RNS Number:0759J
Redknee Solutions Inc.
04 December 2007
For Immediate Release December 4,2007
Redknee Solutions Inc.
Part1
("Redknee", "the Company" or "the Group")
Redknee Financial Results for the year ended September 30, 2007
Redknee (AIM: RKN), a leading provider of innovative infrastructure software
that monetizes and personalizes services and content for mobile operators, today
announced its financial results for the year ended September 30, 2007 following
its successful flotation on the AIM market of the London Stock Exchange ("AIM")
in February of this year.
Financial Highlights:
* Revenue of $38.6 million (FY06 - $37.0 million)
* Gross Profit of $26.4 million or 68% of total revenue
(FY06 - $26.2 million and 71%)
* Backlog of $19.1 million (FY06 - $ 18.4 million)
* Basic loss per share of $(0.20) compared to a loss of $
(0.33) for the same period last year
* Cash and short term investments of $23.7 million (FY06 -
$3.4 million)
Operating Highlights:
* A successful admission to trading on AIM raising gross
proceeds of $39.9 million on Feb 21, 2007
* Repayment of $7.9 million in outstanding debt and
shareholder loans
* Nine new customers added in the year across Americas,
APAC, and EMEA
* Three patents issued, three patents that have been allowed
and we anticipate will be issued shortly, and 35 ongoing patent applications
* Delivered four major product releases in the year- one for each of our
main product lines and two new product launches in the year
Canadian-based Redknee reports in Canadian dollars but generates a majority of
its revenue from US dollar, Euro and UK pound priced and denominated contracts.
Lucas Skoczkowski, CEO of Redknee commented:
"While it has been a challenging 12 months for the Redknee, we enter 2008 in
better shape than we have ever been in. We have reorganised our sales teams,
recruited some excellent people and believe we now have the right blend of
operational skills, product innovation and sales pipeline to further grow the
business."
"Our new business pipeline remains strong, we continue to expand the customer
footprint, while focusing on product areas where we expect continued organic
growth from existing operator base. The future business prospects for the Group
are very encouraging."
Please see section regarding Forward-Looking Statements which forms an integral
part of this release.
For further details please contact:
Redknee Solutions Inc. Tel: +1 905 625 2622
Lucas Skoczkowski, Chief Executive Officer Fax: +1 905 625 2773
Colley Clarke, Chief Financial Officer
Buchanan Communications Tel: +44 (0) 20 7466 5000
Jeremy Garcia
Canaccord Adams Tel: +44 (0) 20 7050 6500
Neil Johnson / Ryan Gaffney
CHIEF EXECUTIVE's REVIEW Part 1
Introduction
Redknee continues to make steady progress although the last 12 months has not
been without its challenges. Our business model, which to date has been
successful in attracting Tier 1 mobile operators coupled with a steady flow of
service providers in the emerging markets, continues to evolve. Much has been
done since our admission to AIM and we are only now seeing some of the benefits
of this investment although I believe much more is still to come.
We remain focused on 3 core objectives:
* developing industry leading software solutions;
* focusing our sales efforts with Tier 1 operators in Western Europe and
North America, and the Emerging Markets of Africa, Middle East and South
East Asia;
* developing incremental revenue opportunities with existing clients and
increasing our recurring revenue mix;
Strategy
We are a focused business with a clear growth strategy- to capitalise on high
growth Emerging Markets and continue to expand our services to Tier 1 operators
in Western Europe and North America.
The markets in which we operate continue to evolve at a rapid pace and no-where
is this more prevalent than the Emerging Markets. While Western Europe and North
America have provided the company with the mainstay of revenue growth over a
number of years, it is in the Emerging Markets where we believe significant
growth can be realised. Market estimates suggest that the Emerging Market
subscriber base is growing at 25-30% per annum, over double the rate of mature
markets.
To date, Redknee currently services 25 operators in Western Europe and North
America and 31 operators in the Emerging Markets. This provides the Group with a
strong platform for growth but I believe much more in terms of new business
opportunities and subsequent revenue growth is achievable.
Redknee also continues to invest in its product development activities and
patent portfolio and to date has had three patents issued, three patents that
have been allowed and we anticipate will be issued shortly, and has 35 ongoing
patent applications.
Activity since IPO
The Company's successful $39.9M placement and admission to AIM in February 2007
enabled the Group to implement an aggressive growth strategy. Our ability to
develop our existing client base while targeting new customers is central to
this success. We have therefore chosen to reorganise our global sales operations
into three regions: North America, EMEA and APAC. We have now recruited three
Managing Directors, one for each key region, reporting directly to Vishal
Kothari, VP Global Sales. Their main duties will be to manage the sales
function, while supporting product implementation and post-sales support
services.
