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Redline Communications Reports Q3 2012 Financial Results
(Canada Newswire Via Acquire Media NewsEdge)
Sales Momentum Drives Significant Order Bookings
TORONTO, Nov. 13, 2012 /CNW/ - Redline Communications Group Inc. (TSX:
RDL) ("Redline" or the "Company"), a leading provider of ruggedized
wireless infrastructure systems, today reported financial results for
the three and nine month periods ended September 30, 2012.
Financial Summary for the three months ended September 30, 2012 (Q3
2012)
$15.0M Bookings¹, up 24% from Q2 2012
$6.5M Shipments¹, down 36% from Q2 2012
$16.1M Order Backlog¹, up 108% from Q2 2012
$8.1M Total Revenue, down 41% over same period last year due to
completion of RedMAX deferred revenue period, core BWI revenue up 8%
$6.0M Operating Expenses, an 18% improvement over the same period last
year
($1.0M) Adjusted EBITDA², down from $1.5M over the same period last year
Subsequent to Q3 2012, finalized a Cdn. $10.0 million credit facility
with HSBC Bank Canada
Subsequent to Q3 2012, amended loan agreement with the Ontario Ministry
of Economic Development and Innovation reducing interest charge by $0.7
million
Subsequent to Q3, received notice from warrant holders of their
intention to exercise their warrants
Highlights for the three months ended September 30, 2012 (Q3 2012)
Sales momentum within the Energy and Telecom sectors resulted in
significant quarterly order Bookings totaling $15.0 million, up 24%
over Q2 2012. Bookings included orders for two multi-million dollar
projects - an oil and gas project in the Middle East and a telecom
service provider project in Pakistan.
The Company's success in securing larger orders with delivery timeframes
that often span many months has resulted in an increased order Backlog
of $16.1 million, up 108% from $7.8 million in Q2 2012.
Third quarter 2012 revenue from BWI product increased 8% over the same
period last year to $7.1 million.
The Company continues to manage operating expenses tightly, reporting a
reduction of 18% to $6.0 million in the quarter as compared to the same
period in 2011.
Subsequent to the quarter end, in October 2012 Redline finalized a Cdn.
$10.0 million credit facility with HSBC Bank Canada and amended their
loan agreement with the Ontario Ministry of Economic Development and
Innovation.
Subsequent to the quarter end, on November 12, 2012 Redline announced
that they had received confirmation from several warrant holders that
they intend to exercise some of the warrants associated with the
Debenture financing completed in June 2011. As a result the Company
could receive up to Cdn. $13.67 million before the end of November
2012. Of the possible total, Cdn. $1.3 million has already been
received.³
"The combination of a new credit facility with HSBC and the funds from
the anticipated exercise of warrants will give Redline significant
flexibility, allowing us to support increased growth without diluting
our shareholders," said Eric Melka, Redline CEO. "We are excited about
the strength of our sales pipeline and a stronger balance sheet will
help us go after the larger opportunities we have identified."
Q3 Operating Highlights
In August 2012, Redline announced the availability of the ruggedized
nomadic RAS system, the first wireless broadband networking system to
automatically locate, steer toward and connect to a network base
station. Roving RAS-equipped rigs, vehicles and other equipment will
enjoy automatic, continuous and reliable wireless connectivity even as
they move from place to place across large distances.
In September 2012, Redline received a contract representing
approximately 10% of Redline's annual revenue for 2012 with an existing
American oil and gas customer for a high-capacity wireless network for
communications between wells, other assets, and drilling rigs in the
oilfield, and their centralized control offices in their new Oman
location. The Company has been selected to be the prime contractor on
this project, and, in addition to providing Redline BWI product, will
be providing significant professional services.
Also in September 2012, Redline received a large order for BWI product
from an existing service provider customer in Pakistan. The customer
will migrate from Redline's WiMAX products to Redline's BWI products,
using them to deliver business access services to their more demanding
customers. This solution also allows them to continue using their WiMAX
spectrum with Redline's more powerful BWI products.
Redline continued to develop relationships with other industry leaders,
joining Honeywell's PKS Advantage™ program to demonstrate that the
companies together can deliver complete, integrated M2M solutions
comprised of their combined solutions for the oil and gas industry.
