Redknee Solutions Reports Fiscal Fourth Quarter and Full Year 2014 Results

TORONTO, Nov. 19, 2014 /CNW/ - Redknee Solutions Inc.  RKN a leading provider of real-time monetization and subscriber management software, reported results for its fiscal fourth quarter and full year ended September 30, 2014. All figures are in U.S. dollars.

Fiscal Q4 2014 Financial Highlights
(Comparisons made between fiscal Q4 FY2014 and fiscal Q4 FY2013 results, unless otherwise noted)

• Revenue totaled $60.9 million, up 6% from $57.4 million
• Gross profit was $36.1 million (59% of total revenue) compared to $30.8 million (54% of total revenue)
• Adjusted EBITDA of $5.8 million versus Adjusted EBITDA of $4.5 million
• Total cash at $109.5 million; cash generation from operations totaled $20 million
• Accounts receivable decreased by $14.3 million to $71.4 million compared to Q3 FY2014
• Unbilled revenue decreased by $8.0 million to $42.4 million compared to Q3 FY2014
• Restructuring costs totalled $22.5 million to reduce annual overall expenses by $30 million to $35 million by fiscal 2016
• Net loss totaled $34.7 million or $0.32 loss per share versus a net loss of $1.0 million or $0.01 per share
• Adjusted Net loss totaled $3.1 million or $0.03 per share, excluding acquisition, FX and restructuring costs

Fiscal 2014 Financial Highlights
(Comparisons made between fiscal 2014 and fiscal 2013 results, unless otherwise noted)

• Revenue totaled $257.7 million, up 81% from $142.0 million
• Gross profit was $131.8 million (51% of total revenue) compared to $78.9 million (56% of total revenue)
• Adjusted EBITDA of $13.8 million versus Adjusted EBITDA of $11.3 million
• Order backlog increased 6% to $169.2 million vs $160.4 million
• Net loss totaled $39.9 million or $0.39 loss per share versus a net loss of $0.3 million or $0.00 per share
• Adjusted Net loss totaled $4.6 million or $0.04 per share, excluding acquisition, FX and  restructuring costs

Fiscal Q4 2014 Operational Highlights

• Ranked as the leading BSS vendor in Ovum's most recent OSS/BSS market report.
• Launched the latest version of the Redknee Unified platform featuring significant new functionality.
• 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 additional software expansion order with a Tier 1 APAC operator, to support the growth in subscribers and data usage on its 4G/LTE network.
• Signed a multi-million dollar software and services order with a Tier 1 operator in EMEA, leveraging Redknee's real-time Unified Charging to support the operator's virtualization strategy.
• 156+ patents granted and 48+ patents filed.

Management Commentary

"In 2014, we executed on our growth strategy and advanced our position as the largest independent real-time converged monetization software provider for the communications market. As we realize our growth goals and expand into new vertical markets including utilities, smart cities and transportation, we are supporting customers with our software product platform in both our core communication business and in non-telecom verticals, driving monetization through M2M and the evolving IoT market," said Lucas Skoczkowski, CEO of Redknee. "With the integration of our latest acquisition complete, we have taken the opportunity to strategically optimize our cost base to drive future increased sustainable operating leverage from our business."

Mr. Skoczkowski added: "Looking to 2015, our goal is to continue to grow our sales pipeline, while continuing to improve our gross margin, EBITDA and cash flow from the business in-line with our long term business model. We are encouraged by the positive traction we have had with our customers as we are securing record license expansions, upgrades and numerous support renewals across all of our markets. We will continue to deliver high quality customer service, provide innovative software solutions, and focus on increasing our revenue opportunities."

Fiscal Q4 2014 Financial Results
Revenue was $60.9 million compared to $57.4 million in the same year-ago quarter. The revenue growth was primarily due to increased license and third-party sales.

Order backlog grew 6% to $169.2 million, resulting in a book-to-bill ratio of 1.1 in the quarter.

