Redknee Solutions Reports Fiscal Third Quarter 2014 Results

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 history
• 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 licenses.

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.

SOURCE: Redknee Solutions Inc.