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Redline Communications Reports Solid Q2 2012 Financial Results(Canada Newswire Via Acquire Media NewsEdge) Strong Bookings and Growing Backlog Highlight a Solid Quarter TORONTO, Aug. 14, 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 six month periods ended June 30, 2012. Financial Summary for the three months ended June 30, 2012 $12.1M Bookings², slightly ahead of strong Q1 2012 Bookings $10.1M Shipments, up 16% over Q1 2012 $7.8M Order Backlog, up 25% over Q1 2012 $17.4M Revenue, up 37% over same period last year $6.3M Operating Expenses, a 5% improvement over the same period last year $3.9M Adjusted EBITDA¹, up 168% over the same period last year $7.8M Net Profit compared to $0.06M in the same period last year EPS of $0.08 on a fully diluted basis Financial Highlights for the three months ended June 30, 2012 Strong demand for the core Broadband Wireless Infrastructure ("BWI") product line helped the Company secure record Bookings totaling $12.1 million in the quarter. These Bookings were driven primarily from sales to the energy sector, including several large oil and gas projects in North America and the Middle East. The Company's flagship BWI product line accounted for 78% of new product orders in the quarter as the Company continued to de-emphasize its WiMAX™ business. The Company finished the quarter with a Backlog of orders totalling $7.75 million, an increase of 25% over the Backlog at March 31, 2012. Gross margin in the first quarter improved to 57% from 52% reported in the first quarter of 2012. The Company continues to deliver on its plan to reduce operating expenses, reporting a reduction of 5.1% to $6.35 million in the quarter as compared to the same period in 2011. Adjusted EBITDA, was $3.91 million, an increase of 168% from adjusted EBITDA of $1.46 million for the same period in 2011. Operating Highlights for the three months ended June 30, 2012 Redline received and shipped a $2-million order for its rugged industrial wireless system to a major oil and gas company, providing high-capacity, high-availability communications between the company's US-based drilling rigs and centralized control offices. Redline announced that their rugged industrial wireless products were chosen to create a wireless infrastructure for a major oil field operated by the Abu Dhabi Company for Onshore Oil Operations (ADCO) in the United Arab Emirates. Redline's systems integrator Alcatel-Lucent (ALU) will deliver the complete and integrated digital oil field system. Redline advanced in the Cisco Developer Network as a solution developer within the wireless and mobility technology categories and Redline's RDL-3000 system has successfully completed interoperability testing with Cisco Access Points. The Company announced the availability of Enterprise, a new compact carrier-grade wireless networking solution with the fastest bi-directional wireless broadband capacity in the industry. Subsequent to the end of the quarter, Redline completed a 1:4 share consolidation effective July 13, 2012. Financial Details Strong demand for Redline's core Broadband Wireless Infrastructure ("BWI") product line helped the Company secure Bookings totaling $12.1 million for a second quarter in a row. These Bookings were driven primarily from sales to the energy sector, including several large oil and gas projects in the both the Middle East and North America. The Company's flagship BWI product line accounted for 78% of new product Bookings in the quarter as the Company continued to de-emphasize its lower margin legacy RedMAX™ WiMAX business. The Company finished the quarter with a Backlog of orders totaling $7.8 million, up 25% from $6.2 million recorded at the end of the first quarter 2012. "I am very pleased with this solid quarter. We had strong Bookings once again, and our Backlog has grown to nearly $8 million." said Eric Melka, President and CEO of Redline Communications. "We've been winning larger deals with new and existing oil & gas customers. These typically have longer roll-out periods, so our Backlog has increased along with our Revenues. This increase in Backlog also provides better visibility into future Revenue." Shipments for the second quarter were $10.1 million, up 16% over the $8.7 million reported in the first quarter 2012. BWI product accounted for 87% of total product shipments compared with 77% for the first quarter 2012. The portion of BWI product shipped to customers within the Energy sector increased to approximately 50% from approximately 40% for the