Redknee Solutions Reports Fiscal Fourth Quarter and Full Year 2012 Results

Q4 Net Income $1.9 Million, Driven by Higher Gross Margins and Improved Operational Efficiencies Successful Transition to SaaS/Cloud-based Model Continues, with Annual Recurring Revenue Increasing to 50% of Total Revenue and Annual EBITDA Up to Record $7.3 Million

Marketwired

TORONTO, ONTARIO--(Marketwire - Dec 5, 2012) - Redknee Solutions, Inc. (RKN.TO), a leading provider of business-critical software and solutions for communications service providers, reported results for its fiscal fourth quarter and full year ended September 30, 2012. All figures below are in U.S. dollars.

Fiscal Q4 2012 Financial Highlights as Compared to the Same Year-ago Quarter

  • Revenue at $14.5 million
  • Recurring revenue at 47%
  • Gross margin increased by 4% to 69% from 65%
  • Net income increased significantly to $1.9 million or $0.03 per share compared to $0.7 million or $0.1 per share
  • EBITDA increased by 58% to $1.9 million, compared to $1.2 million
  • Quarter-end cash increased to $17.8 million from $15.7 million
  • Quarter-end contract backlog up 50% to a record $69.7 million

Fiscal Q4 2012 Operational Highlights

  • Signed a multi-million dollar, term-license agreement with a North American Tier-1 service provider for Redknee''s converged billing private cloud solution. This reflects Redknee''s growing presence in Tier-1 markets due to its expertise in providing large-scale solutions in the cloud
  • Signed a multi-million dollar, long-term Software-as-a-Service contract with Step Up Mobile, a new U.S.-based mobile virtual network operator (MVNO),for Redknee''s new cloud-based converged billing offering
  • Launched the world''s largest commercial interconnect system at Indosat in Asia Pacific, increasing the company''s footprint in South East Asia''s largest market

Fiscal Q4 2012 Financial Results

Revenue for the fiscal fourth quarter 2012 remained flat at $14.5 million compared to same year-ago quarter.

Gross margin increased to 69% from 65% in the same year-ago quarter. 

EBITDA was $1.9 million or 13% of revenue, an increase of 58% from $1.2 million or 8% of revenue in the same year-ago quarter (see discussion about the presentation of EBITDA, a non-IFRS measure, below).

Net income totaled $1.9 million or $0.03 per basic and diluted share, improving from net income of $0.7 million or $0.01 per basic and diluted share in the same year-ago quarter.

Contracted order backlog was $69.7 million at the end of the quarter, an increase of 50% from $46.4 million at the end of the year-ago quarter.

Fiscal Year 2012 Financial Results

Revenue in fiscal 2012 decreased to $56.9 million from $58.3 million in fiscal 2011, primarily due to the decline in third party revenue as the company continued its successful transition to a SaaS/cloud-based recurring revenue model.

Recurring revenue for the fiscal year increased to 50% of total revenue as compared to 42% in fiscal year 2011.

Gross margin for the fiscal year increased to 69% from 64% in fiscal year 2011.

Net income totaled a record $5.3 million or $0.08 per basic and diluted share, as compared to a net loss of $1.6 million or $(0.02) per basic and diluted share in fiscal 2011. The year-over-year increase was primarily attributed to disciplined cost management and ongoing improvements in cost structure.

EBITDA was a record $7.3 million or 13% of revenue in the fiscal year 2012, increasing 248% from $2.1 million or 4% of revenue in fiscal 2011.

At September 30, 2012, cash and investments totaled $17.8 million, compared to $15.7 million at September 30, 2011. Net cash was $11.9 million at September 30, 2012 compared to $7.6 million at September 30, 2011. 

Please refer to the section regarding forward-looking statements which form an integral part of this release. These results, along with the audited consolidated 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

"Our fiscal 2012 results demonstrated our ability to successfully expand our customer base while continuing to manage costs and improve operational efficiencies," said Lucas Skoczkowski, CEO of Redknee. "Moreover, we have developed a stronger recurring revenue stream by signing large term-based license agreements delivered as SaaS or via the cloud, while improving our margins substantially. This has all resulted in record annual EBITDA and EPS performance, and our order backlog reaching nearly $70 million.