Recurring revenue was 47% of total revenue, compared to 57% in the same year-ago quarter. The decline over the prior year period was the result of the transition of specific customer contracts off of Redknee's platform and is in line with our three year post-acquisition plan. These customers had indicated their intent to leave prior to the acquisition.

Gross margin was 59% compared to 54% 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 reduced costs of providing service and support.

Total cash ended at $109.5 million, with $19.8 million of cash generated from operating activities.

Accounts receivable was $71.4 million at the end of the fiscal year as compared to $66.4 million as at September 30, 2013. On a quarter over quarter basis accounts receivables have declined by $14.3 million, or 17%, from $85.7 million as at June 30, 2014, reflecting the positive impact of changes the Company has implemented in its billing practices throughout the year.

Adjusted EBITDA was $5.8 million, or 10% of revenue, compared to Adjusted EBITDA of $4.5 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 totaled $34.7 million, or $0.32 loss per basic and diluted share, compared to a net loss of $1.0 million, or $0.01 per basic and diluted share, in the same year-ago quarter. Net loss included $22.5 million of restructuring costs. The Company expects the restructuring process will reduce its annual overall expenses by $30 million to $35 million by fiscal 2016, with partial savings occurring throughout fiscal 2015.

Adjusted net loss of $3.1 million, or $0.03 loss per diluted share, excluding acquisition costs, foreign exchange loss and restructuring costs of $3.3 million, $5.8 million and $22.5 million respectively

Full-Year 2014 Financial Results

Revenue in fiscal 2014 increased to $257.7 million, from $142.0 million in fiscal 2013. Recurring revenue for the fiscal year decreased to 47% of total revenue, compared to 55% in fiscal 2013.

Gross margin for the fiscal year was 51% from 56% in fiscal year 2013 mainly driven by business mix with a higher third party hardware and software share.

Adjusted EBITDA was $13.8 million, or 5% of revenue, in fiscal 2014, increasing 22% from $11.3 million, or 8% of revenue, in fiscal 2013.

At September 30, 2014, cash was $109.5 million, compared to $80.1 million at September 30, 2013.

Net loss totalled $39.9 million, or $0.39 loss per basic and diluted share, compared to net loss of $0.3 million, or $0.00 per basic and diluted share, in fiscal 2013.  Net loss included $22.5 million of restructuring costs.

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 (Thursday, November 20, 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, November 20, 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#: 24647276

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/1w2Ii0z

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, November 27, 2014.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 24647276

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. 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) 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.

The Company reports "Adjusted net loss", 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 loss as loss excluding acquisition costs, foreign exchange loss and restructuring.

"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.

REDKNEE SOLUTIONS INC.
Consolidated Statements of Financial Position
(Expressed in U.S. dollars)
September 30, 2014 and 2013
		2014		2013
Assets
Current assets:
	Cash and cash equivalents	$	108,636,797	$	79,054,757
	Trade accounts and other receivables	71,393,983		66,393,041
	Unbilled revenue	42,396,988		39,421,584
	Prepaid expenses	4,339,650		1,943,986
	Other assets	898,871		832,516
	Inventories	5,199,362		6,644,580
	Total current assets	232,865,651		194,290,464
Restricted cash		881,940		1,011,361
Property and equipment		8,708,115		10,890,910
Deferred income taxes		1,939,416		1,923,409
Investment tax credits		416,222		378,923
Other assets		2,089,688		3,179,724
Intangible assets		32,819,313		38,732,447
Goodwill		7,638,590		7,638,590
Total assets		$	287,358,935	$	258,045,828
Liabilities and Shareholders' Equity
Current liabilities:
	Trade payables	$	9,538,161	$	15,707,464
	Accrued liabilities	38,566,558		59,532,922
	Provisions	14,967,576		1,201,050
	Income taxes payable	1,595,569		2,445,616
	Deferred revenue	20,743,769		14,935,451
	Contingent consideration	14,454,527		-
	Loans and borrowings	750,000		375,000
	Total current liabilities	100,616,160		94,197,503
Deferred revenue		3,601,859		4,149,940
Other liabilities		2,281,341		2,793,146
Pension and non-pension post-employment benefit obligation		10,258,900		814,335
Contingent consideration		-		24,833,537
Loans and borrowings		45,809,713		32,956,036
Provisions		6,608,270		-
Deferred income taxes		36,016		744,652
Total liabilities		169,212,259		160,489,149
Shareholders' equity:
	Share capital	173,757,863		109,017,145
	Treasury stock	(21,226)		(132,050)
	Contributed surplus	5,665,135		4,357,175
	Deficit	(57,080,147)		(17,182,622)
	Accumulated other comprehensive income	(4,174,949)		1,497,031
	Total shareholders' equity	118,146,676		97,556,679
Total liabilities and shareholders' equity		$	287,358,935	$	258,045,828

