Redknee Solutions Reports Fiscal Second Quarter 2015 Results

TORONTO, May 6, 2015 /CNW/ – Redknee Solutions Inc.  (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal second quarter ended March 31, 2015. All figures are in U.S. dollars.

 

Fiscal Q2 2015 Financial Highlights
(Comparisons made between fiscal Q2FY2015 and fiscal Q2FY2014 results, unless otherwise noted)

 

Fiscal Q2 2015 Operational Highlights

 

Management Commentary

“During the second quarter of fiscal 2015, we have continued to execute on our growth strategy by improving our revenue mix resulting in gross margin improvement and strong adjusted EBITDA,” said Lucas Skoczkowski, CEO of Redknee. “Our focus remains on supporting customers with our advanced software solutions and increasing our position as the largest independent real-time converged monetization software provider for communications. Our leading software solutions are increasingly being leveraged to support the rise of M2M and the Internet of Things (IoT) across our traditional customer base and non-telecom verticals including utilities, smart homes, and smart energy. As our market continues to consolidate, Redknee has a great opportunity to leverage its software platform, and its high customer reference ability to further expand our customer base and grow our sales pipeline. We remain disciplined in execution, focusing on margin improvement and cash flow generation, while we continue to seek accretive acquisitions to achieve our long-term business goals.”

 

Fiscal Q2 2015 Financial Results
Revenue was $53.7 million ($61.1 million on a constant currency basis) compared to $72.4 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, lower third-party hardware sales, as well as lower support revenue due to expected non-renewal of certain support contracts.

Order backlog declined 7% to $157.2 million ($175.8 million on a constant currency basis) compared to $164.7 million in the same year-ago quarter.

Recurring revenue was 46% of total revenue, compared to 36% in the same year-ago quarter.

Gross margin was 61% compared to 48% in the same year-ago quarter. The increase in gross margin was primarily attributable to the increase in revenue from high-margin software license deals, and increased margins for services and support.

Adjusted EBITDA was $10.5 million, or 20% of revenue, compared to Adjusted EBITDA of $5.7 million, or 8% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totalled $2.0 million, or $0.02 loss per basic and diluted share (net income of $6.8 million or $0.06 per share on a constant currency basis), compared to a net income of $4.8 million, or $0.05 income per basic and diluted share, in the same year-ago quarter.

At March 31, 2015, total cash ended at $105.8 million. This reflects the impact of $3.4 million in restructuring charges as well as a $3.4 million decrease due to foreign exchange rate variation in the quarter. Cash flow from operations totalled $13 million, excluding restructuring payments of $3.4 million incurred in the quarter.

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 (May 7, 2015) 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 7, 2015
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#: 27369765

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/1CUvUhw.

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 until 12:00 midnight (EST) Thursday, May 14, 2015.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 27369765

 

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 digital services across utilities and smart meters, transportation, connected homes and vehicles, and other enterprises that are emerging from the growing ecosystem of the Internet of Things (IoT).  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 expenses, 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 fromsupport and maintenance agreements, long term service agreements, and term-based product licenses and software subscription.

“Order backlog” relates tocontractual 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 Q2 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 Statement of Financial Position

(Expressed in U.S. dollars)

(Unaudited)

March 31,
2015

September 30,
2014

Assets

Current assets:

Cash and cash equivalents

$

104,351,704

$

108,636,797

Trade accounts and other receivables

74,938,515

71,393,983

Unbilled revenue

30,707,764

42,396,988

Prepaid expenses

2,730,994

4,339,650

Other assets

753,890

898,871

Inventories

2,859,859

5,199,362

Total current assets

216,342,726

232,865,651

Restricted cash 

1,440,479

881,940

Property and equipment 

7,227,646

8,708,115

Deferred income taxes

1,681,228

1,939,416

Investment tax credits

368,267

416,222

Other assets 

1,792,711

2,089,688

Intangible assets

29,921,643

32,819,313

Goodwill

7,638,590

7,638,590

Total assets 

$

266,413,290

$

287,358,935

Liabilities and Shareholders’ Equity

Current liabilities:

Trade payables

$

10,965,116

$

9,538,161

Accrued liabilities

30,388,396

38,566,558

Provisions

10,918,879

14,967,576

Income taxes payable

1,235,724

1,595,569

Contingent consideration

12,311,474

14,454,527

Deferred revenue

17,712,921

20,743,769

Loans and borrowings

3,375,000

750,000

Total current liabilities

86,907,510

100,616,160

Deferred revenue

2,800,059

3,601,859

Other liabilities

3,069,539

2,281,341

Pension and non-pension post-employment benefit obligation

10,023,753

10,258,900

Loans and borrowings 

42,773,405

45,809,713

Provisions

2,073,722

6,608,270

Deferred income taxes

36,016

Total liabilities

147,647,988

169,212,259

Shareholders’ equity:

Share capital

173,890,989

173,757,863

Treasury stock

(141,917)

(21,226)

Contributed surplus

6,300,060

5,665,135

Deficit

(57,108,881)

(57,080,147)

Accumulated other comprehensive income

(4,174,949)

(4,174,949)

Total shareholders’ equity

118,765,302

118,146,676

Total liabilities and shareholders’ equity

$

266,413,290

$

287,358,935

 

Redknee Solutions Inc.

Condensed Consolidated Interim Statements of Comprehensive Income (Loss)

(Expressed in U.S. dollars)

(Unaudited)

 

Three months ended
March 31,

 

 

Six months ended
March 31,

 

2015

2014

2015

2014

Revenue:

Software, services and other

$

31,220,323

$

46,696,242

$

69,175,923

$

74,071,458

Support and subscription

22,522,584

25,737,078

47,143,913

58,765,102

53,742,907

72,433,320

116,319,836

132,836,560

Cost of revenue

21,000,581

37,720,340

46,989,071

65,100,275

Gross profit

32,742,326

34,712,980

69,330,765

67,736,285

Operating expenses:

Sales and marketing

7,700,464

9,087,347

17,162,703

17,595,744

General and administrative

7,511,581

7,667,655

14,573,965

15,842,404

Research and development

11,397,028

15,953,669

23,726,810

30,838,008

Restructuring costs

251,635

588,349

Acquisition and related costs

279,432

2,395,690

694,483

3,268,058

27,140,140

35,104,361

56,746,310

67,544,214

Income (loss) from operations

5,602,186

(391,381)

12,584,455

192,071

Foreign exchange gain (loss)

(5,178,499)

582,571

(7,847,412)

(555,333)

Other income

6,951,904

5,801,235

Finance income

7,192

9,427

11,674

24,186

Finance costs

(1,116,244)

(811,636)

(2,014,461)

(1,396,156)

Income (loss) before income taxes

(685,365)

6,340,885

2,734,256

4,066,003

Income tax (recovery):

Current

1,370,784

1,595,017

2,770,579

2,439,822

Deferred

(16,454)

(23,653)

(7,589)

(82,771)

1,354,330

1,571,364

2,762,990

2,357,051

Net income (loss) and comprehensive income (loss)

$

(2,039,695)

$

4,769,521

$

(28,734)

$

1,708,952

Net income (loss) per common share:

Basic

(0.02)

0.05

(0.00)

0.02

Diluted

(0.02)

0.05

(0.00)

0.02

Weighted average number of common shares:

Basic

109,089,428

98,362,310

109,017,472

97,015,120

Diluted

109,089,428

101,796,856

109,017,472

100,465,490

 

Redknee Solutions Inc.