Q3 Financial Review
Highest Bookings to date of $15.05 million were recorded for Q3 2012
were up 24.1% over Q2 2012. Bookings were driven primarily from strong
sales to the energy sector. Management estimates, based on the amount
of direct business and on their knowledge of their Channel Partners'
business, that approximately 60% of Bookings in the quarter were to
customers in the Energy sector. The Company continues to phase out
their RedMAX product line, which represented only 11% of total product
Bookings for Q3 2012.
Backlog grew quarter over quarter by 108% to $16.1 million at the end of
Q3 2012 as compared to $7.75 million at the end of Q2 2012, with the
growth primarily due to two significant orders received in the quarter,
the larger of which (in oil and gas) is expected to be delivered over
an eighteen month period, and the other (in telecom) by the end of
December 2012.
Management estimates, based on the amount of direct business and on
their knowledge of their Channel Partners' business, approximately 40%
of Shipments in the quarter were to customers in the Energy sector.
Overall shipments decreased by 35.8% to $6.49 million for Q3 2012 as
compared to $10.11 million for Q2 2012, with the decrease due to
seasonality, high temperatures and holidays in both the Middle East and
the Americas delaying the start of deployments.
"I am very pleased with the continued growth in Bookings, demonstrating
the ongoing demand for Redline solutions worldwide," said Eric Melka,
President and CEO of Redline Communications. "Our success in closing
larger opportunities has significantly increased our backlog, providing
improved visibility into future revenue."
BWI revenue was $7.05 million, up 7.8% from $6.54 million for the same
period last year. Total Revenue for Q3 2012 was $8.15 million, down
$5.54 million from $13.69 million for the same period last year. The
completion of the RedMAX Amortized Deferred Revenue period at June 30,
2012 makes year over year comparisons difficult, but total RedMAX
Amortized Deferred revenue for Q3 2011 was $7.15 million, and $0 for Q3
2012, accounting for the decrease in total revenue.
Overall gross margin for Q3 2012 was 56% compared to gross margins of
61% for Q3 2011. The decrease was a result of product mix. Margins on
core BWI product remain high at 57%.
The Company's commitment to managing operating costs and improving
operating efficiencies has resulted in a decrease in overall operating
expenses of 17.9% to $5.99 million for Q3 2012 compared to $7.29
million reported for the same period last year. Cost reductions were
realized in all functional areas of the business.
Adjusted EBITDA for the three months ended September 30, 2012 was
($1.05) million, a decrease of $2.54 million over $1.49 million for the
corresponding period in 2011. Lower operating costs in Q3 2012 did not
fully offset lower overall revenues resulting from the completion of
the amortization period of RedMAX Amortized Deferred Revenue.
The Company reported a non-cash charge of $3.71 million for Q3 2012 as
compared to a non-cash gain of $0.70 million for Q3 2011. The charge in
Q3 2012 relates primarily to the fair market value adjustment of the
debenture and warrants associated with a private placement financing
completed in June 2011, and the non-cash gain in Q3 2011 relates
primarily to foreign exchange. As a result, for the third quarter of
2012, Redline realized a net Loss of $5.16 million, or ($0.55) per
share fully diluted, compared to net Income of $1.80 million, or $0.20
per share fully diluted, in the same period last year.
As of September 30, 2012 the Company had $0.75 million of cash as
compared to $4.65 million as at December 31, 2011.
Subsequent to the end of Q3 2012, the Company delivered on its
commitment to leverage its working capital, closing a Cdn. $10.0
million line of credit with HSBC. They also received exercise notices
from several warrant holders indicating that a number of warrants
associated with the Debenture financing of June 2011 would be
exercised. The Company has also received preliminary indications that
other non-insiders may be exercising their warrants shortly, and has
been informed that certain insiders would be exercising some of their
warrants once the Company's blackout period has been lifted. Assuming
that all these warrants are exercised, a total of 3,755,705 warrants of
the 4,497,281 total outstanding warrants would be exercised for a total
aggregate consideration of approximately Cdn. $13.67 million.
Conference Call and Webcast - November 13, 2012 at 8:00 a.m. EDT
A conference call and webcast to discuss the results will be held
November 13, 2012 at 8:00 a.m. EDT. To participate in the conference
call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10
minutes before the conference call, and provide passcode 59506212. A
recording of the call will be available through November 20, 2012.
