TORONTO, Aug. 9, 2017 /CNW/ - 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, 2017. (All
figures are in U.S. dollars unless otherwise stated.)
Fiscal Q3 2017 Financial Highlights
(Comparisons
made between fiscal Q3FY2017 and fiscal Q3FY2016 results, unless
otherwise noted)
- Revenue was $32.6 million
compared to $40.5 million;
- Gross profit was $18.6 million
(57% of total revenue) compared to $18.3
million (45% of total revenue);
- Recurring revenue was 67% of revenue, compared to 63%;
- Incurred restructuring costs of $14.3
million;
- Net loss was $26.7 million, or
$0.25 loss per share, compared to a
net loss of $12.3 million, or
$0.11 loss per share;
- Total cash of $49.0 million and
cash from operations was $1.0
million; and
- Order backlog of $151.2 million
at June 30, 2017.
CEO Commentary
"During the quarter we continued to make progress with our
Strategic Plan, which is aimed at creating a more efficient,
more profitable company with market leading products," said
Danielle Royston, CEO of Redknee
Solutions. "In Q3, we improved gross profit, strengthened our
recurring revenue stream, generated positive cash flow from
operations and worked to deliver Customer Success to a number
of customers around the world. We anticipate seeing further
momentum with the completion of our rights offering, which is
expected to generate gross proceeds of US$54
million. Proceeds from the Rights Offering will be used
to fund our restructuring plan."
Fiscal Q3 2017 Operational Highlights
- Smart Communications ("Smart") awarded Redknee a services and
support contract for Redknee Unified. With Redknee Unified, Smart
can benefit from improved time to market by adding tool-based
testing for production configuration and real-time configuration
changes.
- A Global Tier 1 telecommunications operator in EMEA awarded
Redknee a multi-country contract to upgrade and expand Redknee
Unified.
- A large Tier 1 telecommunications operator in Europe will make a multi-million dollar
investment in Redknee Unified. This investment allows Redknee to
further enhance its existing service creation platform to provide
NextGen capability.
- Redknee announced it had entered into a Standby Purchase
Agreement with Wave Systems Corp. ("Wave"), an affiliate of ESW
Capital, LLC ("ESW") in connection with the Company's US$54 million Rights Offering that is fully
backstopped by Wave. Redknee will use proceeds of the Rights
Offering to fund a restructuring of the business.
- Subject to the closing of the Rights Offering, Redknee
announced it will enter into a service agreement with Crossover
Markets, Inc. ("Crossover") and a technology services agreement
with DevFactory FZ-LLC ("DevFactory") as such the Company has
extended the previously announced interim Service Agreements with
both.
Fiscal Q3 2017 Financial Results
Revenue was $32.6 million compared to $40.5
million in the same year-ago quarter. Recurring revenue was
67% of total revenue, compared to 63% in the same year-ago
quarter.
Order backlog decreased by 16% to $151.2
million compared to $180.7
million in fiscal 2016.
Gross margin was $18.6 million, or
57% of total revenue, compared to $18.3
million, or 45% of total revenue, in the same year-ago
quarter.
Net loss was $26.7 million (includes $14.3 million of restructuring costs)
or $0.25 loss per basic and diluted share, compared
to a net loss of $12.3 million
or $0.11 loss per basic and
diluted share, in the same year-ago quarter.
Total cash at June 30, 2017 was
$49.0 million. Cash from operations
was $1.0 million (included
$6.0 million of restructuring
payments).
We continue to evaluate the forward $120
million revenue base, and there is potential risk with our
customer relationships through this long turnaround process. We
believe the restructuring plan is sufficient in a worst case
scenario of up to a 25% loss from that revenue base. We also
believe that the funding from the Rights Offering remains
sufficient to complete the restructuring and commence the Strategic
Plan.
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.
Rights Offering Update
Subsequent to quarter-end the previously announced Rights
Offering was approved by 92.58% of the 55,727,138 votes cast by
holders of the Company's Subordinate Voting Shares present in
person or represented by proxy at the special meeting of
shareholders held on July 25, 2017.
