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Redknee Solutions Reports Second Quarter Fiscal 2017 Results

TORONTO, May 10, 2017 /CNW/ - Redknee Solutions Inc. (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal second quarter ended March 31, 2017. (All figures are in U.S. dollars unless otherwise stated.)

Fiscal Q2 2017 Financial Highlights
(Comparisons made between fiscal Q2FY2017 and fiscal Q2FY2016 results, unless otherwise noted)
  • Revenue was $34.4 million compared to $39.8 million;
  • Gross profit was $20.2 million (59% of total revenue) compared to $21.4 million (54% of total revenue);
  • Recurring revenue was 66% of revenue, compared to 63%;
  • Net loss was $15.3 million, or $0.14 loss per share, compared to a net loss of $35.6 million, or $0.33 loss per share;
  • Total cash of $46.8 million and cash used in operations was $12.1 million; and,
  • Order backlog of $161.4 million at March 31, 2017.
Fiscal Q2 2017 Operational Highlights
  • Redknee announced in late January that the Private Placement received shareholder approval. Following shareholder approval, the Company completed a private placement with Wave Systems Corp. (the "Investor"), an affiliate of ESW Capital, LLC ("ESW Capital"), of 800,000 Series A Preferred Shares of the Company and a common share purchase warrant to the Investor for gross proceeds of US$83.2 million (the "Transaction"). Following completion of the Transaction, the Company used a portion of the net proceeds from the Transaction to fully repay all loans and borrowings.
  • Redknee announced changes to the Board of Directors and Leadership Team. The Board of Directors now comprises of Demetrios Anaipakos, Scott Brighton, Keith Graham, Chris Helling, Christy Jones, Andrew Price and Farhan Thawar. Changes to the Leadership team include the appointment of Danielle Royston as Chief Executive Officer and Leela Kaza as Managing Director, Global Strategic Accounts.
  • Redknee announced changes to its long-term growth and strategic plan, by announcing that it would focus on the telecommunications market and create two major operating units. 
  • The Strategic Global Account operating unit will focus on communication service providers (CSP's) for whom the Company provides significant, mission critical software and services solutions.
  • The Packaged and Cloud Solutions operating unit will focus on pre-integrated telecom software solutions, delivered on premise and from the cloud. 
  • Redknee announced its immediate business priority is customer success with the company's long-term goal of 100% success. The company also announced its intention to raise $60 million to restructure the company and invest an additional $100 million in R&D over a three year period from 2017 to 2019. The company also plans to invest in staffing strategic account teams expecting to hire 200 people. 
  • Telekom Sprske and Redknee sign a multi-million dollar upgrade to the latest version of Redknee Unified and a contract expansion including the deployment of Redknee's geo-redundancy system to improve the quality and reliability of services.
  • WOM Chile and Redknee sign a multi-million dollar transformation deal to deliver the full Redknee Unified stack to enable WOM to launch new service offerings, improve operational efficiency and create greater business value.
  • A Tier 1 CSP in APAC signs a multi-million dollar upgrade to the latest version of Redknee Unified. The upgrade will add additional capacity and new capabilities including VoLTE.
Restructuring Commentary

As part of its continuing initiative to restore the Company to growth and profitability, Redknee intends to complete a financing transaction of approximately $60 million. The proceeds will be used to fund a restructuring of the business. Redknee expects that this restructuring will generate annualized savings of $50 to $60 million over the next 18 to 24 months. The Company intends to reinvest the cost savings into Customer Success and to execute on its $100 million product revitalization plan. Redknee's independent directors have engaged independent advisors to assist in their consideration of financing options to fund this restructuring.

Redknee has begun its restructuring activities and announces the departure of CTO, Dr. Ralf Guckert. As the Company continues implementing further restructuring activities, it anticipates additional executive departures.