Please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode
59506212 to listen to the rebroadcast. A webcast of the call will also
be available on Redline's website at http://www.rdlcom.com/en/about/investors/webcasts.
About Redline Communications
Redline Communications (www.rdlcom.com) is the innovator of Virtual Fiber™, a rugged broadband wireless
solution used to cost-effectively deploy and extend secure networks,
enable machine-to-machine (M2M) applications, connect digital oil
fields and smart grids, facilitate and enhance public safety networks,
and bring Internet access wherever and whenever it's needed -
regardless of terrain or remote location. For more than a decade
Redline has delivered powerful, versatile and reliable wireless systems
to governments, militaries, oil and gas companies and telecom service
providers through its global network of certified partners.
NOTES:
All amounts reported in this press release are in US dollars unless
otherwise stated. To better assess the health and growth of the
Redline's business, the Company reports on several key metrics,
including "Orders or Bookings", "Shipped or Shipments", "Backlog",
"EBITDA" and "Amortized Deferred Revenue". Further information
including definitions of these categories can be found in the Company's
Management Discussion and Analysis for the three and nine months ended
September 30, 2012, copies of which are available on SEDAR at www.sedar.com. Further details on the three and nine month results ended September
30, 2012 can be found in the condensed consolidated interim statement
of financial position, condensed consolidated interim statement of
comprehensive income, condensed consolidated interim statement of
changes in equity and condensed consolidated interim statement of cash
flows reproduced at the end of this press release. The selected
financial information included in this release is qualified in its
entirety by, and should be read together with the Condensed
Consolidated Interim Financial Statements of the Company for the three
and nine months ended September 30, 2012 and MD&A for the same time
period.
The term Adjusted EBITDA refers to Profit before deducting share-based
payment expense, finance expense, foreign exchange gain (loss), FMV
gain (loss) on debenture, depreciation and income taxes. Adjusted
EBITDA margin refers to the percentage that Adjusted EBITDA for any
period represents as a portion of total revenue for that period. We
believe that Adjusted EBITDA and Adjusted EBITDA margin are useful
supplemental information as they provide an indication of the results
generated by the Company's main business activities prior to taking
into consideration how those activities are financed and taxed and also
prior to taking into consideration share-based payment expense and the
other items listed above. Accordingly, we believe that these measures
may also be useful to investors in enhancing their understanding of the
Company's operating performance. See ?Results of Operations - Adjusted
EBITDA.
While the Company has no reason to believe that the warrants referred to
in this release will not be exercised, until Redline has received all
exercise forms and associated payments, there can be no assurance that
they will.
Forward Looking Statements
Certain statements in this release may constitute forward-looking
statements or forward-looking information within the meaning of
applicable securities laws. In some cases, forward-looking statements
can be identified by terms such as "could", "expect", "may", "will",
"anticipate", "believe", "intend", "estimate", "plan", "potential",
"project" or other expressions concerning matters that are not
historical facts. Readers are cautioned not to place undue reliance
upon any such forward-looking statements.
Such forward-looking statements are not promises or guarantees of future
performance and involve both known and unknown risks and uncertainties
that may cause the actual results, performance, achievements or
developments of Redline to differ materially from the results,
performance, achievements or developments expressed or implied by such
forward-looking statements. Forward-looking statements, by their
nature, are based on certain assumptions regarding expected growth,
management's current plans, estimates, projections, beliefs, opinions
and business prospects and opportunities (collectively, the
"Assumptions"). While the Company considers these Assumptions to be
reasonable, based on the information currently available, they may
prove to be incorrect.