Redknee currently employs 65 sales and marketing employees and we intend to
continue to recruit additional staff in North America, EMEA and APAC to drive
future growth.
Much has been achieved over the last nine months and we believe that the Company
will begin to bear the fruits of this activity during fiscal 2008.
Revenue model
To date, Redknee has focused on generating revenue in three main areas: licensed
software, professional services and maintenance agreements with our customers.
While this has proved to be successful growth model to date, we are now looking
to add recurring revenue streams to this mix of services.
Specifically, management is examining ways to negate the impact of lumpy or
seasonal revenue by converting a greater proportion of sales to recurring
revenue streams primarily with Emerging Market customers. While this strategy is
less straight forward with some of our existing clients, we believe that a
number of our new customers and potential small acquisitions will allow us to
charge in this way.
Software
The key characteristics of our software solution is to enable operators to
increase revenue opportunities, reduce costs, enable faster time to market,
interoperability, ease of deployment, reliability and scalability, smooth
upgrade path, support of third party applications and improved subscriber
loyalty. We believe it is this broad appeal which enables Redknee to target both
Tier 1 operators and Emerging Market operators successfully.
As with all software businesses, our ability to innovate and launch new products
to market is vital. Redknee has always had strong reputation within the industry
for innovation and execution. It is to this end that we launched our Mobile
Money solution in November this year. It is a licensable option that is now
available to mobile operators wanting to offer secure, easy-to-use and
cost-effective payment capabilities across differing networks, operators and
international borders. We see great potential in this addition to our total
offering and have recently received orders from nine operators to use it.
Customers
We made good progress during the year adding nine new operators to our customer
base, including FarEasTone and Inmarsat. Redknee's customer base includes some
of the world's largest mobile communications service providers world wide, and
consists of over 55 operators in over 40 countries.
New operators that have purchased products from Redknee in 2007 include:
Tier 1market
* FarEasTone (Taiwan)
* Inmarsat (UK)
Emerging market
* Apua (Antigua)
* African Operator
* Cadcomms (Cambodia)
* Digicel El Salvador
* Digicel Guyana
* Digicel Papua New Guinea
* MTS-Vivacell (Armenia)
Outlook
The demand for our products and services in the Emerging Markets and with Tier 1
customers has never been stronger. Although the year in review has not been
without its challenges the Directors remain confident about the medium and
long-term trading prospects for the Group. We have reorganised our sales teams,
recruited some excellent people and believe we now have the right blend of
operational excellence, product innovation and sales pipeline to grow future
business.
We therefore estimate fiscal 2008 revenues to be between $45 million and $48
million based on account plans for certain existing and new customers, and based
on international exchange rates at the date of this release.
Financial Review
The consolidated financial statements for the year ended September 30, 2007 are
included at the end of this release.
RESULTS OF OPERATIONS
The following table outlines the Company's results of operations for the period
indicated.
Year ended Year ended
Cdn $000's 30-Sep-07 30-Sep-06
----------------- ------- ------- -------
Revenue
Software and services 27,189 28,166 -3%
Support 11,427 8,806 30%
------- ------- -------
38,616 36,972 4%
Cost of sales 12,232 10,800 13%
------- ------- -------
Gross profit 26,384 26,172 1%
68% 71%
Operating expenses:
Sales and Marketing 11,357 9,745 17%
General and administrative 11,342 9,023 26%
Research and Development 10,019 10,422 -4%
Write-off of investment tax credits - 3,201 -100%
Amortization of property and equipment 287 509 -44%
Amortization of deferred financing costs - 323 -100%
Foreign exchange loss/(gain) 1,897 (286) -763%
------- ------- -------
34,902 32,937 6%
Loss from operations -8,518 -6,765 26%
Interest income 658 172 283%
Interest expense -1,665 -2,337 -29%
------- ------- -------
Loss before income taxes -9,525 -8,930 7%
Income tax expense 882 3,367 -74%
------- ------- -------
Loss for the period -10,407 -12,297 -15%
======= ======= =======
Orders
Total orders received from customers for fiscal 2007 was $42.2 million compared
to $40.2 million for the same period last year resulting in order backlog
increasing from $18.4 million at September, 2006 to $19.1 million as at
September 30, 2007.
Revenue
Revenue for fiscal 2007 was $38.6 million compared to $37.0 million for the same
period last year. As announced previously, revenue was below expectations due to
the delay in closing two customer contracts and a renegotiation of one other,
coupled with the negative impact of the strong Canadian dollar against foreign
currencies. We continue to expect to bring closure to the two customer contracts
in fiscal 2008, while we have made progress in solidifying our position with our
emerging market customer, we continue to renegotiate our global contract.