first quarter of 2012. Total revenue for the second quarter 2012 was $17.4 million, an increase of 37% from $12.7 million in the same period in 2011. Revenue from BWI product and services was $7.8 million, an increase of 25% from $6.3 million in the same period in 2011. Revenue from RedMAX product and services was $9.6 million of which $1.3 million was new RedMAX revenue and the balance was Amortized Deferred revenue¹. The second quarter of 2012 is the final amortization period for RedMAX deferred revenue. The amortized amounts will remain in prior reported revenues for comparative purposes however there will be no such ongoing amortization as the revenue has now been fully amortized. Further detail can be found in the Company's MD&A filed with SEDAR. Overall Gross Margins on Revenue were 56.8% for the second quarter 2012, up 4.9 points from the first quarter of 2012, and down 2.8 points from the same period last year as a result of expected fluctuations in revenue mix. Gross margins on core BWI product revenue remained very strong at 67% for the second quarter 2012. Operating expenses for the second quarter of 2012 were $6.4 million, down 5% from $6.7 million reported in the second quarter of 2011. Reductions in legal and accounting expenses related to the now-settled class action lawsuit and the completion of the Company's conversion to IFRS accounted for the majority of the savings. Higher revenues and lower operating costs have resulted in increases in adjusted EBITDA¹, for both the three and six months ended June 30, 2012. Adjusted EBITDA for second quarter 2012 was $3.9 million, a 168% increase over adjusted EBITDA of $1.5 million for the same period in 2011. Redline reported a non-cash gain of $4.0 million for the second quarter, related to the June 30, 2012 fair market valuation of the debenture and warrants associated with the private placement completed in June 2011. This compares to a non-cash charge of $0.6 million in the second quarter 2011, also related to the fair market value calculation of the debenture. Redline realized a Net Profit of $7.8 million for the second quarter of 2012, compared to $0.06 million in the same period last year. "We continue to focus on cost management, positive earnings and cash generation." said Melka. "Our costs continue to decrease, we reported an EBITDA of 22% of revenue, and we generated cash from earnings which has been used for working capital to accommodate our growing revenues. We are currently exploring with our financial partners how to best leverage this working capital." At June 30, 2012, Redline held cash and short-term investments of approximately $2.3 million compared to $4.7 million at December 31, 2011. Conference Call and Webcast -10:00 a.m. EDT A conference call and webcast to discuss the results will be held August 15, 2012, at 10:00 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 14614310. A recording of the call will be available through August 22, 2012. Please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 14614310 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: 1 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. 2 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 six months ended June 30, 2012 ("Q2 and First Half 2012 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three and six month results ended June 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 six months ended June 30, 2012 and the Q2 and First Half 2012 MD&A. 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) June 30,2012 December 31, 2011 ASSETS Current assets: Cash $2,279,577 $ 4,651,284 Short-term investment - 92,144 Restricted short-term investments 33,003 33,003 Trade receivables 11,288,757 9,913,208 Other receivables 165,234 340,499 Inventories 7,176,821 7,851,884 Deferred WiMAX cost of revenue - 7,484,581 Deferred cost of revenue 1,766,120 333,287 Prepaid expenses and other deposits 838,521 2,214,309 23,548,033 32,914,199 Non-current assets: Property, plant and equipment 940,513 1,026,480 Intangible assets 151,680 158,239 Other assets 97,240 97,365 1,189,433 1,282,084 Total Assets $24,737,466 $ 34,196,283 LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current liabilities Trade and other payables $6,892,563 $ 9,081,197 Income tax payable 292,927 292,927 Deferred WiMAX revenue - 14,213,501 Deferred revenue 4,889,357 2,285,406 Current portion of borrowings 6,292,241 6,182,398 18,367,088 32,055,429 Non-current liabilities Convertible debenture (principal and interest) 1,335,811 1,344,095 Fair market value adjustment on convertible