With the completion of the shareholder approval requirement,
Redknee has commenced the launch of the Rights Offering. Net
proceeds from the Rights Offering will be utilized to further our
initiative to restructure the Company to position it for growth and
profitability.
Further details on the Rights Offering, including eligibility
requirements for shareholders to participate and the procedures to
be followed by shareholders in order to subscribe for Rights, are
included in a Rights Offering circular (the "Rights Offering
Circular") and Rights Offering notice (the "Rights Offering
Notice") which were filed with securities regulatory authorities in
each province and territory of Canada on July 26,
2017. A copy of the Rights Offering Circular and Rights
Offering Notice is available on SEDAR at www.sedar.com.
Conference Call
The Company will host a conference call tomorrow (August 10, 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, August 10, 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#: 45780008
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/2u1mjK9
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) 848-1427.
A replay of the call will be available until 12:00 midnight
(EST) Thursday, August 17, 2017.
Toll-Free Replay Number: 1 (855) 859-2056
International Replay Number: 1 (416) 849-0833
Replay PIN: 45780008
About Redknee Solutions Inc.
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.
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)
|
|
|
|
|
June 30,
2017
|
September 30,
2016
|
|
|
|
Assets
|
|
|
|
|
|
Current
assets:
|
|
|
|
Cash and cash
equivalents
|
$
|
44,675,540
|
$
|
37,080,510
|
|
Trade accounts and
other receivables
|
25,644,241
|
43,209,046
|
|
Unbilled
revenue
|
22,392,893
|
27,290,500
|
|
Prepaid
expenses
|
2,639,236
|
2,999,539
|
|
Income taxes
receivable
|
4,157,477
|
2,662,163
|
|
Other
assets
|
–
|
268,929
|
|
Inventories
|
897,530
|
710,591
|
|
Total current
assets
|
100,406,917
|
114,221,278
|
|
|
|
Restricted
cash
|
4,320,503
|
4,582,293
|
Property and
equipment
|
4,002,329
|
6,262,965
|
Deferred income
taxes
|
1,986,231
|
1,984,479
|
Investment tax
credits
|
359,966
|
355,914
|
Other
assets
|
1,316,975
|
1,656,971
|
Intangible
assets
|
28,074,920
|
35,721,065
|
Goodwill
|
32,271,078
|
32,271,078
|
|
|
|
Total
assets
|
$
|
172,738,919
|
$
|
197,056,043
|
|
|
|
Liabilities and
Shareholders' Equity (Deficit)
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
Trade
payables
|
$
|
7,027,117
|
$
|
14,212,869
|
|
Accrued
liabilities
|
18,969,852
|
23,405,832
|
|
Provisions
|
22,526,421
|
21,981,367
|
|
Income taxes
payable
|
693,652
|
724,412
|
|
Deferred
revenue
|
19,303,963
|
18,915,596
|
|
Loans and
borrowings
|
–
|
50,445,790
|
|
Total current
liabilities
|
68,521,005
|
129,685,866
|
|
|
|
Deferred
revenue
|
399,836
|
639,688
|
Other
liabilities
|
1,741,055
|
2,264,482
|
Pension and other
long-term employment benefit
plans
|
21,842,320
|
20,387,584
|
Provisions
|
3,751,361
|
6,683,256
|
Preferred
