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Redline Communications Reports 2020 Second Quarter Results
[August 10, 2020]

Redline Communications Reports 2020 Second Quarter Results


TORONTO, Aug. 10, 2020 /CNW/ - Redline Communications (www.rdlcom.com) Group Inc. (TSX: RDL), the creator of powerful wide-area wireless networks for mission-critical applications in challenging locations, today announced operating results (in US dollars unless otherwise noted) for the second quarter ended June 30, 2020.

Key financial highlights for the three and six months ended June 30, 2020 ("Q2 2020") include:






Q2 2020
(millions)

Q2 2019
(millions)

Increase
(decrease)

%
Change


2020-06
YTD
(millions)

2019-06
YTD
(millions)

Increase
(decrease)

%
Change

Revenue

$4.1M

$5.7 M

($1.6 M)

-28%


$8.6M

$11.6M

($3.0M)

-26%

Gross
margin %

58%

59%

-1%



60%

55%

5%


Operating
expenses

$3.8M

$4.3M

($0.5M)

-13%


$7.9M

$8.4M

($0.5M)

-6%

Net loss

$0.9M

$0.9M

($0.0M)

-6%


$1.9M

$2.2M

($0.3M)

-12%

Adjusted
EBITDA
loss1

$1.1M

$0.6M

$0.5M

78%


$2.1M

$1.4M

$0.7M

47%

CEWS
benefit

$0.7M

Nil

$0.7M



$0.7M

Nil

$0.7M


Bookings1

$4.6M

$6.1M

($1.5M)

-25%


$10.5M

$11.8M

($1.3M)

-11%












30-Jun-20

31-Mar-20

Increase
(decrease)

%
Change


30-Jun-20

31-Dec-19

Increase
(decrease)

%
Change

Cash

$5.1M

$6.8M

($1.7M)

-27%


$5.1M

$6.5M

($1.4M)

-22%

Inventory

$7.2M

$7.9M

($0.7M)

-9%


$7.2M

$7.7M

($0.5M)

-7%

Order
Backlog1

$10.3M

$9.9M

$0.4M

4%


$10.3M

$8.5M

$1.8M

21%


Note:  CEWS benefit is NOT included in the Adjusted EBITDA results

Financial and Business Review

Revenue for the second quarter ended June 30, 2020 was $4.1 million, down 28% over Q2 2019, mainly the result of approximately $1.8 million of product shipments to a single customer that continues to be delayed due to the impact of COVID-19.

Order Bookings for Q2 2020 were $4.6 million, down 25% over Q2 2019. The decrease was primarily due a decrease in orders from telecom service providers. Orders from other markets remain largely flat.

"Redline's backlog of orders continues to grow during the COVID-19 pandemic. We're focused on mission critical applications in demanding industrial markets such as IoT. This strategy generates higher gross margins as we expand existing networks built with our Virtual Fiber technology," stated Stephen Sorocky, Redline CEO. "The pandemic has impacted our shipments and revenues but we're aggressively controlling expenses and continue the development of LTE/5G products."

Gross margin for Q2 2020 was 58%, down a single percentage point over Q2 2019. The decrease was a result of a number of factors, primarily the result of the change in revenue mix year over year, with the 2020 Q2 having a greater percentage of sales from the lower margin, non-core verticals. This was partially offset by continued quarter-over-quarter growth in revenue from maintenance and support contracts, which, in addition to being recurring revenue, also have higher margins.

Overall operating expenses for Q2 2020 were $3.8 million, down 13% over Q2 2019, primarily a result of decreased sales and marketing costs, as COVID-19 prompted the suspension of all business travel and the cancelation of in-person marketing events.

In the quarter, the Government of Canada announced the Canada Emergency Wage Subsidy ("CEWS") in response to the COVID-19 pandemic. The Company has recognized $0.7 million of CEWS benefit as part of other income, covering periods up to end of June.

Net loss for Q2 2020 was $0.9 million, or ($0.05) per share, essentially unchanged from the net loss of $0.9 million, or ($0.05) per share, for Q2 2019.

Adjusted EBITDA loss for Q2 2020 was $1.1 million (excluding the CEWS benefit of $0.7 million), as compared to Adjusted EBITDA loss of $0.6 million for Q2 2019.

Conference Call and Webcast – August 11, 2020 at 10:00 a.m. ET

A conference call and webcast to discuss the results has been scheduled for Tuesday August 11, 2020 at 10:00 a.m. Eastern Time. To participate, please dial 1-647-427-7450 approximately 10 minutes before the conference call and provide passcode 7769062. A recording of the call will be available through August 18, 2020 on Redline's website or by dialing 1-416-849-0833 and entering the same passcode.