Management Commentary


"Achieving 100% Customer Success remains our number one priority," said Danielle Royston, CEO, Redknee. "Historically, we have not focused on our customers, and as a result, our revenue and products suffered. Our new strategy re-aligns our organization to focus solely on delivering Customer Success to communications service providers. We plan to invest $100 million in our R&D group to build market leading products with the goal of being regarded as having the best talent in the industry. I am excited to report that our new direction is resonating well with our customers, and while a majority are reporting that they are currently unsuccessful, they all believe we now have the focus to bring them to success."

Ms. Royston added: "Operationally, it will take a lot of work to turn Redknee around. Once our financing is secured for the restructuring, we will move swiftly to make the changes we need to position Redknee for financial and customer success. We will leverage that success to make the necessary investments in the business and I continue to be optimistic about Redknee's future."

Fiscal Q2 2017 Financial Results

Revenue was $34.4 million compared to $39.8 million in the same year-ago quarter. Recurring revenue was 66% of total revenue, compared to 63% in the same year-ago quarter.

Order backlog decreased by 8% to $161.4 million compared to $175.5 million in fiscal 2016.

Gross margin was $20.2 million, or 59% of total revenue, compared to $21.4 million, or 54% of total revenue, in the same year-ago quarter.

Net loss was $15.3 million, or $0.14 loss per basic and diluted share, compared to a net loss of $35.6 million or $0.33 loss per basic and diluted share, in the same year-ago quarter. Net loss last year included $24.5 million of restructuring costs.

Total cash at March 31, 2017 was $46.8 million. Cash used in operations was $12.1 million (included $4.5 million of restructuring payments).

Please refer to the section regarding Forward-Looking Statements below 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 11, 2017) to discuss these results. CEO Danielle Royston 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 11, 2017, 2017
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#: 10173989

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/2oIqJ7I

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 NATIONAL | Equicom at 1 (416) 586-1951.

A replay of the call will be available until 12:00 midnight (EST) Thursday, May 18, 2017.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 10173989

Non-IFRS Measures

"Recurring revenue," which 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.

Other companies (including competitors) may define recurring revenue, and order backlog differently. The Company presents 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.

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 order backlog contributing to increased revenue visibility for the Fiscal 2017; the impact of the challenging macro environment on the Company's revenue; our restructuring initiatives and ongoing cost management efforts are expected to result in significantly improved profitability next year; and financial guidance for Fiscal 2017; 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. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to, assumptions respecting : (i) the conversion of sales pipeline into orders and orders into revenue based on the extent and timing of historical conversion; (ii) the anticipated mix of the sale of products and services of the Company and associated margin being consistent with that realized in the past; (iii) the ability of Redknee to bring new products and services to market and to increase sales; (iv) the strength of the Company's product development pipeline; (v) the estimated size and growth prospects of the markets Redknee seeks to address; (vi) the Company's competitive position in those markets and its ability to take advantage of future opportunities in those markets; (vii) the benefits of the Company's products and services to be realized by its customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products and services; (ix) the Company's financial condition and capital requirements; (x) the stability of general economic and market conditions; (xi) currency exchange rates and interest rates; (xii) capital markets continuing to provide the Company with access to capital. The risks and uncertainties that may affect forward-looking statements include, but are 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.

Condensed Consolidated Interim Statements of Financial Position

(Expressed in U.S. dollars)

(Unaudited)





March 31

September 30


2017

2016




Assets






Current assets:




Cash and cash equivalents

$

43,267,950

$

37,080,510


Trade accounts and other receivables

29,216,869

43,209,046


Unbilled revenue

25,804,568

27,290,500


Prepaid expenses

1,801,210

2,999,539


Income taxes receivable

3,535,744

2,662,163


Other assets

69,232

268,929


Inventories

1,145,714

710,591


Total current assets

104,841,287

114,221,278




Restricted cash

3,526,534

4,582,293

Property and equipment

4,741,312

6,262,965

Deferred income taxes

1,984,575

1,984,479

Investment tax credits

350,484

355,914

Other assets

1,304,448

1,656,971

Intangible assets

30,582,894

35,721,065

Goodwill

32,271,078

32,271,078




Total assets

$

179,602,612

$

197,056,043




Liabilities and Shareholders' Equity






Current liabilities:




Trade payables

$

7,449,126

$

14,212,869


Accrued liabilities

15,812,131

23,405,832


Provisions

16,032,590

21,981,367


Income taxes payable

597,250

724,412


Deferred revenue

14,378,614

18,915,596


Loans and borrowings

50,445,790


Total current liabilities

54,269,711

129,685,866




Deferred revenue

518,171

639,688

Other liabilities

1,492,739

2,264,482

Pension and other long-term employment benefit plans

20,344,912

20,387,584

Provisions

977,159

6,683,256

Preferred shares

54,875,462

Warrant

31,290,048

Deferred income taxes

376,194

687,947

Total liabilities

164,144,396

160,348,823




Shareholders' equity:




Share capital

172,638,075

172,436,385


Treasury stock

(141,917)

(141,917)


Contributed surplus

9,979,599

9,812,545


Deficit

(155,571,791)

(133,954,043)


Accumulated other comprehensive loss

(11,445,750)

(11,445,750)


Total shareholders' equity

15,458,216

36,707,220




Total liabilities and shareholders' equity

$

179,602,612

$

197,056,043


Redknee Solutions Inc.

Condensed Consolidated Interim Statements of Comprehensive Loss

(Expressed in U.S. dollars, except per share and share amounts)

(Unaudited)






Three months ended

Six months ended

   

March 31,

March 31,


2017

2016

2017

2016






Revenue:






Software, services and other

$

13,464,121

 $

17,105,453

$

27,468,225

$

42,223,687


Support and subscription

20,900,514

22,687,039

44,106,616

47,684,616


34,364,635

39,792,492

71,574,841

89,908,303






Cost of revenue

14,199,295

18,353,594

30,330,824

38,751,510






Gross profit

20,165,340

21,438,898

41,244,017

51,156,793






Operating expenses:






Sales and marketing

5,421,303

7,816,722

10,456,440

16,217,996


General and administrative

7,726,710

8,629,408

15,448,655

15,917,679


Research and development

9,337,205

12,553,717

18,487,518

25,308,788


Restructuring costs

3,875,173

24,541,909

4,080,474

24,820,455


Acquisition and related costs

116,774

950,478


26,360,391

53,658,530

48,473,087

83,215,396






Loss from operations

(6,195,051)

(32,219,632)

(7,229,070)

(32,058,603)






Foreign exchange gain (loss)

(1,078,585)

28,232

(665,869)

(464,776)

Other (expense) income

1,749,072

(1,450,928)

Finance income

45,278

17,730

230,205

23,104

Finance costs

(8,693,398)

(1,759,403)

(9,381,845)

(2,807,934)






Loss before income taxes

(14,172,684)

(33,933,073)

(18,497,507)

(35,308,209)






Income taxes (recovery):






Current

1,379,996

1,618,062

3,398,646

3,999,351


Deferred

(289,375)

73,005

(278,405)

621,573


1,090,621

1,691,067

3,120,241

4,620,924






Loss for the period

$

(15,263,305)

$

(35,624,140)

$

(21,617,748)

$

(39,929,133)






Other comprehensive loss:






Pension actuarial adjustment

(77,702)






Total comprehensive loss

$

(15,263,305)

$

(35,624,140)

$

(21,617,748)

$

(40,006,835)






Loss per subordinate voting share:






Basic

$

(0.14)

$

(0.33)

$

(0.20)

$

(0.37)


Diluted

(0.14)

(0.33)

(0.20)

(0.37)











Weighted average number of 




Basic

108,338,825

108,304,632

108,297,726

108,715,589


Diluted

108,338,825

108,304,632

108,297,726

108,715,589








Redknee Solutions Inc.