"Our success has been largely driven by mobile networks wanting to support expanding data usage and by MVNOs that want to provide mobile services as part of their offering. Redknee''s award-winning solutions provide a strong value proposition, allowing both service providers and brand managers to differentiate their offerings and manage the complex, dynamic offerings across various network environments and devices. In fiscal 2012, this has allowed us to secure multiple multi-million dollar orders in the Americas, Asia Pacific and EMEA.

"Redknee continues to be very well positioned to capitalize on future opportunities, as we look to further expand with Tier-1 network operators around the world, as well as supporting the marketing efforts of both network operators and marketing companies.

"As we begin the new fiscal year, we remain focused on securing multi-year term license contracts, which builds backlog and recurring revenue, and thereby providing a clear pathway to continued profitable growth." 

Subsequent Events

On October 23, 2012, Redknee completed an offering of 13 million common shares of the company at CDN$1.35 per common share. On November 14, 2012, the over-allotment option of 1.95 million common shares was exercised at CDN$1.35 per common share. The gross proceeds raised in the offering was CDN$20.2 million.

On December 5, 2012, Redknee reached a definitive agreement to acquire Nokia Siemens Networks'' Business Support Systems ("BSS") business. The total consideration to be paid by Redknee for the BSS business will include EUR15 million in cash at closing, plus a maximum of EUR25 million for certain performance-based cash earn-outs expected to be paid over 12 to 36 months post-closing. The acquisition is anticipated to close in the first half of calendar year 2013, subject to applicable regulatory, exchange and third party approvals and other customary terms and conditions. A material change report, which provides more details on the acquisition and the agreement, will be filed with the Canadian securities regulators shortly and will be available at www.sedar.com and at Redknee''s website at www.redknee.com.

Conference Call

The company will host a conference call today (Wednesday, December 5, 2012) to discuss these results. Redknee''s 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, December 5, 2012
Time: 8:30 a.m. Eastern time
Dial-In Number: 1-877-941-2068
International: 1-480-629-9712
Conference ID#: 4573892

The presentation will be webcast live and available for replay via the Investors section of the company''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 until January 5, 2013.

Toll-Free Replay Number: 1-877-870-5176
International Replay Number: 1-858-384-5517
Replay PIN #: 4573892

About Redknee Solutions, Inc.

Redknee is a leading global provider of innovative communication software products, solutions and services. Redknee''s award-winning solutions enable operators to monetize the value of each subscriber transaction while personalizing the subscriber experience to meet mainstream, niche and individual market segment requirements. Redknee''s revenue generating solutions provide advanced converged billing, rating, charging and policy for voice, messaging and new generation data services to over 90 network operators in over 50 countries. References to Redknee refer to the combined operations of the parent Redknee Solutions, Inc., and all wholly owned subsidiaries.

Redknee®, Redknee Solutions, and the Redknee logo are trademarks or registered trademarks of Redknee Solutions Inc. All other company, product names and any registered and unregistered trademarks mentioned (if any) are used for identification purposes only and remain the exclusive property of their respective owners. For more information, visit www.redknee.com.

About the Presentation of EBITDA

EBITDA 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 EBITDA as net income (loss) from continuing operations excluding amounts for depreciation and amortization, finance costs, finance income, income taxes, foreign exchange (gain) loss and share-based compensation and is a common measure of operating performance in the industry. 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 EBITDA differently. The company presents 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 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 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. 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 factors discussed under the "Risk Factors" section of the Company''s the most recently filed AIF which is available on SEDAR at www.sedar.com and on the Company''s web-site at www.redknee.com.

Although the forward-looking statements contained in this document are based upon what we believe are reasonable assumptions, we cannot assure investors that our actual results will be consistent with these forward-looking statements. We assume 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.