Many risks, uncertainties and other factors could cause the actual
results of Redline to differ materially from the results, performance,
achievements or developments expressed or implied by such
forward-looking statements. These risks, uncertainties and other
factors include but are not limited to the following: significant
competition, competitive pricing practices, cautious capital spending
by customers, industry consolidations, rapidly changing technologies,
evolving industry standards, frequent new product introductions, short
product life cycles and other trends and industry characteristics
affecting the telecommunications industry; any material, adverse
effects on Redline's performance if its expectations regarding market
demand for particular products prove to be wrong; any negative
developments associated with Redline's suppliers and contract
manufacturing agreements including the Company's reliance on certain
suppliers for key components; potential penalties, damages or cancelled
customer contracts from failure to meet delivery and installation
deadlines and any defects or errors in Redline's current or planned
products; fluctuations in foreign currency exchange rates; potential
higher operational and financial risks associated with Redline's
efforts to expand internationally; a failure to protect Redline's
intellectual property rights, or any adverse judgments or settlements
arising out of disputes regarding intellectual property; changes in
regulation of the wireless industry or other aspects of the industry;
any failure to successfully operate or integrate strategic
acquisitions, or failure to consummate or succeed with strategic
alliances; and Redline's potential inability to attract or retain the
personnel necessary to achieve its business objectives or to maintain
an effective risk management strategy (collectively, the "Risks"). For
additional information on these Risks, see Redline's most recently
filed Annual Information Form ("AIF") and Annual MD&A, which are
available on SEDAR at www.sedar.com and on the Company's website at www.redlinecommunications.com. Redline assumes no obligation to update or revise any forward-looking
statements or forward-looking information, whether as a result of new
information, future events or otherwise, except as expressly required
by law. All forward looking statements contained in this release are
expressly qualified in their entirety by this cautionary statement.
REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Financial Position
(Unaudited, expressed in U.S. dollars)
September 30,2012
December 31,
2011
ASSETS
Current assets:
Cash
$ 752,516
$
4,651,284
Short-term investment
33,003
92,144
Restricted short-term investments
-
33,003
Trade receivables
10,240,106
9,913,208
Other receivables
293,046
340,499
Inventories
7,799,996
7,851,884
Deferred WiMAX cost of revenue
-
7,484,581
Deferred cost of revenue
844,733
333,287
Prepaid expenses and other deposits
814,941
2,214,309
20,778,341
32,914,199
Non-current assets:
Property, plant and equipment
898,548
1,026,480
Intangible assets
132,035
158,239
Other assets
100,148
97,365
1,130,731
1,282,084
Total Assets
$ 21,909,072
$
34,196,283
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
Trade and other payables
$ 6,578,486
$
9,081,197
Income tax payable
292,927
292,927
Deferred WiMAX revenue
-
14,213,501
Deferred revenue
3,067,392
2,285,406
Current portion of borrowings
6,576,752
6,182,398
16,515,557
32,055,429
Non-current liabilities
Other payables
484,118
-
Convertible debenture (principal and interest)
1,354,152
1,344,095
Fair market value adjustment on convertible debenture
8,607,764
2,918,446
10,446,034
4,262,541
Total Liabilities
26,961,591
36,317,970
SHAREHOLDERS' DEFICIENCY
Share capital
134,732,180
134,336,023
Share purchase loan
(365,780)
(365,780)
Warrant
310,000
310,000
Contributed surplus
8,213,467
7,635,506
Deficit
(147,942,386)
(144,037,436)
(5,052,519)
(2,121,687)
Total liabilities and equity
$ 21,909,072
$
34,196,283
REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Comprehensive Income (loss)
(Unaudited, expressed in U.S. dollars)
Three months ended September 30,
Nine months ended September 30,
2012
2011
2012
2011
Revenue
$8,145,984
$
13,693,374
$38,033,918
$
39,864,450
Cost of revenue
3,606,736
5,306,689
17,131,369
15,583,161
Gross profit
