Redknee Solutions Reports Second Quarter Fiscal 2016 Results

– Order Backlog Strengthening as Company Signs Multiple Large Contracts
During and Post-Quarter –

 

TORONTO, May 9, 2016 /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, 2016. (All figures are in U.S. dollars unless otherwise stated.)

 

Fiscal Q2 2016 Financial Highlights
(Comparisons made between fiscal Q2FY2016 and fiscal Q2FY2015 results, unless otherwise noted)

 

Fiscal Q2 2016 Operational Highlights

 

Operational Highlights Subsequent to Fiscal Q2 2016

 

Management Commentary

“We are seeing our business returning to a strong orders momentum,” said Lucas Skoczkowski, President and CEO, Redknee Solutions Inc. “As per our expectation subsequent to the quarter end, we have closed over $35 million of orders, including our most recent three-year $20-plus million software and services expansion contract, further strengthening our order backlog, while supporting growth in revenues in the coming quarters.”

“Although our first half fiscal 2016 results have been impacted by the purchasing decision delays of communication service providers, Redknee continues to provide one of the most agile and competitive solutions on the market which is essential to our customers’ ability to execute their transition from traditional to real time digital business models. We have proven our ability to replace large competitors in the market and successfully delivered Redknee’s managed services offering for a mission critical system with over 100 million subscribers. Our sales pipeline continues to be robust, customer and partner discussions are active, and we are confident that we will add more significant contract wins over the coming quarters.”

“In our operations, we continue to make progress on our near-term priorities of expanding gross margin, growing recurring revenue and driving cash flow generation alongside our ongoing focus on optimizing our cost structure to maximize long-term profitability. We have reached agreement on restructuring in the key locations and we now expect annual costs savings of up to $25 million on total restructuring costs of up to $28 million.”

 

Fiscal Q2 2016 Financial Results

Revenue was $39.8 million ($40.6 million on a constant currency basis) compared to $53.7 million in the same year-ago quarter. The change in revenue compared to the prior year period resulted mainly from the impact of lower license revenue due to delays in customer purchasing decisions and foreign exchange variation, compared to the same year-ago quarter.

Order backlog increased 12% to $175.5 million ($174.5 million on a constant currency basis) from $157.2 million in the same year-ago quarter, and sequentially order backlog increased 5% from $166.8 million reported last quarter.

Recurring revenue was 63% of total revenue, compared to 46% in the same year-ago quarter.

Gross margin was 21.4 million or 54% compared to $32.7 million or 61% in the same year-ago quarter.

Adjusted EBITDA loss was $2.4 million, compared to Adjusted EBITDA of $10.5 million, or 20% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss totalled $35.6 million, or $0.33 loss per basic and diluted share compared to a net loss of $2.0 million, or $0.02 loss per basic and diluted share, in the same year-ago quarter. Net loss included $24.5 million of restructuring costs, with the final restructuring costs expected to be $26 to 28 million. The Company expects the restructuring will reduce annual overall expenses by up to $25 million by Fiscal 2017, with partial savings occurring through the last quarter of fiscal 2016.

At March 31, 2016, total cash ended at $44.3 million. Adjusted cash flow from operations was positive at $2.7 million (see discussion about the presentation of Adjusted cash flow from operations, a non-IFRS measure, below).

During Q2 2016, the Company purchased 747,990 shares under its Normal Course Issuer Bid (NCIB) for a total cost of approximately CAD$2.0 million. Since the NCIB’s commencement on December 7, 2015, the Company has purchased an aggregate of 1,265,690 shares for a total cost of approximately CAD$3.5 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 (May 10, 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: Tuesday May 10, 2016
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1 (888) 231-8192
International: 1 (647) 427-7451
Conference ID#: 86923806

The presentation will be webcast live and available for replay via either the Investors section of Redknee’s website (www.redknee.com) or https://goo.gl/Le28Fd.

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) Tuesday, May 17, 2016.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 86923806

 

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.

“Adjusted cash flow from operations”, which is non-IFRS measure, is defined as cash flow from operations excluding amounts for restructuring payments made in the period.

