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Redknee Solutions Reports Fiscal Third Quarter 2013 Results

redknee-featSource: Redknee Solutions Inc./Marketwired

TORONTO — 08/13/13 — Redknee Solutions Inc. (TSX: RKN), a leading provider of business-critical software and solutions for communications service providers (CSPs), reported results for its fiscal third quarter ended June 30, 2013. All figures are in U.S. dollars.

Fiscal Q3 2013 Financial Highlights as Compared to the Same Year-ago Quarter

  • Revenue totaled $58.6 million, up 295% from $14.8 million
  • Recurring revenue was 54% of total revenue compared to 48%
  • Gross profit was $32.0 million (55% of total revenue) compared to $10.6 million (71% of total revenue)
  • Adjusted EBITDA totaled $7.3 million versus $2.5 million
  • Net income totaled $80,000 or $0.00 per share versus $1.7 million or $0.03 per share
  • Cash at $77.7 million
  • Order backlog at a record $163.1 million

Fiscal Q3 2013 Operational Highlights

  • The integration of the acquisition is proceeding in-line with the target to complete major activities by April 2014
  • Grupo Éxito launched Colombia‘s first retail-based MVNO leveraging Redknee’s cloud offering
  • Demonstrated combined integrated product portfolio, as well as roadmap investment, to support our customers’ evolving needs
  • Multi-million dollar customer contracts announced throughout the quarter across all regions
  • 100+ patents granted and 80+ patents pending

Fiscal Q3 2013 Financial Results
Revenue was $58.6 million compared to $14.8 million in same year-ago quarter. The improvement was primarily due to increased revenue related to the most recent acquisition, as well as license expansions, license upgrades, and third-party hardware and software sales.

Recurring revenue was 54% of total revenue compared to 48% for the same year-ago quarter. The increase was due to a higher level of sales and renewals of customer support services, software subscriptions, and term licenses. Recurring revenue consists of support and maintenance, long-term service contracts, and revenue from term-based licenses.

Gross margin was 55% compared to 71% in the same year-ago. The decrease relates to the change in revenue mix of the acquired business.

Adjusted EBITDA was $7.3 million compared to $2.5 million in the same year-ago quarter(see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net income totaled $80,000 or $0.00 per diluted share compared to $1.7 million or $0.03per diluted share in the same year-ago quarter. Q3 2013 net income included $3.0 millionof costs related to the BSS acquisition.

Contracted order backlog totaled $163.1 million at quarter-end, which included the impact of the acquisition of the BSS business unit.

At June 30, 2013, cash and investments totaled $77.7 million, with net cash of $56.8 million.

The company has drawn $20.9 million of its $50.0 million credit facility with Wells Fargo.

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.

Management Commentary
“During the third quarter, which includes the full contribution from the most recent acquisition, we continued to demonstrate our ability to execute by expanding business with our customers, growing our backlog and focusing on the inherent operating leverage in our software product business,” said Lucas Skoczkowski, CEO of Redknee.

“I believe that we have made excellent progress and we are on track with the integration process. Our customers and partners have been very supportive of Redknee’s new position in the marketplace, and this has translated into both order and pipeline momentum.

“Today, we have a customer base that spans 200 communications service providers, across 90 countries, including many long-standing relationships with key Tier-1 service providers. Our combined solution portfolio presents new cross-selling and upselling opportunities, and we are committed to providing the highest level of service to our customers. We remain focused on successfully integrating the acquisition and look to expand sales both with new customers, as well as increasing the share of wallet with our existing customers.”

Conference Call
The company will host a conference call tomorrow (Wednesday, August 14, 2013) 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: Wednesday, August 14, 2013
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1-877-941-2068
International: 1-480-629-9712
Conference ID#: 4633261

The presentation will be webcast live and available for replay via the Investors section of Redknee’s website at www.redknee.com.

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 Liolios Group at 1-949-574-3860.

A replay of the call will be available after 11:30 a.m. Eastern time on the same day through September 14, 2013.

Toll-Free Replay Number: 1-877-870-5176
International Replay Number: 1-858-384-5517
Replay PIN: 4633261

About Redknee Solutions Inc.
Redknee is a leading global provider of innovative communication 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 comprehensive customer experience. Redknee’s revenue and subscriber management platform provides innovative converged billing, charging, customer care, and payments solutions for voice, messaging and data services to over 200 service providers in over 90 countries. 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.