Consolidated Statements of Financial Position

(Expressed in U.S. dollars)

  September 30, September 30,  October 1, 
   2012  2011  2010 
Assets         
          
Current assets:         
 Cash and cash equivalents$16,878,523 $14,879,940 $18,038,121 
 Short-term investments -  -  21,356 
 Trade accounts and other receivables 10,394,639  13,471,157  14,400,281 
 Unbilled revenue 12,125,089  9,253,901  6,927,557 
 Prepaid expenses 799,901  1,398,145  1,320,649 
 Other assets 649,272  -  - 
 Inventory 580,171  450,788  247,108 
 Total current assets 41,427,595  39,453,931  40,955,072 
          
Restricted cash 913,270  784,820  781,611 
Property and equipment 726,818  378,013  611,757 
Deferred income taxes 659,260  471,770  284,156 
Investment tax credits 550,000  991,479  481,300 
Long-term unbilled revenue -  1,226,496  - 
Other assets 3,170,308  464,416  499,257 
Intangible assets 3,671,306  4,356,521  5,772,034 
Goodwill 7,638,590  7,638,590  7,381,368 
          
Total assets$58,757,147 $55,766,036 $56,766,555 
          
Liabilities and Shareholders'' Equity 
          
Current liabilities:         
 Trade payables$1,756,532 $1,731,397 $2,526,188 
 Accrued liabilities 7,156,844  6,001,706  3,564,561 
 Income taxes payable 2,036,864  3,199,295  2,628,543 
 Contingent consideration -  870,789  - 
 Deferred revenue 7,258,759  5,740,086  5,697,971 
 Loans and borrowings -  3,232,857  2,980,289 
 Total current liabilities 18,208,999  20,776,130  17,397,552 
           
Deferred revenue 78,002  -  - 
Other liabilities 439,398  524,520  450,983 
Contingent consideration -  -  1,160,816 
Loans and borrowings 5,461,970  4,804,700  6,859,743 
Deferred income taxes 408,156  815,829  1,217,842 
          
Total liabilities 24,596,525  26,921,179  27,086,936 
          
Shareholders'' equity:         
 Share capital, net of employee share purchase loans 46,543,100  46,312,920  45,880,359 
 Treasury stock (264,584) -  - 
 Contributed surplus 4,787,549  4,739,437  4,428,818 
 Deficit (16,918,912) (22,220,969) (20,629,558)
 Accumulated other comprehensive income 13,469  13,469  - 
 Total shareholders'' equity 34,160,622  28,844,857  29,679,619 
           
Total liabilities and shareholders'' equity$58,757,147 $55,766,036 $56,766,555 

REDKNEE SOLUTIONS INC.

Consolidated Statements of Comprehensive Income (Loss)

(Expressed in U.S. dollars)

   Three months ended  Twelve months ended 
   September 30,  September 30, 
   2012  2011  2012  2011 
  
Revenue:            
 Software, services and other$8,835,897 $8,778,004 $33,859,929 $36,757,357 
 Support 5,700,526  5,739,395  23,004,219  21,552,262 
   14,536,423  14,517,399  58,864,148  58,309,619 
  
Cost of revenue 4,440,467  5,011,285  17,865,463  20,775,240 
  
Gross profit 10,095,956  9,506,114  38,998,685  37,534,379 
  
Operating expenses:            
 Sales and marketing 3,535,468  4,227,471  14,704,054  15,446,624 
 General and administrative 2,755,751  2,328,394  9,247,155  10,873,407 
 Research and development 2,238,928  1,889,653  9,382,866  11,759,726 
   8,530,147  8,445,518  33,334,075  38,079,757 
  
Income (loss) from operations 1,565,809  1,060,596  5,664,610  (545,378)
  
Foreign exchange gain (loss) 177,801  556,936  (38,881) (64,045)
Other income (expense) -  (245,598) (13,938) 290,027 
Finance income 28,061  41,926  99,718  158,557 
Finance costs (152,580) (81,466) (449,753) (515,988)
  
Income (loss) before income taxes 1,619,091  1,332,394  5,261,756  (676,827)
  
Income taxes (recovery):            
 Current 450,859  753,428  964,069  1,280,415 
 Deferred (705,236) (84,092) (1,004,370) (365,831)
   (254,377) 669,336  (40,301) 914,584 
  
