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Redknee Solutions Reports Fourth Quarter Fiscal 2016 Results

– Quarter Highlighted by Sequential Improvement in Adjusted EBITDA and Cash from Operations and Healthy Backlog at Quarter End of $175 Million –

TORONTO, Dec. 12, 2016 /CNW/ - Redknee Solutions Inc. (TSX: RKN) a leading provider of real-time monetization and subscriber management software, reported results for its fiscal fourth quarter ended September 30, 2016. (All figures are in U.S. dollars unless otherwise stated.)

Fiscal Q4 2016 Financial Highlights 
(Comparisons made between fiscal Q4FY2016 and fiscal Q4FY2015 results, unless otherwise noted)
  • Revenue totalled $40.7 million compared to $59.8 million;
  • Gross profit was $23.1 million (57% of total revenue) compared to $34.6 million (58% of total revenue);
  • Adjusted EBITDA was $3.0 million (7% of total revenue) compared to Adjusted EBITDA of $7.7 million (13% of total revenue);
  • Recurring revenue was 63% of revenue, compared to 44%;
  • Net loss was $14.7 million, or $0.14 loss per share (including $6.2 million in restructuring costs) compared to a net loss of $4.4 million, or $0.04 loss per share;
  • Cash from operations was $5.4 million (adjusted cash from operations was $13.8 million); and,
  • Order backlog of $175.0 million at September 30, 2016.
Fiscal 2016 Financial Highlights 
(Comparisons made between fiscal 2016 and fiscal 2015 results, unless otherwise noted)

  • Revenue totalled $171.1 million compared to $222.7 million;
  • Gross profit was $92.6 million (54% of total revenue) compared to $130.5 million (59% of total revenue);
  • Adjusted EBITDA was $3.5 million (2% of total revenue) compared to Adjusted EBITDA of $34.4 million (15% of total revenue);
  • Recurring revenue was 60% of revenue, compared to 46%;
  • Net loss was $66.9 million, or $0.62 loss per share (including $35.2 million in restructuring costs) compared to a net loss of $10.0 million, or $0.09 loss per share; and,
  • Cash from operations was $7.4 million (adjusted cash from operations was $24.0 million).
Fiscal Q4 2016 Operational Highlights

  • Signed a multi-million cloud contract to deliver Redknee's real-time monetization solution to a leading retailer in LATAM:
  • Won a multi-million dollar contract with a Tier 1 CSP in EMEA to enhance customer satisfaction;
  • Recognized as a Visionary in Gartner's 2016 Magic Quadrant for Integrated Revenue and Customer Management (IRCM) report;
  • Recognized as a Top 4 Convergent Billing Vendor in Analysys Mason's Revenue Management Systems Market Share Report for 2015;
  • Redknee Unified was certified by the Hewlett Packard Enterprise (HPE) OpenNFV Partner Program;
  • Completed the successful implementation of its multi-play monetization solution at Omantel, a leading operator in the Middle East;
  • MGI Telecom implemented Redknee Unified to support its growth strategy; and,
  • Formed a special committee of independent members of the board of directors of the Company to consider various strategic and financing alternatives potentially available to the Company to enhance shareholder value.
Highlights Subsequent to Fiscal Q4 2016

  • Subsequent to quarter end, on December 9, 2016 the Company entered into an agreement with Constellation Software Inc. and one of its subsidiaries providing for an investment of US$80 million in Redknee, completion of which is subject to approval of Redknee common shareholders. Redknee's largest investor, Invesco Canada Ltd., which holds 19.9% of outstanding Redknee common shares, has agreed to vote its shares in favour of the transaction. In addition, all directors and certain officers of the Company holding in aggregate 16% of the outstanding common shares have also agreed to vote their shares in favour of the transaction.
Management Commentary

"Amidst ongoing delays in customer decisions across the BSS industry that have impacted our software license sales throughout Fiscal 2016, our focus on our near-term priorities delivered sequential improvement in our financial results in the fourth quarter, highlighted by positive adjusted EBITDA of $3.0 million," said Lucas Skoczkowski, President and CEO, Redknee Solutions Inc. "Importantly, our focus on working capital optimization and disciplined collection efforts contributed to the generation of $13.9 million in cash from operations before restructuring costs and an improvement in working capital. We continue to win new orders, which contributed to a healthy backlog at quarter end of $175 million."

"While we expect the challenging macro environment to continue to impact our revenue, our restructuring initiatives and ongoing cost management efforts are expected to result in significantly improved profitability next year. Supported by the stability of the $80 million investment to be provided pursuant to our agreement with Constellation Software, we are reiterating our guidance of $15 million to $20 million of Adjusted EBITDA on $170 to $180 million of revenue."