Consolidated  Statement of Cash Flows

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

Six months ended

March 31,

March 31,

2015

2014

2015

2014

Cash provided by (used in):

Operating activities:

Net income

$

(2,039,695)

$

4,769,521

$

(28,734)

$

1,708,952

Adjustments for:

Depreciation of property and equipment

1,135,416

1,451,105

2,077,652

3,054,168

Amortization of intangible assets

1,527,207

1,736,206

3,339,589

3,426,340

Finance income

(7,192)

(9,427)

(11,674)

(24,186)

Finance costs

1,116,244

811,636

2,014,461

1,396,156

Pensions

(404,938)

430,061

(235,147)

834,567

Income tax expense

1,354,330

1,571,364

2,762,990

2,357,051

Unrealized foreign exchange loss (gain)

3,895,407

158,133

5,761,053

203,834

Share-based compensation

1,733,015

546,600

2,198,181

1,216,806

Revaluation of contingent consideration

(1,566,810)

(6,951,904)

(2,143,053)

(5,801,235)

Change in provisions

(5,145,161)

(1,201,050)

(8,583,245)

(1,201,050)

Change in non-cash operating working capital

10,143,262

(22,963,360)

1,047,258

(43,390,850)

11,741,085

(19,651,115)

8,199,331

(36,219,447)

Interest paid

(39,082)

953

(88,836)

Interest received

(37,830)

8,108

11,674

22,867

Income taxes paid

(2,038,430)

(2,053,879)

(2,909,631)

(2,146,138)

9,625,743

(21,695,933)

5,212,538

(38,342,718)

Financing activities:

Issuance of share capital

63,833,834

63,833,834

Proceeds from exercise of stock options

15,095

507,404

79,225

548,177

Purchase of treasury stock

(536,507)

(536,507)

Interest paid on loans and borrowings

(636,472)

(931,655)

(636,472)

Proceeds from loans and borrowings

3,500,000

13,500,000

Repayment of loans and borrowings

(375,000)

(750,000)

Transaction costs of loans and borrowings

10,032

(896,412)

67,214,798

(2,138,937)

77,245,539

Investing activities:

Purchase of property and equipment

(465,104)

(818,593)

(796,972)

(1,890,559)

Purchase of intangible assets

(626,761)

(735,708)

(763,057)

(892,136)

Decrease in restricted cash

(412,321)

(151,902)

(558,539)

(167,129)

(1,504,186)

(1,706,203)

(2,118,568)

(2,949,824)

Effect of foreign exchange rate changes on
cash and cash equivalents

(3,374,480)

(158,133)

(5,240,126)

(203,834)

Increase (decrease) in cash and cash equivalents

3,850,665

43,654,529

(4,285,093)

35,749,163

Cash and cash equivalents, beginning of period

100,501,039

71,149,391

108,636,797

79,054,757

Cash and cash equivalents, end of period

$

104,351,704

$

114,803,920

$

104,351,704

$

114,803,920

 

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,

2015

2014

2015

2014

Net income (loss) for the period

(2,039,695)

4,769,521

(28,734)

1,708,952

Add back / (subtract):

Depreciation of property and equipment

1,135,416

1,451,105

2,077,652

3,054,168

Amortization of intangible assets

1,527,207

1,736,206

3,339,589

3,426,340

Other income

(6,951,904)

(5,801,235)

Finance income

(7,192)

(9,427)

(11,674)

(24,186)

Finance costs

1,116,244

811,636

2,014,461

1,396,156

Income tax expense

1,354,330

1,571,364

2,762,990

2,357,051

Share-based compensation

1,733,015

546,600

2,198,181

1,216,806

Foreign exchange loss (gain)

5,178,499

(582,571)

7,847,412

555,333

EBITDA

9,997,824

3,342,530

20,199,877

7,889,385

Adjustments

Restructuring costs

251,635

588,349

Acquisition and related costs

279,432

2,395,690

694,483

3,268,058

Adjusted EBITDA

$

10,528,891

$

5,738,220

$

21,482,709

$

11,157,443

 

SOURCE Redknee Solutions Inc.