About the Presentation of Adjusted EBITDA
Beginning in this first fiscal quarter of 2013, the company has begun to report adjusted EBITDA, which is not a financial measure calculated and presented in accordance with International Financial Reporting Standards (IFRS), and should not be considered as an alternative to net income, operating income or any other financial measures so calculated and presented, 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, finance costs, finance income, income taxes, foreign exchange (gain) loss, share-based compensation, and expenses related to the acquisition of Business Support System (BSS) assets from Nokia Siemens Networks. EBITDA is not a measure of financial performance under IFRS, and should not be considered in isolation or as a substitute for consolidated net income (loss) as a measure of performance.

Other companies (including competitors) may define adjusted EBITDA differently. The company presents adjusted EBITDA because management believes it to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in Redknee’s industry. Management also uses this information internally for forecasting and budgeting. It may not be indicative of the historical operating results of Redknee or is it intended to be predictive of potential future results. Investors should not consider adjusted EBITDA in isolation or as a substitute for analysis of the company’s results as reported under IFRS. 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 the statements regarding financial and other projections 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 inability of Redknee’s products to perform as expected, 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.

Although the forward-looking statements contained in this document are based upon what Redknee believes are reasonable assumptions, Redknee cannot assure investors that our actual results will be consistent with these forward-looking statements. Redknee assumes no obligation to update or revise these forward-looking statements to reflect new events or circumstances, except as required by securities law.