Cost of Revenue and Gross Profit
Cost of revenue consists of the cost of third party components sold as part of
Redknee's solution in addition to the payroll expense of personnel providing
professional services to implement and support our solution. It also includes an
allocation of certain direct and indirect costs attributable to these
activities. Gross Profit for the year ended September 30, 2007 decreased to 68%
or $26.4 million as compared to 71% or $26.2 million for the period ended
September 30, 2006. The decline in gross profit percentage is primarily due to
the revenue shortfall for the period.
Operating Expenses
The following table provides additional analysis of the Company's operating
expenses for the period indicated with the comments below explaining the
significant changes between the periods.
Year ended Year ended
Cdn $000's 30-Sep-07 30-Sep-06
------------------- ------- -------
Revenue 38,616 36,972
------- -------
Sales and marketing 11,357 9,745
% of revenue 29.41% 26.36%
General and administrative 11,342 9,023
% of revenue 29.37% 24.40%
Research and development 10,019 10,422
% of revenue 25.95% 28.19%
Write-off of investment tax credits 0 3,201
% of revenue 0.00% 8.66%
Amortization of property and equipment 287 509
% of revenue 0.74% 1.38%
Amortization of deferred financing costs 0 323
% of revenue 0.00% 0.87%
Foreign exchange loss/(gain) 1,897 (286)
% of revenue 4.91% -0.77%
------- -------
Total Operating Expenses 34,902 32,937
------- -------
% of revenue 90.38% 89.09%
Sales and Marketing
Sales and Marketing expenses ("S&M") consist of all expenses related to the
sales and marketing of Redknee's solutions plus the allocation of certain
overhead costs. S&M costs increase by $1.7 million for the year ended September
30, 2007 which represents a 17% increase from the $9.7 million incurred for the
same period last year.
Major factors contributing to the increase in S&M expenses include an increase
in personnel in the direct and channel sales departments and increased marketing
expenses to support the marketing of Redknee's products.
General and Administrative
General and administrative ("G&A") expenses consist of the company's support
activities such as finance, human resources and IT. Overhead costs such as
facilities, communications and computer costs are allocated to the other
departments based on a per headcount basis. G&A expenses increased by 26% in the
period from $9 million to $11.3 million primarily due to increased personnel and
associated costs in the finance and human resource departments to support
continued growth, investment in the intellectual property program and compliance
and other costs associated with being a listed company.
Research and Development
Research and Development ("R&D") expenses consist primarily of personnel costs
associated with product management and the development and testing of new
products plus the allocation of certain overhead costs.
R&D expenditures decreased by $0.4 million to $10.0 million for the year ended
September 30, 2007, which represents a 4% decrease from the $10.4 million
incurred in the same period last year. The decrease relates to the Group's
continued efforts to leverage the use of its development operations in Pune,
India and the receipt of $0.9 million in refundable R&D credits.
Amortization of deferred financing costs
There is no amortization expense recorded in the year ended September 30, 2007
due to the adoption of a new Canadian accounting standard on October 1, 2006,
which resulted in an adjustment to the opening deficit to write off the
unamortized deferred financing costs at that date.
About Redknee
Redknee is a leading global provider of innovative communication software
products, solutions and services. Redknee's award-winning solutions enable
operators to monetize the lifetime value of each subscriber transaction while
personalizing the subscriber experience to meet mainstream, niche and individual
market segment requirements. Redknee's revenue generating solutions provide
advanced converged billing, rating, charging and policy for voice, messaging and
new generation data services to over 50 network operators in over 40 countries.
Established in 1999, Redknee Solutions Inc.(AIM: 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, visit www.redknee.com.
FORWARD-LOOKING STATEMENTS
This release includes statements that are, or may be deemed to be,
'forward-looking statements'. These forward-looking statements can be identified
by the use of forward-looking terminology, including the terms 'believes',
'estimates', 'plans', 'projects', 'anticipates', 'expects', 'intends', 'may',
'will', or 'should' or, in each case, their negative or other variations or
comparable terminology. These forward-looking statements include matters that
are not historical facts. They appear in a number of places throughout this
release and include statements regarding the Directors' current intentions,
beliefs or expectations concerning, among other things, the Company's results of
operations, financial condition, liquidity, prospects, growth, strategies and
the group's markets.
By their nature, forward-looking statements involve risk and uncertainty because
they relate to future events and circumstances. Actual results and developments
could differ materially from those expressed or implied by the forward-looking
statements.
Forward-looking statements may and often do differ materially from actual
results. Any forward-looking statements in this release are based on certain
factors and assumptions, including the Directors' current view with respect to
future events and are subject to risks relating to future events and other
risks, uncertainties and assumptions relating to the Company's operations,
results of operations, growth strategy and liquidity. While the Directors
consider these assumptions to be reasonable based on information currently
available, they may prove to be incorrect.
The financial statements and associated notes are located in Part 2 of this
press release.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR FSFFADSWSEFE
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