Net income (loss) 1,873,468  663,058  5,302,057  (1,591,411)
  
Other comprehensive income:            
 Foreign currency translation adjustment -  (139,278) -  13,469 
  
Comprehensive income (loss)$1,873,468 $523,780 $5,302,057 $(1,577,942)
  
             
Net income (loss) per common share:            
 Basic 0.03  0.01  0.08  (0.02)
 Diluted 0.03  0.01  0.08  (0.02)
  
  
Weighted average number of common shares:            
 Basic 64,790,447  64,197,904  64,178,009  64,165,013 
 Diluted 64,948,923  64,419,693  65,129,225  64,165,013 
              

REDKNEE SOLUTIONS INC.

Consolidated Statements of Cash Flows

(Expressed in U.S. dollars)

Years ended September 30, 2012 and 2011

   2012  2011 
Cash provided by (used in):      
       
Operating activities:      
 Net income (loss)$5,302,057 $(1,591,411)
 Adjustments for:      
  Depreciation of property and equipment 226,606  270,469 
  Amortization of intangible assets 727,572  1,445,429 
  Finance income (99,718) (158,557)
  Finance costs 449,753  515,988 
  Income tax expense (40,301) 914,584 
  Unrealized foreign exchange loss (93,760) (398,034)
  Share-based compensation 729,160  643,304 
  Revaluation of contingent consideration 6,588  (290,027)
 Changes in non-cash operating working capital 1,075,803  (2,014,225)
   8,283,760  (662,480)
 Interest paid (114,081) (4,895)
 Interest received 99,590  146,207 
 Income taxes paid (1,293,995) (521,866)
   6,975,274  (1,043,034)
Financing activities:      
 Proceeds from employee share purchase loans -  5,048 
 Proceeds from exercise of stock options 168,039  157,610 
 Purchase of treasury stock (714,608) - 
 Proceeds from loans and borrowings 5,911,319  - 
 Repayment of loans and borrowings (8,362,083) (2,283,654)
 Payment of financing costs (449,523) - 
   (3,446,856) (2,120,996)
Investing activities:      
 Proceeds from short-term investments -  21,356 
 Purchase of property and equipment (575,411) (36,725)
 Purchase of intangible assets (42,357) (29,916)
 Increase in restricted cash (128,450) (3,209)
 Acquisition of Nimbus Systems -  (257,222)
 Settlement of Nimbus Systems contingent consideration (877,377) - 
   (1,623,595) (305,716)
  
Effect of foreign exchange rate changes on cash and cash equivalents 93,760  311,565 
       
Increase (decrease) in cash and cash equivalents 1,998,583  (3,158,181)
       
Cash and cash equivalents, beginning of year 14,879,940  18,038,121 
       
Cash and cash equivalents, end of year$16,878,523 $14,879,940 

REDKNEE SOLUTIONS INC.

Reconciliation of Net Income (Loss) to EBITDA

(Expressed in U.S. dollars)

(Unaudited)

  Three months ended  Twelve months ended 
  September 30,  September 30, 
  2012  2011  2012  2011 
  
Net income (loss) for the period 1,873,468  663,058  5,302,057  (1,591,411)
  
Add back / (subtract):            
 Depreciation of property and equipment and amortization of intangible assets 253,807  375,319  954,178  1,715,898 
 Finance income (28,061) (41,926) (99,718) (158,557)
 Finance costs 152,580  81,466  449,753  515,988 
 Income taxes (254,377) 669,336  (40,301) 914,584 
 Share-based compensation 74,594  2,792  729,160  643,304 
 Foreign exchange loss (gain) (177,801) (556,936) 38,881  64,045 
  
EBITDA$1,894,210 $1,193,109 $7,334,010 $2,103,851 
Contact:
Redknee Solutions Inc.
Lucas Skoczkowski
Chief Executive Officer
+1 905 625 2622
Redknee Solutions Inc.
David Charron
Chief Financial Officer
+1 905 625 2622
www.redknee.com
Liolios Group, Inc.
Matt Glover or Michael Koehler
Investor Relations
+1 949 574 3860

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