debenture 5,306,982 2,918,446 Convertible debenture at fair market value 6,642,793 4,262,541 Total Liabilities 25,009,881 36,317,970 SHAREHOLDERS' DEFICIENCY Share capital 134,485,251 134,336,023 Share purchase loan (365,780) (365,780) Warrant 310,000 310,000 Contributed surplus 8,078,738 7,635,506 Deficit (142,780,624) (144,037,436) (272,415) (2,121,687) Total liabilities and equity $24,737,466 $ 34,196,283 REDLINE COMMUNICATIONS GROUP INC. Condensed Consolidated Interim Statements of Comprehensive Income (Unaudited, expressed in U.S. dollars) Three months ended June 30,Six months ended June 30, 2012 2011 2012 2011 Revenue $17,381,474 $ 12,710,559 $29,887,934 $ 26,171,076 Cost of revenue 7,506,207 5,130,994 13,524,633 10,276,472 Gross profit 9,875,267 7,579,565 16,363,301 15,894,604 Expenses: Research and development 1,609,159 1,109,947 3,151,013 2,592,642 Finance and administration 1,929,272 2,710,307 3,556,328 5,130,433 Sales and marketing 2,331,816 2,254,133 4,805,751 4,419,087 Operations and customer support 476,426 613,468 934,689 1,341,545 Gain on disposal of assets - - - (1,519) 6,346,673 6,687,855 12,447,781 13,482,188 Income before non-operating items 3,528,594 891,710 3,915,520 2,412,416 Other expenses Finance expense 77,247 109,836 173,491 215,236 (Gain) loss on fair market value of Debenture (3,962,940) 582,791 2,648,217 582,791 Foreign exchange (gain) loss (399,123) 135,657 (163,000) 423,076 (4,284,816) 828,284 2,658,708 1,221,103 Profit before income taxes 7,813,410 63,426 1,256,812 1,191,313 Income tax expense - - - - Net profit and total comprehensive income $7,813,410 $ 63,426 $1,256,812 $ 1,191,313 Earnings per share (1) Basic $0.21 $ - $0.03 $ 0.05 Diluted $0.08 $ - $0.08 $ 0.05 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 - - - - 1,191,313 1,191,313 Share-based payments - - - 735,688 - 735,688 Exercise of options 67,354 - - (31,602) - 35,752 Balance at June 30, 2011 $ 128,599,478 $ (365,780) $ 310,000 $ 7,091,573 $ (146,908,277) $ (11,273,006) Balance at December 31, 2011 $ 134,336,023 $ (365,780) $ 310,000 $ 7,635,506 $ (144,037,436) $ (2,121,687) Net profit - - - - 1,256,812 1,256,812 Shares issued on conversion of debenture 115,726 - - - - 115,726 Exercise of options 33,502 - - (14,546) - 18,956 Share-based payments - - - 457,778 - 457,778 Balance at June 30, 2012 $ 134,485,251 $ (365,780) $ 310,000 $ 8,078,738 $ (142,780,624) $ (272,415) REDLINE COMMUNICATIONS GROUP INC. Condensed Consolidated Interim Statements of Cash Flows (Unaudited, expressed in U.S. dollars) Three months ended June 30,Six months ended June 30, 2012 2011 2012 2011 Cash flows from operating activities: Net profit $7,813,410 $ 63,426 $1,256,812 $ 1,191,313 Adjustments to reconcile profit before taxes to net cash from operating activities Finance expense 77,247 109,836 173,491 215,236 Depreciation and amortization of non-current assets 101,032 89,224 206,888 210,868 Recognition of share based payments 282,742 478,113 457,778 735,688 Foreign exchange loss (gain) on cash held in foreign currency - - 1,501 (1,167) Foreign exchange (gain) loss on borrowings (406,615) 120,016 (207,461) 278,878 Loss on fair market value of Debenture (3,962,940) 582,791 2,648,217 582,791 3,904,876 1,443,406 4,537,226 3,213,607 Change in non-cash operating assets and liabilities Decrease in deferred cost of revenue 3,797,561 1,725,207 6,051,748 4,085,428 Decrease in deferred revenue (7,370,148) (2,757,789) (11,609,550) (8,548,386) Change in other non-cash operating assets and liabilities (1,444,032) (4,344,261) (1,337,942) (5,938,740) Cash used in operating activities (1,111,743) (3,933,437) (2,358,518) (7,188,091) Cash flows from investing activities: Acquisition of property, plant and equipment (19,361) (7,509) (64,286) (65,408) Acquisition of intangible assets (18,963) (140,095) (50,076) (228,226) Redemption (purchase) of investments - (5,184,033) 92,144 (5,284,033) Cash (used in) investing activities (38,324) (5,331,637) (22,218) (5,577,667) Cash flows from financing activities: Finance costs paid (770) (371) (8,426) (45,102) Proceeds from exercise of options 18,956 35,752 18,956 35,752 Proceeds of borrowings - 8,516,687 - 8,516,687 Repayment of borrowings - (19,577) - (78,400) Cash from financing activities 18,186 8,532,491 10,530 8,428,937 Foreign exchange (loss) gain on cash held in foreign currency - - (1,501) 1,167 Decrease in cash (1,131,881) (732,583) (2,371,707) (4,335,654) Cash, beginning of the period 3,411,458 2,419,999 4,651,284 6,023,070 Cash, end of the period $2,279,577 $ 1,687,416 $2,279,577 $ 1,687,416 |