REDKNEE SOLUTIONS INC.
Consolidated Statement of Operations
(Expressed in U.S. dollars)
		Three months ended		Twelve months ended
		September 30,		September 30,
		2014	2013	2014	2013
Revenue:
	Software, services and other	$ 34,327,069	$ 25,980,942	$ 141,336,360	$ 68,066,282
	Support	26,610,517	31,456,487	116,361,120	73,981,190
		60,937,586	57,437,429	257,697,480	142,047,472
Cost of revenue		24,798,516	26,593,693	125,911,517	63,114,358
Gross profit		36,139,070	30,843,736	131,785,963	78,933,114
Operating expenditures:
	Sales and marketing	10,874,156	9,523,070	37,599,559	25,133,152
	General and administrative	7,536,806	9,810,975	32,387,711	20,653,701
	Research and development	14,605,761	15,414,461	62,214,327	34,421,619
	Acquisition and related costs	3,306,101	1,769,119	7,197,617	12,963,575
	Restructuring costs	22,524,612	-	22,524,612	-
		58,847,436	36,517,625	161,923,826	93,172,047
Loss from operations		(22,708,366)	(5,673,889)	(30,137,863)	(14,238,933)
Foreign exchange loss		(5,805,899)	(563,532)	(5,590,285)	(676,151)
Other income		(1,849,164)	4,017,973	4,065,422	15,814,798
Finance income		1,083	8,633	45,129	31,292
Finance costs		(781,538)	(568,819)	(3,047,129)	(1,011,314)
Loss before income taxes		(31,143,884)	(1,652,570)	(34,664,726)	(80,308)
Income tax expense (recovery):
	Current	2,252,795	965,977	4,001,874	1,920,688
	Deferred	1,331,814	(1,648,620)	1,230,925	(1,737,286)
		3,584,609	(682,643)	5,232,799	183,402
Net Loss		$ (34,728,493)	$ (969,927)	$ (39,897,525)	$ (263,710)
Net income (loss) per common share:
	Basic	(0.32)	(0.01)	(0.39)	0.00
	Diluted	(0.32)	(0.01)	(0.39)	0.00
Weighted average number of common shares  outstanding:
	Basic	108,897,130	95,029,846	102,921,881	82,808,206
	Diluted	108,897,130	95,029,846	102,921,881	82,808,206

 