About Redline Communications
Redline Communications (TSX:RDL) designs and manufactures powerful wide-area wireless networks for mission-critical applications in challenging locations. Redline networks are used by oil & gas companies onshore and offshore, mining companies on surface and underground operations, by municipalities to remotely monitor infrastructure, and by specialized telecom service providers to deliver premium services. Hundreds of businesses worldwide rely on Redline to engineer, plan and deliver ruggedized, secure and reliable networks for their IoT, voice, data, and video communications needs in locations that include the deserts of the Middle East, the rainforests of South America, and the frozen Alaskan slopes. For more information visit www.rdlcom.com.

NOTES:

1

To better assess the health and growth of the Redline's business, the Company reports on non-IFRS metrics, including "Bookings", "Order Backlog" and "Adjusted EDITDA". Further information including definitions of these measures and a reconciliation to their closest IFRS measures, if applicable, can be found in the Company's Management Discussion and Analysis for the three and six months ended June 30, 2020 ("Q2 2020 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three and six months ended June 30, 2020 can be found in the condensed consolidated interim statement of financial position, statement of comprehensive income (loss), statement of changes in equity and 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, 2020 and the Q2 2020 MD&A.

 

Adjusted EBITDA (Loss)





(Unaudited, Expressed in thousands of U.S. dollars)





The table below reconciles Adjusted EBITDA (loss) to net profit (loss):














Three months ended June 30,

Six months ended June 30,



2020


2019


2020


2019

Revenue

$

4,123

$

5,722

$

8,598

$

11,556

Net profit (loss)


(857)


(915)


(1,901)


(2,172)

Add back:









Share based payments


40


122


91


236

Depreciation and amortization


268


218


537


437

Covid-19 related Canada Emergency Wage Subsidy


(706)


-


(706)


-

Finance (income) expense


8


(15)


9


(32)

(Gain) loss on fair market value of financial instruments


45


(71)


(73)


17

Foreign exchange (gain) loss


64


34


(69)


100

Income tax expense


26


1


44


7

Total


(255)


289


(167)


765










Adjusted EBITDA (loss)

$

(1,112)

$

(626)

$

(2,068)

$

(1,407)










Adjusted EBITDA margin


-27%


-11%


-24%


-12%

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.rdlcom.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,
2020


December 31,
2019

ASSETS





Current assets:






Cash 

$

5,082,621

$

6,507,606


Trade receivables


3,465,785


7,089,043


Other receivables


349,108


260,216


Inventories 


7,169,909


7,707,578


Deferred cost of revenue


2,195


6,910


Prepaid expenses and other deposits


431,841


285,519




16,501,459


21,856,872

Non-current assets:






Property, plant and equipment


957,970


999,435


Intangible assets


1,280,911


1,373,526


Right of use assets


668,891


798,080


Other assets 


61,111


76,284




2,968,883


3,247,325

Total Assets

$

19,470,342

$

25,104,197







LIABILITIES AND SHAREHOLDERS' EQUITY 





Current liabilities:






Trade and other payables

$

3,310,065

$

6,035,496


Income tax payable


12,398


12,398


Deferred revenue


1,899,862


1,966,282


Lease liabilities


237,271


277,945


Borrowings


-


716,832




5,459,596


9,008,953

Non-current liabilities:






Deferred revenue


336,372


429,414


Lease liabilities


611,294


788,572




947,666


1,217,986

Total Liabilities


6,407,262


10,226,939







SHAREHOLDERS' EQUITY





Share capital 


172,929,341


172,929,341

Contributed surplus


9,612,702


9,525,694

Deficit


(169,478,963)


(167,577,777)




13,063,080


14,877,258

Total Liabilities and Equity

$

19,470,342

$

25,104,197

 

REDLINE COMMUNICATIONS GROUP INC.



