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Redknee Solutions Reports Fiscal Third Quarter 2013 Results

TORONTO--(Marketwired - Aug 13, 2013) - 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 $0.03 per diluted share in the same year-ago quarter. Q3 2013 net income included $3.0 million of 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