REDKNEE SOLUTIONS INC.
Consolidated Statement of Cash Flows
(Expressed in U.S. dollars)
			Three months ended		Twelve months ended
			September 30,		September 30,
			2014	2013	2014	2013
Cash provided by (used in):
Operating activities:
	Net loss		$ (34,728,493)	$ (969,927)	$ (39,897,525)	$ (263,710)
	Adjustments for:
		Depreciation of property and equipment	1,035,088	1,758,046	5,454,417	2,779,362
		Amortization of intangible assets	1,827,292	1,749,281	7,046,386	3,699,363
		Finance income	(1,083)	(8,633)	(45,129)	(31,292)
		Finance costs	781,538	568,819	3,047,129	1,011,314
		Income tax expense	3,584,609	(682,643)	5,232,799	183,402
		Unrealized foreign exchange loss (gain)	3,331,302	(1,216,733)	1,745,691	221,878
		Bargain purchase gain from acquisition	-	(4,017,973)	-	(15,814,798)
		Share-based compensation	(167,358)	4,880,298	1,678,600	6,065,374
		Pensions	459,415	(23,894)	1,708,874	(23,894)
		Provisions	21,575,846	-	20,374,796	1,201,050
		Revaluation of contingent consideration	357,992	1,271,305	(5,556,594)	1,271,305
		Changes in non-cash operating working capital	24,324,907	(6,969,936)	(30,278,863)	(9,651,394)
			22,381,055	(3,661,990)	(29,489,419)	(9,352,040)
		Interest paid	(1,007,187)	(317,048)	(2,408,701)	(604,653)
		Interest received	6,956	8,056	49,504	40,258
		Income taxes paid	(1,617,082)	(505,720)	(4,887,313)	(1,088,213)
			19,763,742	(4,476,702)	(36,735,929)	(11,004,648)
Financing activities:
		Issuance of share capital	-	-	63,833,834	18,731,390
		Proceeds from private placement	-	-	-	41,060,376
		Proceeds from exercise of stock options	6,310	957,021	577,694	1,749,994
		Proceeds of loans and borrowings	-	15,000,000	13,500,000	30,000,000
		Repayment of loans and borrowings	(750,000)	-	(750,000)	-
		Transaction costs of loans and borrowings	-	(34,724)	-	(1,530,954)
			(743,690)	15,922,297	77,161,528	90,010,806
Investing activities:
		Purchase of property and equipment	(325,408)	(1,199,201)	(3,271,622)	(2,403,507)
		Purchase of intangible assets	(27,774)	(66,915)	(1,133,252)	(493,868)
		Increase (decrease) in restricted cash	297,417	(205,762)	129,421	(98,091)
		Payment of contingent consideration	(4,822,415)	-	(4,822,415)	-
		Acquisition of business	-	(9,041,129)	-	(13,612,580)
			(4,878,180)	(10,513,007)	(9,097,868)	(16,608,046)
Effect of foreign exchange rate changes on
cash and cash equivalents			(3,331,302)	1,216,733	(1,745,691)	(221,878)
Increase in cash and cash equivalents			10,810,570	2,149,321	29,582,040	62,176,234
Cash and cash equivalents, beginning of period			97,826,227	76,905,436	79,054,757	16,878,523
Cash and cash equivalents, end of period			$ 108,636,797	$ 79,054,757	$ 108,636,797	$ 79,054,757

 

 

 

REDKNEE SOLUTIONS INC.
Reconciliation of Net (Loss) to EBITDA
(Expressed in U.S. dollars)
(Unaudited)
		Three months ended		Twelve months ended
		September 30,		September 30,
		2014	2013	2014	2013
Net loss for the period		(34,728,493)	(969,927)	(39,897,525)	(263,710)
Add back / (subtract):
	Depreciation of property and equipment	1,035,088	1,758,046	5,454,417	2,779,362
	Amortization of intangible assets	1,827,292	1,749,281	7,046,386	3,699,363
	Revaluation of contingent consideration	1,849,164	(4,017,973)	(4,065,422)	-
	Bargain purchase gain from acquisition
	Finance income	-	-	-	(15,814,798)
	Finance costs	(1,083)	(8,633)	(45,129)	(31,292)
	Income tax expense	781,538	568,819	3,047,129	1,011,314
	Share-based compensation	3,584,609	(682,643)	5,232,799	183,402
	Foreign exchange loss (gain)	(167,358)	4,880,298	1,678,600	6,065,374
		5,805,899	(563,532)	5,590,285	676,151
EBITDA
		(20,013,344)	2,713,736	(15,958,460)	(1,694,834)
Adjustments
	Restructuring costs
	Acquisition and related costs	22,524,612	-	22,524,612	-
		3,306,101	1,769,119	7,197,617	12,963,575
Adjusted EBITDA		$  5,817,369	$  4,482,855	$  13,763,769	$  11,268,741

 

 

SOURCE Redknee Solutions Inc.