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
About Redknee Solutions
Inc.
Redknee monetizes today's digital world. We provide a complete
portfolio of mission-critical monetization and subscriber
management solutions and services that allow communications service
providers, utility companies, auto makers and enterprise businesses
of all types to charge for things in new and innovative ways.
Redknee's real-time billing, charging, policy and customer care
offerings provide the agility and scalability to drive a unique
user experience, increase profitability and support any new product
or business model. 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.
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; * 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 subordinate voting
shares:
|
|
|
|
|
|
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
cash and cash equivalents
|
291,287
|
377,357
|
(443,928)
|
(199,600)
|
|
|
|
|
|
Increase (decrease) in cash and cash
equivalents
|
15,211,831
|
(4,116,770)
|
6,187,440
|
(15,938,729)
|
|
|
|
|
|
Cash and cash equivalents, beginning of
period
|
28,056,119
|
43,225,618
|
37,080,510
|
55,047,577
|
|
|
|
|
|
Cash and cash equivalents, end of
period
|
$
|
43,267,950
|
$
|
39,108,848
|
$
|
43,267,950
|
$
|
39,108,848
|
SOURCE Redknee Solutions Inc.