"Alongside our contract wins, the strength of our solutions, including the adaptability of our solutions to different types of businesses and our high level of service, continues to be recognized by the industry. Redknee was recently named a Visionary in Gartner's 2016 Magic Quadrant for Integrated Revenue and Customer Management and was ranked one of the top four convergent billing vendors globally in the Analysys Mason Revenue Management Systems Market Share Report, highlighting our position as a preferred provider by many CSPs around the world."

Fiscal Q4 2016 Financial Results

Revenue was $40.7 million compared to $59.8 million in the same year-ago quarter. The decrease resulted mainly from the impact of lower license revenue due to delays in customer purchasing decisions and overall reduced capital and operating spending in the global communication industry, compared to the same year-ago quarter.

Recurring revenue was 63% of total revenue, compared to 54% in the same year-ago quarter.

Gross margin was $23.1 million, or 57% of total revenue, compared to $34.6 million, or 58% of total revenue, in the same year-ago quarter. The decrease resulted mainly from lower revenue from high-margin software license deals.

Adjusted EBITDA was $3.0 million or 7% of revenue compared to Adjusted EBITDA of $7.7 million, or 13% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss was $14.7 million, or $0.14 loss per basic and diluted share, compared to a net loss of $4.4 million, or $0.04 loss per basic and diluted share, in the same year-ago quarter. Net loss included $6.2 million of restructuring costs. 

Cash flow from operations was $5.4 million. Adjusted cash flow from operations was $13.8 million (see discussion about the presentation of Adjusted cash flow from operations, a non-IFRS measure, below).

Fiscal 2016 Financial Results

Revenue was $171.1 million compared to $222.7 million in the same year-ago quarter. The decrease resulted mainly from the impact of lower license revenue due to delays in customer purchasing decisions and overall reduced capital and operating spending in the global communication industry. This was partially offset by the contribution of revenue from customers obtained through the acquisition of Orga Systems.

Recurring revenue was 60% of total revenue, compared to 46% in the same year-ago quarter.

Order backlog increased 10% to $175.0 compared to $158.5 million in fiscal 2015.

Gross margin was $92.6 million, or 54% of total revenue, compared to $130.5 million, or 59% of total revenue, in the same year-ago quarter. The decrease resulted mainly from lower revenue from high-margin software license deals.

Adjusted EBITDA was $3.5 million, or 2% of revenue, compared to Adjusted EBITDA of $34.4 million, or 15% of revenue, in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).

Net loss was $66.9 million, or $0.62 loss per basic and diluted share, compared to a net loss of $10.0 million, or $0.09 loss per basic and diluted share, in the same year-ago quarter. Net loss for the year included $35.2 million of restructuring costs. 

Total cash at September 30, 2016 was $41.7 million. Cash flow from operations was $7.4 million. Adjusted cash flow from operations was $24.0 million (see discussion about the presentation of Adjusted cash flow from operations, a non-IFRS measure, below).

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.

Financial Guidance

The Company reiterated the financial guidance it had previously provided for Fiscal 2017:

  • Revenue of between $170 million and $180 million; and,
  • Adjusted EBITDA of between $15 million and $20 million.
This financial guidance constitutes forward-looking information within the meaning of applicable securities laws and is based on a number of assumptions and subject to a number of risks. Actual results could vary materially as a result of numerous factors, including certain risk factors, many of which are beyond Redknee's control. Please refer to the section regarding Forward-Looking Statements below. All numbers provided in this section are approximate.

Conference Call

The Company will host a conference call tomorrow (December 13, 2016) 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: Tuesday, December 13, 2016
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1 (888) 231-8192 
International: 1 (647) 427-7451
Conference ID#: 4579855

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/2frMiTE.

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) 586-1955.

A replay of the call will be available until 12:00 midnight (EST) Tuesday, December 20, 2016.

Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 4579855


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 income, finance costs, finance income, income tax expense (recovery), foreign exchange gain (loss), share-based compensation, restructuring costs and acquisition and related costs.

"Recurring revenue," which is not a financial measure calculated and presented in accordance with IFRS, and should not be considered in isolation or as asubstitute to revenue. Recurring revenue includes revenue fromsupport and maintenance agreements, long term service agreements, and term-based product licenses and software subscription.

"Adjusted cash flow from operations", which is a non-IFRS measure, is defined as cash flow from operations excluding amounts for restructuring payments made in the period.

"Order backlog" relates to contractual commitments as at period end, pending to be delivered and will be recognized as revenue in future periods. Order backlogis 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-IFRS 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, Adjusted cash flow from operations, recurring revenue, and order backlog differently. The Company presents Adjusted EBITDA, Adjusted cash flow from operations, 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 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; * 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; (xiii) risks associated with the non-completion or delay of the investment by Constellation Software Inc.; and (xiv) the risk of default by the Company under the requirements of its senior secured credit agreement and the enforcement by the lenders of their security. 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.