shares
|
57,242,060
|
–
|
Warrant
|
30,303,566
|
–
|
Deferred income
taxes
|
281,997
|
687,947
|
Total
liabilities
|
184,083,200
|
160,348,823
|
|
|
|
Shareholders'
equity:
|
|
|
|
Share
capital
|
172,638,921
|
172,436,385
|
|
Treasury
stock
|
(141,917)
|
(141,917)
|
|
Contributed
surplus
|
9,925,255
|
9,812,545
|
|
Deficit
|
(182,320,790)
|
(133,954,043)
|
|
Accumulated other
comprehensive loss
|
(11,445,750)
|
(11,445,750)
|
|
Total shareholders'
equity (deficit)
|
(11,344,281)
|
36,707,220
|
|
|
|
Total liabilities and
shareholders'
equity
|
$
|
172,738,919
|
$
|
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
|
Nine months
ended
|
|
June 30,
|
June 30,
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
Software, services
and other
|
$
|
12,387,266
|
$
|
17,165,876
|
$
|
39,855,491
|
$
|
59,389,563
|
|
Support and
subscription
|
20,189,307
|
23,354,180
|
64,295,923
|
71,038,796
|
|
32,576,573
|
40,520,056
|
104,151,414
|
130,428,359
|
|
|
|
|
|
Cost of
revenue
|
13,964,206
|
22,181,399
|
44,295,030
|
60,932,909
|
|
|
|
|
|
Gross
profit
|
18,612,367
|
18,338,657
|
59,856,384
|
69,495,450
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
Sales and
marketing
|
6,789,205
|
6,685,766
|
17,245,645
|
22,903,762
|
|
General and
administrative
|
8,337,484
|
7,362,852
|
23,786,139
|
23,280,531
|
|
Research and
development
|
10,622,543
|
9,904,602
|
29,110,061
|
35,213,390
|
|
Restructuring
costs
|
14,278,115
|
4,115,721
|
18,358,589
|
28,936,176
|
|
Acquisition and
related costs
|
–
|
172,893
|
–
|
1,123,371
|
|
40,027,347
|
28,241,834
|
88,500,434
|
111,457,230
|
|
|
|
|
|
Loss from
operations
|
(21,414,980)
|
(9,903,177)
|
(28,644,050)
|
(41,961,780)
|
Foreign exchange
loss
|
(2,449,022)
|
(155,023)
|
(3,114,891)
|
(619,799)
|
Other
expense
|
–
|
–
|
(1,450,928)
|
–
|
Finance
income
|
–
|
41,050
|
230,205
|
64,154
|
Finance
costs
|
(1,530,806)
|
(1,889,017)
|
(10,912,651)
|
(4,696,951)
|
|
|
|
|
|
Loss before income
taxes
|
(25,394,808)
|
(11,906,167)
|
(43,892,315)
|
(47,214,376)
|
|
|
|
|
|
Income tax expense
(recovery):
|
|
|
|
|
|
Current
|
1,463,390
|
367,839
|
4,862,036
|
4,367,190
|
|
Deferred
|
(109,199)
|
(19,073)
|
(387,604)
|
602,500
|
|
|
1,354,191
|
348,766
|
4,474,432
|
4,969,690
|
|
|
|
|
|
Net
loss
|
(26,748,999)
|
(12,254,933)
|
(48,366,747)
|
(52,184,066)
|
|
|
|
|
|
Other comprehensive
loss:
|
|
|
|
|
|
Pension actuarial
adjustment
|
–
|
–
|
–
|
(77,702)
|
|
|
|
|
|
Comprehensive
loss
|
$
|
(26,748,999)
|
$
|
(12,254,933)
|
$
|
(48,366,747)
|
$
|
(52,261,768)
|
|
|
|
|
|
Net loss per common
share:
|
|
|
|
|
|
Basic
|
$
|
(0.25)
|
$
|
(0.11)
|
$
|
(0.45)
|
$
|
(0.48)
|
|
Diluted
|
(0.25)
|
(0.11)
|
(0.45)
|
(0.48)
|
|
|
|
|
|
|
|
|
|
|
Weighted average
number of common shares:
|
|
|
|
|
|
Basic
|
108,516,880
|
108,238,408
|
108,371,076
|
108,556,804
|
|
Diluted
|
108,516,880
|
108,238,408
|
108,371,076
|
108,556,804
|
|
|
|
|
|
|
REDKNEE SOLUTIONS
INC.
|
Condensed
Consolidated Interim Statements of Cash Flows
|
(Expressed in U.S.
