Redknee Solutions Reports Fiscal Second Quarter 2015 Results

TORONTO, May 6, 2015 - Redknee Solutions Inc.  (TSX:RKN.TO ) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal second quarter ended March 31, 2015. All figures are in U.S. dollars.

Fiscal Q2 2015 Financial Highlights
(Comparisons made between fiscal Q2FY2015 and fiscal Q2FY2014 results, unless otherwise noted)

• Revenue totalled $53.7 million ($61.1 million, on a constant currency basis), compared to $72.4 million
• Gross profit was $32.7 million (61% of total revenue) compared to $34.7 million (48% of total revenue)
• Adjusted EBITDA of $10.5 million (20% of total revenue) versus Adjusted EBITDA of $5.7 million (8% of total revenue)
• Recurring revenue was 46% of total revenue, compared to 36%
• Net loss totalled $2.0 million or $0.02 per share (net income of $6.8 million or $0.06 per share on a constant currency basis) versus a net income of $4.8 million or $0.05 income per share
• Total cash at March 31, 2015 was $105.8 million
• Cash flow from operations was $13 million
• Order backlog of $157.2 million at March 31, 2015

Fiscal Q2 2015 Operational Highlights

• Won a $6 million dollar order with a leading enterprise in APAC to support its growth in the energy retail sector
• Delivered the latest release of Redknee Unified to Vodafone India to boost data adoption by subscribers and increase customer satisfaction
• Supported Vodacom's data/LTE growth and monetization strategy with the latest release of Redknee Unified
• Enabled Digicel to offer prepaid energy in APAC
• 149 patents granted and 40 patents filed

Management Commentary

"During the second quarter of fiscal 2015, we have continued to execute on our growth strategy by improving our revenue mix resulting in gross margin improvement and strong adjusted EBITDA," said Lucas Skoczkowski, CEO of Redknee. "Our focus remains on supporting customers with our advanced software solutions and increasing our position as the largest independent real-time converged monetization software provider for communications. Our leading software solutions are increasingly being leveraged to support the rise of M2M and the Internet of Things (IoT) across our traditional customer base and non-telecom verticals including utilities, smart homes, and smart energy. As our market continues to consolidate, Redknee has a great opportunity to leverage its software platform, and its high customer reference ability to further expand our customer base and grow our sales pipeline. We remain disciplined in execution, focusing on margin improvement and cash flow generation, while we continue to seek accretive acquisitions to achieve our long-term business goals."

Fiscal Q2 2015 Financial Results
Revenue was $53.7 million ($61.1 million on a constant currency basis) compared to $72.4 million in the same year-ago quarter. The change in revenue compared to the prior year period resulted mainly from the impact of foreign exchange variation, lower third-party hardware sales, as well as lower support revenue due to expected non-renewal of certain support contracts.

Order backlog declined 7% to $157.2 million ($175.8 million on a constant currency basis) compared to $164.7 million in the same year-ago quarter.

Recurring revenue was 46% of total revenue, compared to 36% in the same year-ago quarter.

Gross margin was 61% compared to 48% 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 increased margins for services and support.

Adjusted EBITDA was $10.5 million, or 20% of revenue, compared to Adjusted EBITDA of $5.7 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 totalled $2.0 million, or $0.02 loss per basic and diluted share (net income of $6.8 million or $0.06 per share on a constant currency basis), compared to a net income of $4.8 million, or $0.05 income per basic and diluted share, in the same year-ago quarter.

At March 31, 2015, total cash ended at $105.8 million. This reflects the impact of $3.4 million in restructuring charges as well as a $3.4 million decrease due to foreign exchange rate variation in the quarter. Cash flow from operations totalled $13 million, excluding restructuring payments of $3.4 million incurred in the quarter.

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 (May 7, 2015) 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 May 7, 2015
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#: 27369765

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/1CUvUhw.

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, May 14, 2015.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 27369765

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. (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 (loss), 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 expenses, 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.

"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.

The "constant currency" presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. The Company calculates constant currency by converting the current period local currency financial results using the comparative period exchange rates.

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 these 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 Q2 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.
Reconciliation of Net Income (Loss) to EBITDA
(Expressed in U.S. dollars)
(Unaudited)
		Three months ended				Six months ended
		March 31,				March 31,
		2015		2014		2015		2014
Net income (loss) for the period		(2,039,695)		4,769,521		(28,734)		1,708,952
Add back / (subtract):
	Depreciation of property and equipment	1,135,416		1,451,105		2,077,652		3,054,168
	Amortization of intangible assets	1,527,207		1,736,206		3,339,589		3,426,340
	Other income	-		(6,951,904)		-		(5,801,235)
	Finance income	(7,192)		(9,427)		(11,674)		(24,186)
	Finance costs	1,116,244		811,636		2,014,461		1,396,156
	Income tax expense	1,354,330		1,571,364		2,762,990		2,357,051
	Share-based compensation	1,733,015		546,600		2,198,181		1,216,806
	Foreign exchange loss (gain)	5,178,499		(582,571)		7,847,412		555,333
EBITDA		9,997,824		3,342,530		20,199,877		7,889,385
Adjustments
	Restructuring costs	251,635		-		588,349		-
	Acquisition and related costs	279,432		2,395,690		694,483		3,268,058
Adjusted EBITDA		$	10,528,891	$	5,738,220	$	21,482,709	$	11,157,443

 

SOURCE Redknee Solutions Inc.