, improvement
in margin with an increase in revenue from higher-margin software
license deals 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 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)                                


                                               June 30,       September 30,
                                                   2014                2013


    Current assets:                                            

      Cash and cash equivalents        $     97,826,227     $    79,054,757

      Trade accounts and other               85,748,641          66,393,041

      Unbilled revenue                       50,372,016          39,421,584

      Prepaid expenses                        5,615,175           1,943,986

      Other assets                              881,860             832,516

      Inventories                             9,936,077           6,644,580

      Total current assets                  250,379,996         194,290,464

    Restricted cash                           1,179,357           1,011,361

    Property and equipment                    9,417,795          10,890,910

    Deferred income taxes                     1,958,712           1,923,409

    Investment tax credits                      437,669             378,923

    Other assets                              2,440,524           3,179,724

    Intangible assets                        34,618,831          38,732,447

    Goodwill                                  7,638,590           7,638,590

    Total assets                       $    308,071,474     $   258,045,828

    Liabilities and Shareholders'

    Current liabilities:                                       

      Trade payables                   $     15,621,937     $    15,707,464

      Accrued liabilities                    45,500,519          59,532,922

      Provisions                                      -           1,201,050

      Income taxes payable                    1,080,044           2,445,616

      Contingent consideration               10,413,552                   -

      Deferred revenue                       13,346,958          14,935,451

      Loans and borrowings                      375,000             375,000

      Total current liabilities              86,338,010          94,197,503

    Deferred revenue                          2,484,135           4,149,940

    Other liabilities                         3,330,348           2,793,146

    Pension and non-pension
    post-employment benefit                   2,063,794             814,335

    Contingent consideration                  8,505,399          24,833,537

    Loans and borrowings                     46,703,233          32,956,036

    Deferred income taxes                       658,177             744,652

    Total liabilities                       150,083,096         160,489,149

    Shareholders' equity:                                      

      Share capital                         173,751,553         109,017,145

      Treasury stock                           (21,226)           (132,050)

      Contributed surplus                     5,112,674           4,357,175

      Deficit                              (22,351,654)        (17,182,622)

      Accumulated other                       1,497,031           1,497,031
      comprehensive income

      Total shareholders' equity            157,988,378          97,556,679

    Total liabilities and              $    308,071,474     $   258,045,828
    shareholders' equity


    Condensed Consolidated Interim Statements of
    Comprehensive Income (Loss)

    (Expressed in
    U.S. dollars)


                                    Three months ended                   Nine months ended

                                            June 30,                           June 30,

                                    2014             2013              2014              2013


      services and         $  31,884,208     $ 28,057,789     $ 107,009,291     $  42,085,340

      Support                 32,039,126       30,562,514        89,750,603        42,524,703

                              63,923,334       58,620,303       196,759,894        84,610,043

    Cost of revenue           36,012,726       26,668,407       101,113,001        36,520,665

    Gross profit              27,910,608       31,951,896        95,646,893        48,089,378


      Sales and                9,129,659        8,963,710        26,725,403        15,610,082

      General and              9,008,501        6,024,125        24,850,905        10,842,726

      Research and            16,770,558       12,400,828        47,608,566        19,007,158

      and related                623,458        3,012,481         3,891,516        11,194,456

                              35,532,176       30,401,144       103,076,390        56,654,422

    Income (loss)            (7,621,568)        1,550,752       (7,429,497)       (8,565,044)
    from operations

    Foreign exchange             770,947        (587,236)           215,614       (1,239,683)
    gain (loss)

    Other income                 113,351                -         5,914,586        11,796,825

    Finance income                19,860            3,312            44,046            22,659

    Finance costs              (869,435)        (209,468)       (2,265,591)         (442,495)

    Income (loss)
    before income            (7,586,845)          757,360       (3,520,842)         1,572,262

    Income taxes

      Current                  (690,743)          707,580         1,749,079           954,711

      Deferred                  (18,118)         (30,305)         (100,889)          (88,666)

                               (708,861)          677,275         1,648,190           866,045

    comprehensive          $ (6,877,984)     $     80,085     $ (5,169,032)     $     706,217

    Net income per
    common share:

      Basic                       (0.06)             0.00            (0.05)              0.01

      Diluted                     (0.06)             0.00            (0.05)              0.01

