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Redknee Solutions Reports Fiscal Third Quarter 2015 Results

TORONTO, CANADA – August 5, 2015 –Redknee Solutions Inc.  (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal third quarter ended June 30, 2015. All figures are in U.S. dollars.

Fiscal Q3 2015 Financial Highlights  
(Comparisons made between fiscal Q3FY2015 and fiscal Q3FY2014 results, unless otherwise noted) 
  • Revenue totalled $46.7 million ($51.7 million, on a constant currency basis), compared to $63.9 million
  • Gross profit was $26.6 million (57% of total revenue) compared to $27.9 million (44% of total revenue)
  • Adjusted EBITDA of $5.3 million (11% of total revenue) versus Adjusted EBITDA loss of $3.2 million
  • Recurring revenue was 53% of total revenue, compared to 51%
  • Net loss totalled $5.5 million or $0.05 per share versus a net loss of $6.9 million or $0.06 loss per share
  • Total cash at June 30, 2015 was $103.0 million
  • Cash flow from operations was $5.3 million
  • Order backlog of $162.5 million at June 30, 2015 ($174.0 million, on a constant currency basis.

Fiscal Q3 2015 Operational Highlights
  • Announced the acquisition of Orga Systems (“Orga”) for a total consideration of €38M. The acquisition will enhance Redknee’s best-of-suite customer focused solutions and accelerate expansion into new vertical markets
  • Finalized the agreement with Nokia Networks for all outstanding issues related to the BSS acquisition, including the final contingent earn out amount
  • Added three new customers in the Americas and EMEA
  • Won a $14 million deal to support a leading CSP in the Americas to accelerate its MVNE growth strategy
  • Announced a new cloud-based converged billing win supporting EcoMobile on the Sprint network with a fully managed end to end solution
  • Awarded the Frost & Sullivan APAC BSS Vendor of the Year award
  • Named as one of Canada’s top technology companies by Branham Group’s Top ICT Scorecard
  • 149 patents granted and 37 patents filed


Management Commentary

"In the third quarter we executed on our strategic plan, growing order bookings while revenue was impacted by software license lumpiness which is common to the telecom software market,” said Lucas Skoczkowski, CEO of Redknee.  “We have begun to see the benefits of the cost structure realignment program that we implemented last year, and remain focused on enhancing our profitability, cash flow generation and growing our recurring revenues. The acquisition of Orga Systems lays a solid foundation for future growth, increasing our global reach, accelerating our revenue diversification beyond the telecom market, adding strength and depth to our team and expanding our product suite.” 

Mr. Skoczkowski added: “Our combined software products have increasingly been 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. We expect that this acquisition will be accretive in fiscal 2016, and will provide a further update when we release the Business Acquisition Report. ”

Fiscal Q3 2015 Financial Results

Revenue was $46.7 million ($51.7 million on a constant currency basis) compared to $63.9 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, as well as lower support revenue due to expected non-renewal of certain support contracts. 

Order backlog declined 6% to $162.5 million ($174.0 million on a constant currency basis) compared to $172.7 million in the same year-ago quarter, however sequentially order backlog  increased 3% from $157.2 million reported last quarter. 

Recurring revenue was 53% of total revenue, compared to 51% in the same year-ago quarter. 

Gross margin was 57% compared to 44% in the same year-ago quarter. The increase in gross margin was primarily attributable to reduction in compensation and third party costs and impact of foreign exchange.

Adjusted EBITDA was $5.3 million, or 11% of revenue, compared to Adjusted EBITDA loss of $3.2 million, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below). 

Net loss totalled $5.5 million, or $0.05 loss per basic and diluted share compared to a net loss of $6.9 million, or $0.06 income per basic and diluted share, in the same year-ago quarter. 

At June 30, 2015, total cash ended at $103. million. Cash flow from operations totalled $5.3 million, excluding restructuring payments of $6.1 million incurred in the quarter.  The restricted cash on the balance sheet mainly relates to a purchase guarantee for Orga acquisition. 

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 (August 6, 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 August 6, 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#: 81749536 

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/1JZx7dI
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) 815-0700, ext. 253. 

A replay of the call will be available until 12:00 midnight (EST) Thursday, August 13, 2015. 
Toll-Free Replay Number: 1 (855) 859-2056 
International Replay Number: 1 (416) 849-0833 
Replay PIN: 81749536 


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. 

To view the full article please click here.

For additional information please contact: 
Redknee Solutions: 
Michaela Radman, Corporate Communications 
Michaela.Radman@redknee.com 
+1 905 625 2190 

Investor Relations: 
Robert Kelly NATIONAL | Equicom 
T: (416) 848-1382 
rkelly@national.ca 

Source: Redknee Solutions Inc

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:

Kristin Donelson
Kristin.Donelson@redknee.com
+1 905 625 2190

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