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Redline Communications Reports 2013 First Quarter Financial Results Highlighted by 150% Growth in Energy Sector
[May 15, 2013]

Redline Communications Reports 2013 First Quarter Financial Results Highlighted by 150% Growth in Energy Sector

(Canada Newswire Via Acquire Media NewsEdge) -- Growth in Digital Oil Fields Driving Demand for Redline Wireless Networks -- TORONTO, May 15, 2013 /CNW/ - Redline Communications (www.rdlcom.com Group Inc. TSX: RDL), a leading provider of secure broadband wireless solutions for machine-to-machine (M2M) communications, today announced operating results¹ for the three months ended March 31, 2013.

Financial summary for the three months ended March 31, 2013: Record Order Bookings² from Energy sector were approximately $9 million, up approximately 150% over the same period last year. Total Order Bookings were $13.0 million, of which approximately 70% were from the Energy sector.

Revenue from core BWI product line up 57% to $7.4 million from $4.7 million reported for the same period in 2012.  Overall revenue of $8.0 million, down $4.5 million from the same period in 2012, the difference entirely attributed to Deferred RedMAX™ revenue³ which ended June 30, 2012.


Gross margin on BWI product sales of 55%, and overall gross margin of 51%.

Adjusted EBITDA² loss was $2.0 million, a decrease of $2.7 million over the adjusted EBITDA of $0.7 million for the same period in 2012.Financial Review Order Bookings for the three months ended March 31, 2013 were $13.0 million, up 8% over the same period in 2012. Bookings in the quarter were primarily driven from strong and growing sales to major operators in the energy sector which management estimates represented approximately 70% of total Bookings, or approximately $9 million, up approximately 150% over the same period last year.

Order Backlog at March 31, 2013 was $19.7 million, more than triple the backlog of $6.2 million at March 21, 2012 and providing visibility into future revenue.  Continued growth in Order Backlog can be attributed to the receipt of a number of multi-million dollar orders from oil and gas customers expected to be delivered over the next twelve to eighteen months.

"We are experiencing significant growth in the energy sector," said Eric Melka, Redline CEO. "We grew revenues from $1 million in 2010 to $9 million in revenues in 2011, and then added order bookings of $23 million in 2012.  This year we've already received bookings from the energy sector totaling $9 million." "This speaks to our ability to execute on our strategy," added Melka.  "With the expected significant growth in the energy sector, we anticipate related bookings in 2013 will grow by more than 35%, contributing $30 million to $35 million, or about 60% of our total expected order bookings for the year." Revenue associated with the Company's core BWI product line was $7.4 million for the three months ended March 31, 2013, up 57% from the $4.7 million reported for the same period in 2012.

Overall revenue for the three months ended March 31, 2013 was $8.0 million, down $4.5 million from the same period last year.  The difference was entirely attributed to $4.7 million of amortized deferred revenue from prior RedMAX sales included in the three months ended March 31, 2012 as compared to $nil of amortized deferred revenue in the three months ended March 31, 2013.³ Overall gross margin for the three months ended March 31, 2013 was 51%, similar to the overall gross margin of 52% reported for the same period in 2012. Gross Margin on core BWI product revenue was 55%. Lower BWI margins in the first quarter of 2013 (55% vs 65% in the same period in 2012) were a result of a shift in product mix for the first quarter of 2013 which included a higher percentage of lower margin product sales to the telecom industry.

Overall operating expenses were $6.4 million for the three months ended March 31, 2013, an increase of 5% compared to $6.1 million reported for the same period last year with the increase due primarily to a one-time expense for severance and planned greater sales expenses in the period.

Adjusted EBITDA loss for the three months ended March 31, 2013 was $2.0 million, a decrease of $2.7 million over the adjusted EBITDA of $0.7 million for the corresponding period in 2012.  The decrease is a direct result of the decrease in overall revenue as a result of the completion of the amortization period of all RedMAX Amortized Deferred Revenue³ at the end of June 30, 2012. Excluding the impact of RedMAX Amortized Deferred Revenue and associated costs, adjusted EBITDA loss for the three months ended March 31, 2012 would have been $1.5 million.

Net Loss for the three months ended March 31, 2013 was $2.5 million, or ($0.18) per share, a $4.1 million improvement over the net loss of $6.6 million, or ($0.70) per share reported in the same period in 2012, although period over period comparisons are difficult as a result of the impact of amortized deferred revenue from prior RedMAX sales as well as the significant loss on the fair market value of the Debenture included in the three months ended March 31, 2012.