Consolidated Statements of Financial Position    
 

 
 (Expressed in U.S. dollars)

   

 September 30, 2016 and 2015

   
     
   2016

 2015

     
 Assets

   
     
 Current assets:

   
  Cash and cash equivalents

 $ 37,080,510

 $ 55,047,577

  Trade accounts and other receivables

 43,209,046

 67,439,885

  Unbilled revenue

 27,290,500

 38,282,163

  Prepaid expenses

 2,999,539

 2,535,936

  Income taxes receivable

 2,662,163

 1,399,564

  Other assets

 268,929

 392,195

  Inventories

 710,591

 812,987

 Total current assets

 114,221,278

 165,910,307

     
 Restricted cash

 4,582,293

 5,972,087

 Property and equipment

 6,262,965

 8,435,008

 Deferred income taxes

 1,984,479  2,086,025
 Investment tax credits

 355,914

 351,385

 Other assets

 1,656,971

 1,816,640

 Intangible assets

 35,721,065

 46,362,262

 Goodwill

 32,271,078

 32,271,078

     
 Total assets


 $ 197,056,043


 $ 263,204,792


Liabilities and Shareholders' Equity


   
Current liabilities:

   
 Trade payables

 $ 14,212,869

 $ 9,128,710

 Accrued liabilities

 23,405,832

 32,305,136

 Provisions

 21,981,367

 8,772,519

 Income taxes payable

 724,412

 2,364,983

 Settlement accrual and contingent consideration

 -

10,244,224 

 Deferred revenue

 18,915,596

 13,363,696

 Loans and borrowings

 50,445,790

 1,800,000

 Total current liabilities


 129,685,866


 77,979,268


 Deferred revenue

 639,688

 870,937

 Other liabilities

 2,264,482

 2,615,163

 Pension and other long-term employment benefit plans

 20,387,584

 11,417,481

 Loans and borrowings

 -

 54,961,066

 Provisions

 6,683,256

 4,006,354

 Deferred income taxes

 687,947

 -

 Total liabilities


 160,348,823


 151,850,269


 Shareholders' equity:

   
 Share capital

 172,436,385

 174,082,815

 Treasury stock

 (141,917)

 (141,917)

 Contributed surplus

 9,812,545

 7,899,360

 Deficit

 (133,954,043)

 (67,086,722)

 Accumulated other comprehensive loss

 (11,445,750)

 (3,399,013)

 Total shareholders' equity


 36,707,220


 111,354,523


Total liabilities and shareholders' equity

 $ 197,056,043

 $ 263,204,792

 

   
 Redknee Solutions Inc.

   
 Consolidated Statements of Comprehensive Loss

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

   
 Years ended September 30, 2016 and 2015


   
   2016  2015
     
 Revenue:

   
 Software, services and other

 $ 76,116,137

 $ 130,179,681

 Support and subscription

 94,973,763

 92,560,729

   171,089,900

 222,740,410

 Cost of revenue

 78,494,715

 92,192,264

     
 Gross profit


 92,595,185


 130,548,146


Operating expenditures:

   
 Sales and marketing

 29,513,033

 34,128,382

 General and administrative

 30,861,909

 28,364,951

 Research and development

 45,495,754

 48,030,270

 Acquisition and related costs

 4,838,371

 6,212,222

 Restructuring costs

 35,184,661

 1,095,454

   145,893,728

 117,831,279

 

   
 Income (loss) from operations

 (53,298,543)

 12,716,867

 

   
 Foreign exchange loss

 (4,216,967)

 (9,948,211)

 Other income

 6,362,935

 -

 Finance income

 83,058

 31,633

 Finance costs

 (6,260,366)

 (5,172,039)

     
 Loss before income taxes

 (57,329,883)

 (2,371,750)

     
Income tax expense (recovery):

   
 Current

 8,631,902

 7,754,139

 Deferred

 905,536

 (119,314)

   9,537,438

 7,634,825

     
Loss for the year

 (66,867,321)

 (10,006,575)

     
Other comprehensive income (loss):

   
 Items that will not be reclassified to net income:

   
  Actuarial gain (loss) on pension and non-pension
  post-employment benefit plans, (net of income
  tax (recovery) expense of nil (2015 - (nil))

 (8,046,737)  775,936
 

   
Total comprehensive loss

 $ (74,914,058)

$ (9,230,639)

 

   
Loss per common share:

   
 Basic

 $ (0.62)

 $ (0.09)

 Diluted

 (0.62)

 (0.09)

     
     
Weighted average number of common shares (note 16(b)):

   
 Basic

 108,481,143

 109,111,052

 Diluted

 108,481,143

 109,111,052

     
     
     
 Redknee Solutions Inc.