4,539,248
8,386,685
20,902,549
24,281,289
Expenses:
Research and development
1,426,750
1,685,648
4,577,763
4,278,290
Finance and administration
1,841,489
2,284,886
5,397,817
7,415,319
Sales and marketing
2,277,960
2,794,955
7,083,711
7,214,042
Operations and customer support
441,107
523,641
1,375,796
1,865,186
Gain on disposal of assets
-
-
-
(1,519)
5,987,306
7,289,130
18,435,087
20,771,318
(Loss) income before non-operating items
(1,448,058)
1,097,555
2,467,462
3,509,971
Other expenses (income)
Finance expense
41,267
297,721
214,758
512,957
Loss on fair market value of Debenture
3,192,165
37,298
5,840,382
620,089
Foreign exchange loss (gain)
480,272
(1,037,559)
317,272
(614,483)
3,713,704
(702,540)
6,372,412
518,563
Profit (loss) before income taxes
(5,161,762)
1,800,095
(3,904,950)
2,991,408
Income tax expense
-
-
-
-
Net profit (loss) and total comprehensive income (loss)
$(5,161,762)
$
1,800,095
$(3,904,950)
$
2,991,408
Earnings per share
Basic
$(0.55)
$
0.34
$(0.42)
$
0.57
Diluted
$(0.55)
$
0.20
$(0.42)
$
0.53
REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Changes in Equity
(Unaudited, expressed in U.S. dollars)
Share
capital
Share
purchase
loan
Warrant
Contributed
surplus
Deficit
Total
Balance at
December 31, 2010
$
128,532,124
$
(365,780)
$
310,000
$
6,387,487
$
(148,099,590)
$
(13,235,759)
Net profit
-
-
-
-
2,991,408
2,991,408
Share-based payments
-
-
-
1,031,431
-
1,031,431
Exercise of options
80,352
-
-
(40,833)
-
39,519
Balance at
September 30, 2011
$
128,612,476
$
(365,780)
$
310,000
$
7,378,085
$
(145,108,182)
$
(9,173,401)
Balance at
December 31, 2011
$
134,336,023
$
(365,780)
$
310,000
$
7,635,506
$
(144,037,436)
$
(2,121,687)
Net loss
-
-
-
-
(3,904,950)
(3,904,950)
Shares issued on conversion of debenture
$
205,450
$
-
$
-
$
-
$
-
$
205,450
Shares issued on conversion of warrants
66,434
-
-
-
-
66,434
Exercise of options
124,273
-
-
(70,164)
-
54,109
Share-based payments
-
-
-
648,125
-
648,125
Balance at
September 30, 2012
$
134,732,180
$
(365,780)
$
310,000
$
8,213,467
$
(147,942,386)
$
(5,052,519)
REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited, expressed in U.S. dollars)
Three months ended September 30,
Nine months ended September 30,
2012
2011
2012
2011
Cash flows from operating activities:
Net profit (loss)
$(5,161,762)
$
1,800,095
$(3,904,950)
$
2,991,408
Adjustments to reconcile profit (loss) before taxes to net cash from
operating activities
Finance expense
41,267
297,721
214,758
512,957
Depreciation and amortization of non-current assets
104,508
101,879
311,396
312,747
Recognition of share based payments
296,073
295,743
753,851
1,031,431
Foreign exchange (gain) loss on cash held in foreign currency
(6,651)
3,080
(47,768)
1,913
Foreign exchange loss (gain) on borrowings
460,173
(1,283,046)
252,713
(1,004,167)
Loss on fair market value of Debenture
3,192,165
37,298
5,840,382
620,089
(1,074,227)
1,252,770
3,420,382
4,466,378
Change in non-cash operating assets and liabilities
Decrease in deferred cost of revenue
921,387
3,115,053
6,973,135
7,200,481
Decrease in deferred revenue
(1,821,965)
(5,403,685)
(13,431,515)
(13,952,071)
Change in other non-cash operating assets and liabilities
382,651
(735,187)
(955,291)
(6,673,927)
Cash used in operating activities
(1,592,154)
(1,771,049)
(3,993,289)
(8,959,139)
Cash flows from investing activities:
Acquisition of property, plant and equipment
(38,263)
(65,798)
(102,549)
(131,206)
Acquisition of intangible assets
(4,635)
(26,371)
(54,711)
(254,598)
Redemption (purchase) of investments
-
5,251,033
92,144
(33,000)
Cash (used in) from investing activities
(42,898)
5,158,864
(65,116)
(418,804)
Cash flows from financing activities:
Finance costs
34,694
(26,884)
26,267
(71,986)
Proceeds from exercise of options
35,153
3,767
54,109
39,519
Proceeds from conversion of warrants
31,493
-
31,493
-
Proceeds of borrowings
-
18,161
-
8,534,848
Repayment of borrowings
-
-
-
(78,400)
Cash from (used in) financing activities
101,340
(4,956)
111,869
8,423,981
Foreign exchange gain (loss) on cash held in foreign currency
6,651
(3,080)
47,768
(1,913)
Decrease (increase) in cash
(1,527,061)
3,379,779
(3,898,768)
(955,875)
Cash, beginning of the period
2,279,577
1,687,416
4,651,284
6,023,070
Cash, end of the period
$752,516
$
5,067,195
$752,516
$
5,067,195
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