REDKNEE SOLUTIONS INC.
Condensed Consolidated Interim Statement of Financial Position
(Expressed in U.S. dollars)
(Unaudited)
June 30, September 30,
2013 2012
Assets
Current assets:
Cash and cash equivalents $ 76,905,436 $ 16,878,523
Trade accounts and other receivables 33,140,780 10,394,639
Unbilled revenue 24,885,994 12,125,089
Prepaid expenses 1,972,880 799,901
Other assets 689,476 649,272
Inventories 7,981,588 580,171
Total current assets 145,576,154 41,427,595
Restricted cash 805,599 913,270
Property and equipment 12,197,182 726,818
Deferred income taxes 497,756 659,260
Investment tax credits 514,671 550,000
Other assets 3,643,798 3,170,308
Intangible assets 40,157,991 3,671,306
Goodwill 7,638,590 7,638,590
Total assets $ 211,031,741 $ 58,757,147
Liabilities and Shareholders’ Equity
Current liabilities:
Trade payables $ 11,239,462 $ 1,756,532
Accrued liabilities 35,866,627 7,156,844
Provisions 1,201,050 -
Income taxes payable 2,371,994 2,036,864
Deferred revenue 18,696,958 7,258,759
Total current liabilities 69,376,091 18,208,999
Deferred revenue 1,686,984 78,002
Other liabilities 885,547 439,398
Contingent consideration 23,562,232 -
Loans and borrowings 19,121,496 5,461,970
Deferred income taxes 268,947 408,156
Total liabilities 114,901,297 24,596,525
Shareholders’ equity:
Share capital, net of employee share purchase loans 107,415,192 46,543,100
Treasury stock (166,016 ) (264,584 )
Contributed surplus 5,080,494 4,787,549
Deficit (16,212,695 ) (16,918,912 )
Accumulated other comprehensive income 13,469 13,469
Total shareholders’ equity 96,130,444 34,160,622
Total liabilities and shareholders’ equity $ 211,031,741 $ 58,757,147
REDKNEE SOLUTIONS INC.
Condensed Consolidated Interim Statement of Comprehensive Income
(Expressed in U.S. dollars)
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
2013 2012 2013 2012
Revenue:
Software, services and other $ 28,057,789 $ 8,975,327 $ 42,085,340 $ 25,024,032
Support 30,562,514 5,871,850 42,524,703 17,303,693
58,620,303 14,847,177 84,610,043 42,327,725
Cost of revenue 26,668,407 4,245,441 36,520,665 13,424,996
Gross profit 31,951,896 10,601,736 48,089,378 28,902,729
Operating expenses:
Sales and marketing 8,963,710 4,068,675 15,610,082 11,168,586
General and administrative 6,024,125 2,469,876 10,842,726 6,491,404
Research and development 12,400,828 1,997,506 19,007,158 7,143,938
Acquisition and related costs 3,012,481 - 11,194,456 -
30,401,144 8,536,057 56,654,422 24,803,928
Income (loss) from operations 1,550,752 2,065,679 (8,565,044 ) 4,098,801
Foreign exchange gain (loss) (587,236 ) (209,836 ) (1,239,683 ) (216,682 )
Other income (expense) - - 11,796,825 (13,938 )
Finance income 3,312 31,444 22,659 71,657
Finance costs (209,468 ) (79,226 ) (442,495 ) (297,173 )
Income (loss) before income taxes 757,360 1,808,061 1,572,262 3,642,665
Income taxes (recovery):
Current 707,580 289,153 954,711 513,210
Deferred (30,305 ) (219,686 ) (88,666 ) (299,134 )
677,275 69,467 866,045 214,076
Total Comprehensive income $ 80,085 $ 1,738,594 $ 706,217 $ 3,428,589
Net income per common share:
Basic 0.00 0.03 0.01 0.05
Diluted 0.00 0.03 0.01 0.05
Weighted average number of common shares):
Basic 80,727,695 64,142,461 78,845,355 64,252,923
Diluted 84,548,170 65,103,596 82,173,277 65,120,420
REDKNEE SOLUTIONS INC.
Condensed Consolidated Interim Statement of Cash Flows
(Expressed in U.S. dollars)
(Unaudited)
Nine months ended
June 30,
2013 2012
Cash provided by (used in):
Operating activities:
Net income $ 706,217 $ 3,428,589
Adjustments for:
Depreciation of property and equipment 1,021,316 147,250
Amortization of intangible assets 1,950,082 553,121
Finance income (22,659 ) (71,657 )
Finance costs 442,495 297,173
Income tax expense 866,045 214,076
Unrealized foreign exchange loss (gain) 1,438,611 (84,376 )
Share-based compensation 1,185,076 654,566
Bargain purchase gain from acquisition (11,796,825 ) -
Other - 6,588
Changes in non-cash operating working capital (1,480,408 ) 4,056,789
(5,690,050 ) 9,202,119
Interest paid (287,605 ) (35,974 )
Interest received 32,202 62,001
Income taxes (paid) received (582,493 ) (78,672 )
(6,527,946 ) 9,149,474
Financing activities:
Proceeds from public offering 18,731,390 -
Proceeds from private placement 41,060,376 -
Proceeds from exercise of stock options 792,973 107,443
Purchase of treasury stock - (714,608 )
Repayment of loans and borrowings - (2,465,544 )
Proceeds of loans and borrowings 15,000,000 -
Transaction costs on loans and borrowings (1,496,230 ) -
74,088,509 (3,072,709 )
Investing activities:
Purchase of property and equipment (1,204,306 ) (561,027 )
Purchase of intangible assets (426,953 ) (42,357 )
Increase in restricted cash 107,671 66,560
Settlement of Nimbus Systems contingent consideration - (877,377 )
Acquisition of business (4,571,451 ) -
(6,095,039 ) (1,414,201 )
Effect of foreign exchange rate changes on cash and cash equivalents (1,438,611 ) 84,376
Increase in cash and cash equivalents 60,026,913 4,746,940
Cash and cash equivalents, beginning of period 16,878,523 14,879,940
Cash and cash equivalents, end of period $ 76,905,436 $ 19,626,880
REDKNEE SOLUTIONS INC.
Reconciliation of Net Income (Loss) to EBITDA
(Expressed in U.S. dollars)
(Unaudited)
Three months ended Nine months ended
June 30, June 30,
2013 2011 2013 2012
Net income for the period 80,085 1,738,594 706,217 3,428,589
Add back / (subtract):
Depreciation of property and equipment 860,207 54,051 1,021,316 147,250
Amortization of intangible assets 1,603,775 177,938 1,950,082 553,121
Other (income) expenses - - (11,796,825 ) 13,938
Finance income (3,312 ) (31,444 ) (22,659 ) (71,657 )
Finance costs 209,468 79,226 442,495 297,173
Income tax expense 677,275 69,467 866,045 214,076
Share-based compensation 270,087 154,075 1,185,076 654,566
Foreign exchange loss (gain) 587,236 209,836 1,239,683 216,682
EBITDA 4,284,821 2,451,743 (4,408,570 ) 5,453,738
Adjustments:
Acquisition and related costs 3,012,481 - 11,194,456 -
Adjusted EBITDA $ 7,297,302 $ 2,451,743 6,785,886 $ 5,453,738

For Further Details Please Contact:

Investor Relations:
Matt Glover or Michael Koehler
Liolios Group, Inc.
US: +1 949 574 3860
Canada: +1 905 625 2027

 

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