   
 Consolidated Statements of Cash Flows

   
 (Expressed in U.S. dollars)

   
     
 Years ended September 30, 2016 and 2015

   
     
   2016

 2015

     
Cash provided by (used in)

   
 

   
Operating activities:

   
 Loss for the year

 $ (66,867,321)

 $ (10,006,575)

 Adjustments for:

   
  Depreciation of property and equipment

 4,175,854

 3,694,373

  Amortization of intangible assets

 9,442,492

 7,189,337

  Finance income

 (83,058)

 (31,633)

  Finance costs

 6,260,366

 5,172,039

  Income tax expense

 9,537,438

 7,634,825

  Unrealized foreign exchange loss

 2,378,887

 6,284,482

  Share-based compensation

 3,150,239

 3,539,364

  Pensions

 923,366

 1,768,978

  Provisions

 15,885,750

 (16,272,604)

  Settlement of acquisition related liabilities

 -

 1,962,921

 Change in non-cash operating working capital

 34,795,821

 (3,925,130)


 19,599,834

 7,010,377

  Interest paid

 (502,201)

 (412,465)

 Interest received

 86,335

 31,727

 Income taxes paid

 (11,805,732)

 (7,392,374)

   7,378,236

 (762,735)

 Financing activities:

   
 Purchase of treasury stock

 -

 (536,507)

 Purchase of shares under NCIB

 (2,556,966)

 -

 Proceeds from exercise of stock options

 249,768

 231,106

 Interest paid on loans and borrowings

 (4,109,186)

 (2,572,761)

 Proceeds (repayment) of loans and borrowings

 (6,800,000)

 10,888,507

 Transaction costs on loans and borrowings

 (90,496)

 (1,280,254)

   (13,306,880)

 6,730,091

     
 Investing activities:

   
 Purchase of property and equipment

 (2,552,199)

 (2,774,266)

 Purchase of intangible assets

 (41,318)

 (941,171)

 Decrease (increase) in restricted cash

 1,389,794

 (5,090,147)

 Payment of settlement accrual and contingent consideration

 (10,244,224)

 (5,376,736)

 Acquisition of businesses, net of cash acquired

 -

 (40,312,896)

   (11,447,947)

 (54,495,216)

     
 Effect of foreign exchange rate changes
on cash and cash equivalents

 (590,476)

 (5,061,360)

 Increase (decrease) in cash and cash equivalents

 (17,967,067)

 (53,589,220)

     
 Cash and cash equivalents, beginning of year

 55,047,577

 108,636,797

     
 Cash and cash equivalents, end of year

 $ 37,080,510

 $ 55,047,577




Redknee Solutions Inc.


Reconciliation of Net Income (Loss) to Adjusted EBITDA

(Expressed in U.S. dollars)

(Unaudited)




 Three months ended  Twelve months ended
         
 September 30,

 September 30,

   2016

 2015

2016      
   
2015

 

       
 Net loss for the period

 (14,683,255)

 (4,432,334)

 (66,867,321)

 (10,006,575)

 

       
 Add back / (subtract):        
         
 Depreciation of property and equipment

 1,042,093

 426,185

 4,175,854

 3,694,373

 Amortization of intangible assets

 2,228,364

 2,221,280

 9,442,492

 7,189,337

 Other income

 (6,362,935)

 -

 (6,362,935)

 -

 Finance income

 (18,904)

 (16,147)

 (83,058)

 (31,633)

 Finance costs

 1,563,415

 2,213,001

 6,260,366

 5,172,039

 Income tax expense

 4,567,748

 2,867,610

 9,537,438

 7,634,825

 Share-based compensation

 1,078,515

 403,240

 3,150,239

 3,539,364

 Foreign exchange loss (gain)

 3,597,168

 3,062,814

 4,216,967

 9,948,211

 Restructuring costs

 6,248,485

 (63,098)

 35,184,661

 1,095,454

 Acquisition and related costs

 3,715,000

 1,000,539

 4,838,371

 6,212,222

 

       
 Adjusted EBITDA  $ 2,975,694  $ 7,683,090  $ 3,493,074  $ 34,447,617
         


SOURCE Redknee Solutions Inc.
Three months ended

Media Enquiries: media@redknee.com

About Redknee:
Redknee monetizes today's digital world for communications service providers. Our market-leading portfolio of monetization and subscriber management solutions includes real-time billing, charging, policy and customer care modules and is available on premise, cloud-based, or as Software-as-a-Service. With a central focus on driving customer success, Redknee's products power growth and innovation for operators globally. Established in 1999, Redknee Solutions Inc. (TSX: RKN) can be found on the Toronto Stock Exchange. For more information about Redknee, 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:
Katelynn Thissen
NATIONAL | Equicom
T: (416) 848-1427
kthissen@national.ca