    Weighted average
    number of common

      Basic                  108,891,987       80,727,695       100,988,698        78,845,355

      Diluted                108,891,987       84,548,170       100,988,698        82,173,277


    Statements of
    Cash Flows

    (Expressed in
    U.S. dollars)


                                 Three months ended                    Nine months ended

                                        June 30,                              June 30,

                                2014              2013               2014               2013

    Cash provided by
    (used in):


      Net income      $  (6,877,984)     $      80,085     $  (5,169,032)     $      706,217


        of property        1,365,161           860,207          4,419,329          1,021,316
        and equipment

        of intangible      1,792,754         1,603,775          5,219,094          1,950,082

        Finance             (19,860)           (3,312)           (44,046)           (22,659)

        Finance costs        869,435           209,468          2,265,591            442,495

        Income tax         (708,861)           677,275          1,648,190            866,045

        foreign          (1,789,445)           883,313        (1,585,611)          1,438,611
        exchange loss

        Share-based          629,152           270,087          1,845,958          1,185,076

        of contingent      (113,351)                 -        (5,914,586)                  -

        purchase gain              -                 -                  -       (11,796,825)

        Changes in
        operating       (10,798,028)       (1,199,481)       (54,555,361)        (1,480,408)

                        (15,651,027)         3,381,417       (51,870,474)        (5,690,050)

        Interest paid      (765,042)         (107,091)        (1,401,514)          (287,605)

        Interest              19,681             2,609             42,548             32,202

        Income taxes     (1,124,093)         (312,495)        (3,270,231)          (582,493)

                        (17,520,481)         2,964,440       (56,499,671)        (6,527,946)


        Issuance of                -                 -         63,833,834         18,731,390
        share capital

        Proceeds from
        private                    -        41,060,376                  -         41,060,376

        Proceeds from
        exercise of           23,207            65,706            571,384            792,973
        stock options

        Proceeds of
        loans and                  -        15,000,000         13,500,000         15,000,000

        costs of                   -       (1,496,230)                  -        (1,496,230)
        loans and

                              23,207        54,629,852         77,905,218         74,088,509


        Purchase of
        property and     (1,055,655)         (571,222)        (2,946,214)        (1,204,306)

        Purchase of
        intangible         (213,342)         (270,377)        (1,105,478)          (426,953)

        (decrease) in          (867)            54,333          (167,996)            107,671

        Acquisition                -                 -                  -        (4,571,451)
        of business 

                         (1,269,864)         (787,266)        (4,219,688)        (6,095,039)

    Effect of foreign
    exchange rate
    changes on

      cash and cash        1,789,445         (883,313)          1,585,611        (1,438,611)

    (decrease) in       (16,977,693)        55,923,713         18,771,470         60,026,913
    cash and cash

    Cash and cash
    equivalents,         114,803,920        20,981,723         79,054,757         16,878,523
    beginning of

    Cash and cash
    equivalents, end  $   97,826,227     $  76,905,436     $   97,826,227     $   76,905,436
    of period


    of Net Income
    (Loss) to

    (Expressed in
    U.S. dollars)


                                  Three months ended                   Nine months ended

                                          June 30,                            June 30,

                                   2014            2013              2014               2013

    Net (loss)
    income for the          (6,877,984)          80,085       (5,169,032)            706,217

    Add back /

      of property             1,365,161         860,207         4,419,329          1,021,316
      and equipment

      of intangible           1,792,754       1,603,775         5,219,094          1,950,082

      of contingent           (113,351)               -       (5,914,586)                  -

      purchase gain                   -               -                 -       (11,796,825)

      Finance                  (19,860)         (3,312)          (44,046)           (22,659)

      Finance costs             869,435         209,468         2,265,591            442,495

      Income tax              (708,861)         677,275         1,648,190            866,045

      Share-based               629,152         270,087         1,845,958          1,185,076

      exchange                (770,947)         587,236         (215,614)          1,239,683
      (gain) loss

    EBITDA                  (3,834,501)       4,284,821         4,054,884        (4,408,570)


      and related               623,458       3,012,481         3,891,516         11,194,456

    Adjusted EBITDA       $ (3,211,043)     $ 7,297,302     $   7,946,400     $    6,785,886

SOURCE Redknee Solutions Inc.

Source: PR Newswire

comments powered by Disqus