Condensed Consolidated Interim Statements of Cash Flows

(Expressed in U.S. dollars)

(Unaudited)





Three months ended

Six months ended


March 31,

March 31,


2017

2016

2017

2016






Cash provided by (used in):










Operating activities:






Loss for the period

$

(15,263,305)

$

(35,624,140)

$

(21,617,748)

$

(39,929,133)


Adjustments for:







Depreciation of property and equipment

802,290

1,185,400

1,581,754

2,188,427



Amortization of intangible assets

2,173,365

2,447,730

4,434,541

4,735,596



Finance income

(45,278)

(17,730)

(230,205)

(23,104)



Finance costs

8,693,398

1,759,403

9,381,845

2,807,934



Pension

826,729

1,180,647

(42,672)

1,377,199



Income tax expense

1,090,621

1,691,067

3,120,241

4,620,924



Unrealized foreign exchange loss (gain)

209,596

(26,456)

1,396,611

1,076,691



Share-based compensation

(682,951)

1,507,036

(738,927)

1,756,645



Change in provisions

(2,781,453)

21,948,779

(11,654,874)

19,116,612



Change in non-cash operating working capital

(5,391,204)

5,548,409

(530,052)

4,828,780


(10,368,192)

1,600,145

(14,899,486)

2,556,571



Interest paid

(62,413)

(113,449)

(166,502)

(434,217)



Interest received

26,391

11,766

212,197

23,451



Income taxes paid

(1,669,346)

(1,748,954)

(4,243,774)

(4,205,611)


(12,073,560)

(250,492)

(19,097,565)

(2,059,806)






Financing activities:







Proceeds from exercise of stock options

201,690

200,560

201,690

238,060



Purchase of treasury stock

(1,450,484)

(2,556,966)



Interest paid on loans and borrowings

(1,245,961)

(958,953)

(2,330,904)

(1,788,593)



Repayment of loans and borrowings

(52,000,000)

(450,000)

(52,750,000)

(900,000)



Transaction costs of loans and borrowings

(90,496)



Issue of preferred shares and warrant, net of transaction costs

79,861,542

79,861,542


26,817,271

(2,658,877)

24,982,328

(5,097,995)






Investing activities:







Purchase of property and equipment

(18,809)

(1,114,500)

(309,154)

(1,621,920)



Purchase of intangible assets

(13,776)

(25,035)



Decrease in restricted cash

195,642

616,114

1,055,759

778,022



Settlement accrual and contingent consideration paid

(1,072,596)

(7,712,395)


176,833

(1,584,758)

746,605

(8,581,328)






Effect of foreign exchange rate changes on 

291,287

377,357

(443,928)

(199,600)






Increase (decrease) in cash and cash 

15,211,831

(4,116,770)

6,187,440

(15,938,729)






Cash and cash equivalents, 

28,056,119

43,225,618

37,080,510

55,047,577






Cash and cash equivalents, 

$

43,267,950

$

39,108,848

$

43,267,950

$

39,108,848

SOURCE Redknee Solutions Inc.


For further information:

Investor Relations: Conrad Seguin, NATIONAL | Equicom, T: 416-586-1951, cseguin@national.ca


Media Enquiries: media@redknee.com

About Redknee:
Redknee monetizes today's digital world. We provide a complete portfolio of mission-critical monetization and subscriber management solutions, including real-time billing, charging, policy and customer care modules, which allow Communications Service Providers to charge for things in new and innovative ways and create a unique user experience. Available on premise, cloud-based, or as a Software-as-a-Service, Redknee's low-risk, flexible solutions power more than 250 businesses across the globe. 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.

For additional information please contact:

Redknee Solutions:
Michaela Radman, Corporate Communications
Michaela.Radman@redknee.com
+1 905 625 2190

Investor Relations:
Conrad Seguin
NATIONAL | Equicom
T: (416) 586-1951
cseguin@national.ca