dollars)
|
(Unaudited)
|
|
|
Three months
ended
|
Nine months
ended
|
|
June 30,
|
June 30,
|
|
2017
|
2016
|
2017
|
2016
|
|
|
|
|
|
Cash provided by
(used in):
|
|
|
|
|
|
|
|
|
|
Operating
activities:
|
|
|
|
|
|
Net loss
|
$
|
(26,748,999)
|
$
|
(12,254,933)
|
$
|
(48,366,747)
|
$
|
(52,184,066)
|
|
Adjustments
for:
|
|
|
|
|
|
|
Depreciation of
property and equipment
|
658,921
|
945,334
|
2,240,675
|
3,133,761
|
|
|
Amortization of
intangible assets
|
2,221,673
|
2,478,532
|
6,656,214
|
7,214,128
|
|
|
Finance
income
|
–
|
(41,050)
|
(230,205)
|
(64,154)
|
|
|
Finance
costs
|
1,530,806
|
1,889,017
|
10,912,651
|
4,696,951
|
|
|
Pensions
|
1,497,408
|
(1,102,968)
|
1,454,736
|
274,231
|
|
|
Income tax
expense
|
1,354,191
|
348,766
|
4,474,432
|
4,969,690
|
|
|
Unrealized foreign
exchange loss (gain)
|
(875,970)
|
1,068,227
|
520,641
|
2,144,918
|
|
|
Share-based
compensation
|
666,937
|
315,079
|
(71,990)
|
2,071,724
|
|
|
Change in
provisions
|
9,268,033
|
(288,484)
|
(2,386,841)
|
18,828,128
|
|
|
Change in non-cash
operating working capital
|
13,517,929
|
13,734,661
|
12,987,877
|
18,563,441
|
|
3,090,929
|
7,092,181
|
(11,808,557)
|
9,648,752
|
|
|
Interest
paid
|
(42,745)
|
(10,131)
|
(209,247)
|
(444,348)
|
|
|
Interest
received
|
48,718
|
36,236
|
260,915
|
59,687
|
|
|
Income taxes
paid
|
(2,138,455)
|
(3,114,105)
|
(6,382,229)
|
(7,319,716)
|
|
958,447
|
4,004,181
|
(18,139,118)
|
1,944,375
|
|
|
|
|
|
Financing
activities:
|
|
|
|
|
|
|
Proceeds from
exercise of stock options
|
846
|
2,340
|
202,536
|
240,400
|
|
|
Purchase of shares
under NCIB
|
–
|
–
|
–
|
(2,556,966)
|
|
|
Interest and fees
paid on loans and borrowings
|
–
|
(1,064,028)
|
(2,330,904)
|
(2,852,621)
|
|
|
Repayment of loans
and borrowings
|
–
|
(450,000)
|
(52,750,000)
|
(1,350,000)
|
|
|
Transaction costs on
loans and borrowings
|
–
|
–
|
–
|
(90,496)
|
|
|
Sale of treasury
stock
|
–
|
–
|
79,861,542
|
–
|
|
846
|
(1,511,688)
|
24,983,174
|
(6,609,683)
|
|
|
|
|
|
Investing
activities:
|
|
|
|
|
|
|
Purchase of property
and equipment
|
–
|
(518,298)
|
(309,154)
|
(2,140,218)
|
|
|
Purchase of
intangible assets
|
–
|
(16,283)
|
–
|
(41,318)
|
|
|
Increase (decrease)
in restricted cash
|
(793,969)
|
(203,093)
|
261,790
|
574,929
|
|
|
Payment of settlement
accrual
|
–
|
(2,531,829)
|
–
|
(10,244,224)
|
|
(793,969)
|
(3,269,503)
|
(47,364)
|
(11,850,831)
|
|
|
|
|
|
Effect of foreign
exchange rate changes on
|
|
|
|
|
|
cash and cash
equivalents
|
1,242,266
|
(719,685)
|
798,338
|
(919,285)
|
|
|
|
|
|
Increase (decrease)
in cash and cash equivalents
|
1,407,590
|
(1,496,695)
|
7,595,030
|
(17,435,424)
|
|
|
|
|
|
Cash and cash
equivalents, beginning of period
|
43,267,950
|
39,108,848
|
37,080,510
|
55,047,577
|
|
|
|
|
|
Cash and cash
equivalents, end of
period
|
$
|
44,675,540
|
$
|
37,612,153
|
$
|
44,675,540
|
$
|
37,612,153
|
SOURCE Redknee Solutions Inc.