As of March 31, 2013 the Company increased cash by $4.4 million to $12.7 million from $8.3 million at December 31, 2012.

Business highlights for the three months ended March 31, 2013: Key Customer Win in Energy Sector: Redline received its largest contract to date for a wireless oilfield network installation. The contract is from an existing oil and gas customer and has a value over its life of more than 10% of Redline's 2013 revenue budget.

Product Milestones: Redline announced its entire family of RDL-3000 wireless broadband systems now operate in the 3300-3800 MHz licensed band, one of the licensed spectrum profiles used by telecom operators and allowing them to re-use this spectrum as they migrate to LTE.

Quality Recognition: Redline won the annual BSI Group Award of Excellence in Canada in recognition of its commitment to quality and business excellence in all aspects of its operation.

Management changes support growth plans: Redline made several key management appointments including: promoting Rob Williams (formerly Redline's COO) to president of Middle East and Africa and Bojan Subasic to vice president R&D; hiring Carl McKinnon, previously global sales director for communications at GE Digital Energy, as vice president of worldwide sales; appointing Rick Cuthill general manager of Redline's new business unit, Redline Military Technologies (RMT).

International expansion: Redline opened an office in Oman to better support operations in the region, moving a key executive from the Company's Markham-based office to run operations in the Middle East.Conference Call and Webcast - May 15th, 2013 at 10:00 a.m. ET A conference call and webcast to discuss the results will be held May 15, 2013 at 10:00 a.m. ET.  To participate, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call, and provide passcode 65765411.  A recording of the call will be available through May 31, 2013. To listen to the rebroadcast please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 65765411.  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) the innovator of Virtual Fiber™, a specialized wireless broadband system used by companies and governments worldwide to cost-effectively deploy distributed services and applications.  Redline Virtual Fiber™ solutions are used to facilitate and enhance public safety networks, deploy and extend secure networks, connect digital oil fields and smart grids, and bring dedicated Internet access wherever and whenever it's needed. Redline has been delivering powerful, versatile and reliable wireless systems to governments, the military, oil and gas, and the telecom industry for over a decade through its global network of certified partners. For more information visit www.rdlcom.com.

NOTES:   1   All amounts reported in this press release are in US dollars unless otherwise stated.

2      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", "Adjusted EBITDA", "EPS excluding the non-cash expense relating to the fair market adjustment on the Debenture", 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 months ended March 31, 2013 ("Q1 2013 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three month results ended March 31, 2013 can be found in the condensed consolidated interim statement of financial position, condensed consolidated interim statement of comprehensive loss, 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 months ended March 31, 2013 and the Q1 2013 MD&A.

3      During the period from January 1st 2006 to the third quarter of 2009, the Company's RedMAX products, which have now reached end of life, were sold with post contract support which included unspecified upgrades where the fair market value of the undelivered elements could not be established. The Company has amortized this RedMAX product revenue and the associated cost of this revenue on a straight line basis over the period of post contract support and unspecified upgrades which ended at June 30, 2012. This amortized RedMAX revenue is called Amortized Deferred Revenue.  This Amortized Deferred Revenue is included in the financial results for the three months ended 2012 but not in the three months ended 2013.