Condensed Consolidated Interim Statements of Comprehensive Loss



(Unaudited, Expressed in U.S. dollars)
















Three months ended June 30,

Six months ended June 30,



2020


2019


2020


2019

Revenue


$

4,123,330

$

5,721,985

$

8,597,919

$

11,555,499

Cost of revenue



1,752,201


2,352,489


3,402,364


5,252,822

Gross profit



2,371,129


3,369,496


5,195,555


6,302,677












Expenses:











Research and development



1,045,544


821,417


2,170,530


1,312,663


General and administrative



1,140,250


1,156,796


2,420,014


2,609,556


Sales and marketing



1,397,867


2,106,000


2,855,517


3,974,954


Operations and customer support



207,702


251,740


446,274


486,234





3,791,363


4,335,953


7,892,335


8,383,407

Loss before undernoted items



(1,420,234)


(966,457)


(2,696,780)


(2,080,730)












Other (income) expenses:











Covid-19 related Canada Emergency Wage Subsidy


(705,954)


-


(705,954)


-


Finance (income) expense



7,730


(15,238)


8,757


(32,229)


(Gain) loss on fair market value of financial instruments


44,868


(71,219)


(73,693)


17,160


Foreign exchange (gain) loss



63,938


34,278


(68,850)


99,765





(589,418)


(52,179)


(839,740)


84,696

Loss before income taxes



(830,816)


(914,278)


(1,857,040)


(2,165,426)

Income tax expense



26,246


797


44,146


7,057

Net loss and total comprehensive loss


$

(857,062)

$

(915,075)

$

(1,901,186)

$

(2,172,483)























Loss per share











Basic and diluted


$

(0.05)

$

(0.05)

$

(0.11)

$

(0.13)












 

REDLINE COMMUNICATIONS GROUP INC.

Condensed Consolidated Interim Statements of Changes in Equity

(Unaudited, Expressed in U.S. dollars)
















Share
capital


Contributed
surplus


Deficit


Total

Balance at
January 1, 2019


$

172,929,341

$

9,292,321

$

(163,832,939)

$

18,388,723


Net loss



-


-


(2,172,483)


(2,172,483)


Stock option expense



-


150,763


-


150,763

Balance at
June 30, 2019


$

172,929,341

$

9,443,084

$

(166,005,422)

$

16,367,003

Balance at
January 1, 2020


$

172,929,341

$

9,525,694

$

(167,577,777)

$

14,877,258


Net loss



-


-


(1,901,186)


(1,901,186)


Stock option expense



-


87,008


-


87,008

Balance at
June 30, 2020


$

172,929,341

$

9,612,702

$

(169,478,963)

$

13,063,080

 

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,


2020


2019


2020


2019

Cash flows from (used in) operating activities:










Net loss

$

(857,062)

$

(915,075)

$

(1,901,186)

$

(2,172,483)


Adjustments to reconcile net loss to net cash from operating activities:











Finance (income) expense


7,730


(15,238)


8,757


(32,229)



Depreciation and amortization of non-current assets


268,072


217,619


537,272


437,319



Stock option expense


40,070


57,318


87,008


150,763



Foreign exchange (gain) loss on cash held in foreign currency


(10,627)


(18,007)


44,768


(47,185)



Foreign exchange (gain) loss on borrowings and lease liabilities


34,670


36,697


(68,230)


96,974



Loss on disposal of assets


5,668


-


5,668


-





(511,479)


(636,686)


(1,285,943)


(1,566,841)


Change in non-cash operating assets and liabilities: 











(Increase) decrease in deferred cost of revenue


1,622


(3,382)


4,715


(5,194)



Decrease in deferred revenue


(386,801)


(353,579)


(159,462)


(216,661)



Change in other non-cash operating assets and liabilities 


(676,152)


(356,244)


1,215,455


885,650

Cash used in operating activities


(1,572,810)


(1,349,891)


(225,235)


(903,046)

Cash flows used in investing activities:










Acquisition of property, plant and equipment


(57,061)


(56,744)


(149,248)


(97,013)


Acquisition of intangible assets


(48,423)


-


(130,423)


(14,100)

Cash used in investing activities


(105,484)


(56,744)


(279,671)


(111,113)

Cash flows used in financing activities:










Interest income


3,244


35,557


19,551


78,545


Interest expense


(10,974)


(13,343)


(23,622)


(27,791)


Repayment of borrowings


-


-


(701,491)


(735,505)


Repayment of lease liabilities


(80,813)


(84,538)


(169,749)


(170,667)

Cash used in financing activities


(88,543)


(62,324)


(875,311)


(855,418)

Foreign exchange gain (loss) on cash held in foreign currency


10,627


18,007


(44,768)


47,185

Increase (decrease) in cash


(1,756,210)


(1,450,952)


(1,424,985)


(1,822,392)

Cash, beginning of the period


6,838,831


9,254,405


6,507,606


9,625,845

Cash, end of the period

$

5,082,621

$

7,803,453

$

5,082,621

$

7,803,453

 

SOURCE Redline Communications Group Inc.


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