Redknee Solutions Reports Fiscal First Quarter 2016 Results

TORONTO, Feb. 10, 2016 /CNW/ – Redknee Solutions Inc. (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal first quarter ended December 31, 2015. All figures are in U.S. dollars.

 

Fiscal Q1 2016 Financial Highlights
(Comparisons made between fiscal Q1FY2016 and fiscal Q1FY2015 results, unless otherwise noted)

 

Fiscal Q1 2016 Operational Highlights

 

Highlights Subsequent End of Q1 2016

 

Management Commentary

“The first quarter saw continued progress on our near-term priorities, highlighted by gross margin expansion, improving cash flows and a growing order book, notwithstanding a period in which the typical lumpiness in our software license revenue was exacerbated by several purchase decision delays, as well as the full cost structure of the Orga acquisition,” said Lucas Skoczkowski, CEO of Redknee. “We are encouraged by both our strong first quarter bookings and our continuing engagement with these operators and we believe that we remain well positioned to secure these orders over the coming several quarters.”

Mr. Skoczkowski continued, “With the integration of Orga Systems substantially complete, as per the plan we outlined at the time of acquisition, we have moved quickly and decisively on our cost structure optimization program.  The expected cost savings of $20 to $25 million annually will further contribute to long-term cash flow and profitability.  We continue to expect the acquisition of Orga to be accretive in fiscal 2016.  Importantly, we are confident the proposed changes will in no way impact our high standard of customer service or our product development, delivery or support.”

“As we look out to the year ahead, amidst the expected ongoing softness in service provider spending, we will remain laser-focused on maximizing our profitability and cash flow generation, while growing our proportion of recurring revenue.  We remain steadfast in our commitment to continuing to advance our strong competitive position as the provider of choice for monetization and subscriber management solutions for service providers worldwide in our core communications market, while leveraging our reputation and experience in pursuit of the significant opportunities related to the Internet of Things.”

 

Fiscal Q1 2016 Financial Results

Revenue was $50.1 million ($54.8 million on a constant currency basis) compared to $62.6 million in the same year-ago quarter. The change in revenue compared to the prior year period resulted mainly from the impact of foreign exchange variation and lower license revenue compared to the same year-ago quarter.

Order backlog increased 5% to $166.8 million ($173.0 million on a constant currency basis) from $158.5 million in the fourth quarter of fiscal 2015.

Recurring revenue was 52% of total revenue, compared to 44% in the same year-ago quarter.

Gross margin was 29.7 million or 59% compared to $36.6 million or 58% in the same year-ago quarter.

Adjusted EBITDA was $4.8 million, or 10% of revenue, compared to Adjusted EBITDA of $11.0 million, or 18% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totalled $4.3 million, or $0.04 loss per basic and diluted share compared to a net income of $2.0 million, or $0.02 income per basic and diluted share, in the same year-ago quarter.

At December 31, 2015, total cash ended at $49.0 million.

Please refer to the section regarding forward-looking statements which form an integral part of this release. These results, along with the annual audited consolidated financial statements and the Company’s 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 (February 11, 2016) 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 February 11, 2016
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#: 26272800

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/1ZiGLO1.

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 NATIONAL | Equicom at 1 (416) 586-1955.

A replay of the call will be available until 12:00 midnight (EST) Thursday, February 18, 2016.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 26272800

 

About Redknee Solutions Inc.

Redknee monetizes today’s digital world. We provide a complete portfolio of mission-critical monetization and subscriber management solutions and services that allow communications service providers, utility companies, auto makers and enterprise businesses of all types to charge for things in new and innovative ways. Redknee’s real-time billing, charging, policy and customer care offerings provide the agility and scalability to drive a unique user experience, increase profitability and support any new product or business model. Available on premise, cloud-based, or as a Software-as-a-Service, Redknee’s low-risk, flexible solutions power more than 250 businesses across the globe.  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 (loss), 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) excluding amounts for depreciation and amortization, other income, finance costs, finance income, income tax expense (recovery), foreign exchange gain (loss), share-based compensation, restructuring costs and acquisition and related costs. “Recurring revenue,” 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. 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.

The “constant currency” presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates.  The Company calculates constant currency by converting the current period local currency financial results using the comparative period exchange rates.

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 these 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 Q4 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)

(Unaudited)

 

December 31,

 

September 30,

 

2015

 

2015

Assets

Current assets:

Cash and cash equivalents

$

43,225,618

$

55,047,577

Trade accounts and other receivables

65,212,319

67,439,885

Unbilled revenue

40,234,965

38,612,499

Prepaid expenses

2,649,713

2,535,936

Income taxes receivable

1,687,830

1,399,564

Other assets

376,114

392,195

Inventories

797,887

812,987

Total current assets

154,184,446

166,240,643

Restricted cash

5,810,179

5,972,087

Property and equipment

7,779,025

8,435,008

Deferred income taxes

3,712,970

4,286,459

Investment tax credits

336,978

351,385

Other assets

1,802,212

1,816,640

Intangible assets

42,179,057

44,821,478

Goodwill

31,281,092

31,281,092

Total assets

$

247,085,959

$

263,204,792

Liabilities and Shareholders’ Equity

Current liabilities:

Trade payables

$

11,624,856

$

9,128,710

Accrued liabilities

29,965,445

32,305,136

Provisions

6,984,952

8,772,519

Income taxes payable

2,529,168

2,364,983

Settlement accrual and contingent consideration

3,604,425

10,244,224

Deferred revenue

12,244,252

13,363,696

Loans and borrowings

2,100,000

1,800,000

Total current liabilities

69,053,098

77,979,268

Deferred revenue

889,458

870,937

Other liabilities

1,743,704

2,615,163

Pension and other long-term employment benefit plans

11,691,735

11,417,481

Loans and borrowings

54,267,647

54,961,066

Provisions

2,961,754

4,006,354

Total liabilities

140,607,396

151,850,269

Shareholders’ equity:

Share capital

173,308,039

174,082,815

Treasury stock

(141,917)

(141,917)

Contributed surplus

8,180,871

7,899,360

Deficit

(71,391,715)

(67,086,722)

Accumulated other comprehensive loss

(3,476,715)

(3,399,013)

Total shareholders’ equity

106,478,563

111,354,523

Total liabilities and shareholders’ equity

$

247,085,959

$

263,204,792

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

December 31,

2015

2014

Revenue:

Software, services and other

$

25,118,234

$

37,955,600

Support and subscription

24,997,577

24,621,329

 

50,115,811

 

62,576,929

Cost of revenue

20,397,916

25,988,490

Gross profit

29,717,895

36,588,439

Operating expenses:

Sales and marketing

8,401,274

9,462,239

General and administrative

7,288,271

7,062,384

Research and development

12,755,071

12,329,782

Acquisition and related costs

833,704

415,051

Restructuring costs

278,546

336,714

 

29,556,866

 

29,606,170

Income from operations

161,029

6,982,269

Foreign exchange loss

(493,008)

(2,668,913)

Finance income

5,374

4,482

Finance costs

(1,048,531)

(898,217)

Income (loss) before income taxes

(1,375,136)

3,419,621

Income tax expense:

Current

2,381,289

1,399,795

Deferred

548,568

8,865

 

2,929,857

 

1,408,660

Net income (loss)

(4,304,993)

2,010,961

Other comprehensive loss:

Pension actuarial adjustment

(77,702)

Comprehensive income (loss)

$

(4,382,695)

$

2,010,961

Net income (loss) per common share:

Basic

(0.04)

0.02

Diluted

(0.04)

0.02

Weighted average number of common shares outstanding:

Basic

109,136,362

108,944,276

Diluted

109,136,362

111,410,637

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

December 31,

 

2015

 

2014

Cash provided by (used in):

Operating activities:

Net income (loss)

$

(4,304,993)

$

2,010,961

Adjustments for:

Depreciation of property and equipment

1,003,027

942,236

Amortization of intangible assets

2,287,866

1,812,382

Finance income

(5,374)

(4,482)

Finance costs

1,048,531

898,217

Pension expense

196,552

169,791

Income tax expense

2,929,857

1,408,660

Unrealized foreign exchange loss

1,103,147

1,865,646

Share-based compensation

249,609

465,166

Revaluation of contingent consideration

(576,243)

Change in provisions

(2,832,167)

(3,438,084)

Change in non-cash operating working capital

(719,629)

(9,096,004)

 

956,426

 

(3,541,754)

Interest paid

(320,768)

(49,754)

Interest received

11,685

49,504

Income taxes paid

(2,456,657)

(871,201)

(1,809,314)

(4,413,205)

Financing activities:

Proceeds from exercise of stock options

37,500

64,130

Purchase of shares under normal course issuer bid

(1,106,482)

Interest paid on loans and borrowings

(829,640)

(931,655)

Repayment of loans and borrowings

(450,000)

(375,000)

Transaction costs on loans and borrowings

(90,496)

 

(2,439,118)

 

(1,242,525)

Investing activities:

Purchase of property and equipment

(507,420)

(331,868)

Purchase of intangible assets

(11,259)

(136,296)

Decrease (increase) in restricted cash

161,908

(146,218)

Settlement accrual paid

(6,639,799)

 

(6,996,570)

 

(614,382)

Effect of foreign exchange rate changes on cash and cash equivalents

(576,957)

(1,865,646)

Decrease in cash and cash equivalents

(11,821,959)

(8,135,758)

Cash and cash equivalents, beginning of period

55,047,577

108,636,797

Cash and cash equivalents, end of period

$

43,225,618

$

100,501,039

REDKNEE SOLUTIONS INC.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

December 31,

 

2015

 

2014

Net income (loss) for the period

(4,304,993)

2,010,961

Add back / (subtract):

Depreciation of property and equipment

1,003,027

942,236

Amortization of intangible assets

2,287,866

1,812,382

Finance income

(5,374)

(4,482)

Finance costs

1,048,531

898,217

Income tax expense

2,929,857

1,408,660

Share-based compensation

249,609

465,166

Foreign exchange loss

493,008

2,668,913

Restructuring costs

278,546

336,714

Acquisition and related costs

833,704

415,051

Adjusted EBITDA

$

4,813,781

$

10,953,818

 

SOURCE Redknee Solutions Inc.