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 affects 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)                         March 31,2013     December 31, 2012 ASSETS                   Current assets:                     Cash     $12,690,820     $ 8,286,732   Trade receivables       10,149,541       12,639,570   Other receivables       817,637       571,382   Inventories       7,125,006       6,973,414   Deferred cost of revenue       314,328       905,250   Prepaid expenses and other deposits       1,076,812       1,061,622           32,174,144       30,437,970 Non-current assets:                     Property, plant and equipment       877,597       875,352   Intangible assets       87,468       107,593   Other assets       97,425       99,180           1,062,490       1,082,125 Total Assets       $33,236,634     $ 31,520,095                     LIABILITIES AND SHAREHOLDERS' EQUITY                   Current liabilities                     Bank indebtedness     $3,234,031     $ 2,296,855   Trade and other payables       5,795,842       4,249,973   Income tax payable       143,730       292,927   Deferred revenue       1,651,699       2,796,497   Current portion of borrowings       5,060,613       5,116,527           15,885,915       14,752,779 Non-current liabilities                     Other payables       351,367       418,622   Convertible debenture (principal and interest)       298,627       1,100,788   Fair market value adjustment on convertible debenture       4,451,253       8,357,396           5,101,247       9,876,806 Total Liabilities         20,987,162       24,629,585                     SHAREHOLDERS' EQUITY                   Share capital         159,905,015       152,123,803 Share purchase loan         (365,780)       (365,780) Warrant         310,000       310,000 Contributed surplus         8,407,463       8,361,465 Deficit         (156,007,226)       (153,538,978)           12,249,472       6,890,510 Total liabilities and equity       $33,236,634     $ 31,520,095                     REDLINE COMMUNICATIONS GROUP INC.           Condensed Consolidated Interim Statements of Comprehensive Loss           (Unaudited, expressed in U.S. dollars)                                Three months ended March 31,         2013       2012            Revenue       $8,022,741     $ 12,506,460 Cost of revenue         3,969,053       6,018,426 Gross profit         4,053,688       6,488,034                     Expenses:                     Research and development       1,778,934       1,541,854   Finance and administration       1,656,350       1,627,056   Sales and marketing       2,601,828       2,473,935   Operations and customer support       370,450       458,263           6,407,562       6,101,108 (Loss) profit before other expenses         (2,353,874)       386,926                     Other expenses                     Finance expense       81,879       96,244   (Gain) loss on fair market value of Debenture       (54,393)       6,611,157   Foreign exchange (gain) loss       (85,435)       236,123           (57,949)       6,943,524 Loss before income taxes         (2,295,925)       (6,556,598) Income tax expense         172,323       -  Net loss and total comprehensive loss       $(2,468,248)     $ (6,556,598)                                         Loss per share                     Basic     $(0.18)     $ (0.70)   Diluted     $(0.18)     $ (0.70)                     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, 2011   $ 134,336,023   $ (365,780)   $ 310,000   $ 7,635,506   $ (144,037,436)   $ (2,121,687)   Net profit     -     -    -       -     (6,556,598)     (6,556,598)   Shares issued on    conversion of debenture     115,726     -      -      -      -      115,726   Share-based payments     -      -      -      175,036     -     175,036 Balance at March 31, 2012   $ 134,451,749   $ (365,780)   $ 310,000   $ 7,810,542   $ (150,594,034)   $ (8,387,523)                                     Balance at December 31, 2012   $ 152,123,803   $ (365,780)   $ 310,000   $ 8,361,465   $ (153,538,978)   $ 6,890,510   Net loss     -      -      -      -      (2,468,248)     (2,468,248)   Shares issued on    conversion of debenture     2,132,243     -      -      -      -      2,132,243   Shares issued on   conversion of warrants     5,334,306     -      -      -      -      5,334,306   Exercise of options     314,663     -      -      (139,467)     -      175,196   Share-based payments     -      -      -      185,465     -      185,465 Balance at March 31, 2013   $ 159,905,015   $ (365,780)   $ 310,000   $ 8,407,463   $ (156,007,226)   $ 12,249,472 REDLINE COMMUNICATIONS GROUP INC.   Condensed Consolidated Interim Statements of Cash Flows (Unaudited, expressed in U.S. dollars)            Three months ended March 31,         2013       2012                       Cash flows from operating activities:                   Net loss     $(2,468,248)     $ (6,556,598)   Adjustments to reconcile loss before taxes to net cash from operating activities                     Finance expense       81,879       96,244     Depreciation and amortization of non-current assets       82,047       105,856     Recognition of share based payments       185,465       175,036     Foreign exchange loss (gain) on cash held in foreign currency       121,761       (27,164)     Foreign exchange (gain) loss on borrowings       (228,662)       199,154     Loss on fair market value of Debenture       (54,393)       6,611,157     Income tax       172,323       -          (2,107,828)       603,685   Change in non-cash operating assets and liabilities                     Decrease in deferred cost of revenue       590,922       2,254,187     Decrease in deferred revenue       (1,144,798)       (4,239,402)     Change in other non-cash operating assets and liabilities       3,264,434       106,090 Cash from (used in) operating activities       602,730       (1,275,440)                       Cash flows from investing activities:                   Acquisition of property, plant and equipment       (64,167)       (44,925)   Acquisition of intangible assets       -        (31,113)   Redemption of investments       -        92,144 Cash (used in) from investing activities       (64,167)       16,106                       Cash flows from financing activities:                   Finance costs       (17,919)       (7,656)   Proceeds from exercise of options       175,196       -    Proceeds from conversion of warrants       2,892,833       -    Proceeds from bank indebtedness       937,176       -  Cash from (used in) financing activities       3,987,286       (7,656) Foreign exchange gain on cash held in foreign currency       (121,761)       27,164 Increase (decrease) in cash       4,404,088       (1,239,826) Cash, beginning of the period       8,286,732       4,651,284 Cash, end of the period     $12,690,820     $ 3,411,458

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