“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-IFRS 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, Adjusted cash flow from operations, recurring revenue, and order backlog differently. The company presents Adjusted EBITDA, Adjusted cash flow from operations, 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 reduction in annual expenses in fiscal 2016 and 2017 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)

March 31,

September 30,

2016

2015

Assets

Current assets:

Cash and cash equivalents

$

39,108,848

$

55,047,577

Trade accounts and other receivables

61,264,075

67,439,885

Unbilled revenue

34,858,603

38,427,866

Prepaid expenses

3,439,656

2,535,936

Income taxes receivable

2,357,155

1,399,564

Other assets

401,131

392,195

Inventories

1,929,926

812,987

Total current assets

143,359,394

166,056,010

Restricted cash

5,194,065

5,972,087

Property and equipment

7,591,286

8,435,008

Deferred income taxes

1,574,869

2,086,025

Investment tax credits

359,392

351,385

Other assets

1,819,558

1,816,640

Intangible assets

39,511,041

44,821,478

Goodwill

33,666,159

33,666,159

Total assets

$

233,075,764

$

263,204,792

Liabilities and Shareholders’ Equity

Current liabilities:

Trade payables

$

10,792,094

$

9,128,710

Accrued liabilities

23,740,141

32,305,136

Provisions

23,404,229

8,772,519

Income taxes payable

3,224,851

2,364,983

Settlement accrual and contingent consideration

2,531,829

10,244,224

Deferred revenue

18,450,440

13,363,696

Loans and borrowings

2,400,000

1,800,000

Total current liabilities

84,543,584

77,979,268

Deferred revenue

549,775

870,937

Other liabilities

2,760,351

2,615,163

Pension and other long-term employment benefit plans

12,872,382

11,417,481

Loans and borrowings

53,658,078

54,961,066

Provisions

8,491,256

4,006,354

Total liabilities

162,875,426

151,850,269

Shareholders’ equity:

Share capital

172,424,677

174,082,815

Treasury stock

(141,917)

(141,917)

Contributed surplus

8,410,148

7,899,360

Deficit

(107,015,855)

(67,086,722)

Accumulated other comprehensive loss

(3,476,715)

(3,399,013)

Total shareholders’ equity

70,200,338

111,354,523

Total liabilities and shareholders’ equity

$

233,075,764

$

263,204,792

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Comprehensive Loss

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

Six months ended

 

March 31,

 

March 31,

2016

2015

2016

2015

Revenue:

Software, services and other

$

17,105,453

$

31,220,323

$

42,223,687

$

69,175,923

Support and subscription

22,687,039

22,522,584

47,684,616

47,143,913

 

39,792,492

 

 

53,742,907

 

 

89,908,303

 

116,319,836

Cost of revenue

18,353,594

21,000,581

38,751,510

46,989,071

Gross profit

21,438,898

32,742,326

51,156,793

69,330,765

Operating expenses:

Sales and marketing

7,816,722

7,700,464

16,217,996

17,162,703

General and administrative

8,629,408

7,511,581

15,917,679

14,573,965

Research and development

12,553,717

11,397,028

25,308,788

23,726,810

Restructuring costs

24,541,909

251,635

24,820,455

588,349

Acquisition and related costs

116,774

279,432

950,478

694,483

 

53,658,530

 

 

27,140,140

 

 

83,215,396

 

56,746,310

Income (loss) from operations

(32,219,632)

5,602,186

(32,058,603)

12,584,455

Foreign exchange gain (loss)

28,232

(5,178,499)

(464,776)

(7,847,412)

Finance income

17,730

7,192

23,104

11,674

Finance costs

(1,759,403)

(1,116,244)

(2,807,934)

(2,014,461)

Income (loss) before income taxes

(33,933,073)

(685,365)

(35,308,209)

2,734,256

Income taxes (recovery):

Current

1,618,062

1,370,784

3,999,351

2,770,579

Deferred

73,005

(16,454)

621,573

(7,589)

 

1,691,067

 

 

1,354,330

 

4,620,924

2,762,990

Loss for the period

$

(35,624,140)

$

(2,039,695)

$

(39,929,133)

$

(28,734)

Other comprehensive loss:

Pension actuarial adjustment

(77,702)

Total comprehensive loss

$

(35,624,140)

$

(2,039,695)

$

(40,006,835)

$

(28,734)

Loss per common share:

Basic

(0.33)

(0.02)

(0.37)

(0.00)

Diluted

(0.33)

(0.02)

(0.37)

(0.00)

Weighted average number of

common shares:

Basic

108,304,632

109,089,428

108,715,589

109,017,472

Diluted

108,304,632

109,089,428

108,715,589

109,017,472

REDKNEE SOLUTIONS INC.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

Six months ended

March 31,

March 31,

2016

2015

2016

2015

Cash provided by (used in):

Operating activities:

Loss for the period

$

(35,624,140)

$

(2,039,695)

$

(39,929,133)

$

(28,734)

Adjustments for:

Depreciation of property and equipment

1,185,400

1,135,416

2,188,427

2,077,652

Amortization of intangible assets

2,447,730

1,527,207

4,735,596

3,339,589

Finance income

(17,730)

(7,192)

(23,104)

(11,674)

Finance costs

1,759,403

1,116,244

2,807,934

2,014,461

Pensions

1,180,647

(404,938)

1,377,199

(235,147)

Income tax expense

1,691,067

1,354,330

4,620,924

2,762,990

Unrealized foreign exchange loss (gain)

(26,456)

3,895,407

1,076,691

5,761,053

Share-based compensation

1,507,036

1,733,015

1,756,645

2,198,181

Revaluation of contingent consideration

(1,566,810)

(2,143,053)

Change in provisions

21,948,779

(5,145,161)

19,116,612

(8,583,245)

Change in non-cash operating working capital

5,548,409

10,143,262

4,828,780

1,047,258

 

1,600,145

 

11,741,085

 

2,556,571

 

8,199,331

Interest paid

(113,449)

(39,082)

(434,217)

(88,836)

Interest received

11,766

(37,830)

23,451

11,674

Income taxes paid

(1,748,954)

(2,038,430)

(4,205,611)

(2,909,631)

 

(250,492)

 

 

9,625,743

 

(2,059,806)

5,212,538

Financing activities:

Proceeds from exercise of stock options

200,560

15,095

238,060

79,225

Purchase of treasury stock

(1,450,484)

(536,507)

(2,556,966)

(536,507)

Interest paid on loans and borrowings

(958,953)

(1,788,593)

(931,655)

Repayment of loans and borrowings

(450,000)

(375,000)

(900,000)

(750,000)

Transaction costs of loans and borrowings

(90,496)

 

(2,658,877)

 

 

(896,412)

 

 

(5,097,995)

 

(2,138,937)

Investing activities:

Purchase of property and equipment

(1,114,500)

(465,104)

(1,621,920)

(796,972)

Purchase of intangible assets

(13,776)

(626,761)

(25,035)

(763,057)

Increase (decrease) in restricted cash

616,114

778,022

(558,539)

Settlement accrual and Contingent

consideration paid

(1,072,596)

(412,321)

(7,712,395)

 

(1,584,758)

 

 

(1,504,186)

 

(8,581,328)

(2,118,568)

Effect of foreign exchange rate changes on

cash and cash equivalents

377,357

(3,374,480)

(199,600)

(5,240,126)

Increase (decrease) in cash and cash

equivalents

(4,116,770)

3,850,665

(15,938,729)

(4,285,093)

Cash and cash equivalents,

beginning of period

43,225,618

100,501,039

55,047,577

108,636,797

Cash and cash equivalents, end of period

$

39,108,848

$

104,351,704

39,108,848

$

104,351,704

REDKNEE SOLUTIONS INC.

Reconciliation of Net Income (Loss) to Adjusted EBITDA

(Expressed in U.S. dollars)

(Unaudited)

Three months ended

Six months ended

March 31,

March 31,

2016

2015

2016

2015

Net loss for the period

(35,624,140)

(2,039,695)

(39,929,133)

(28,734)

Add back / (subtract):

Depreciation of property and

equipment

1,185,400

1,135,416

2,188,427

2,077,652

Amortization of intangible assets

2,447,730

1,527,207

4,735,596

3,339,589

Finance income

(17,730)

(7,192)

(23,104)

(11,674)

Finance costs

1,759,403

1,116,244

2,807,934

2,014,461

Income tax expense

1,691,067

1,354,330

4,620,924

2,762,990

Share-based compensation

1,507,036

1,733,015

1,756,645

2,198,181

Foreign exchange loss (gain)

(28,232)

5,178,499

464,776

7,847,412

Restructuring costs

24,541,909

251,635

24,820,455

588,349

Acquisition and related costs

116,774

279,432

950,478

694,483

Adjusted EBITDA

$

(2,420,783)

$

10,528,891

2,392,998

$

21,482,709

 

SOURCE Redknee Solutions Inc.