Redknee Solutions Reports Fiscal Fourth Quarter and Full Year 2012 Results

December 5, 2012

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