Redknee Solutions Inc., a leading provider of real-time monetization and subscriber management software, reported results for its fiscal third quarter ended June 30, 2014. All figures are in U.S. dollars.
Fiscal Q3 2014 Financial Highlights (Comparisons made between fiscal Q3 FY2014 and fiscal Q3 FY2013 results, unless otherwise noted)
— Revenue totaled $63.9 million, up 9% from $58.6 million
— $9 million of revenue from a software license capacity increase issued but not recognized in the quarter that is expected to be recognized in Q1 FY15
— Gross profit was $27.9 million (44% of total revenue) compared to $32.0 million (55% of total revenue)
— Adjusted EBITDA loss of $3.2 million versus Adjusted EBITDA of $7.3 million
— Net loss totaled $6.9 million or $0.06 loss per share versus a net income of $0.1 million or $0.00 per share
— Cash at $99.0 million
— Order backlog at $172.7 million, the highest level in Redknee’s history
— Accounts receivable decreased by $11.4 million to $85.7M as at June 30, 2014, as compared to Q2 FY2014
Fiscal Q3 2014 Operational Highlights
— Announced the availability of Redknee Unified 10, the latest release of Redknee’s integrated charging, billing, policy management and customer care solution for communications and connected industries.
— Awarded the Most Outstanding OSS/BSS Vendor Leading Lights Award by Light Reading.
— Secured significant upgrades to the latest version of Redknee Unified platform.
— Announced multi-million dollar customer orders throughout the quarter across all regions, while advancing Redknee’s strategy to increase support value, sell upgrades and upsell additional software functionality to Redknee customers.
— Signed a multi-million dollar software, services, and support agreement with a Tier 1 service provider in APAC to support the growth and profitability of their 4G/ LTE strategy.
— Redknee’s cloud-based Unified charging solution was selected by Vodafone Germany to support the operator’s virtualization strategy, to optimize existing communication services and to future-proof its 4G / LTE network investments.
— 169+ patents granted and 50+ patents filed.
“During the third quarter of fiscal 2014, we continued to execute on Redknee’s growth plan achieving record order backlog to date and growing our revenues faster than our market. On a fiscal year to date basis, we are in-line with our plan for both revenues and order growth expansion. We are continuing to increase support value, upgrade software to our existing customers and upsell our full portfolio to over 200 telecom service providers,” said Lucas Skoczkowski, CEO of Redknee. “We are focused on continuing to drive our share of higher margin revenues and, with the integration of the Nokia Networks BSS acquisition complete, we have initiated the next phase of our plan to optimize our operating structure and strategically reduce our cost base. Redknee is now well positioned to fully leverage our global platform and looking forward we see a clear path toward expanding Adjusted EBITDA into our target range over the next four quarters. We remain committed to bringing the highest level of service to our customers and see a great opportunity ahead in both our core communication business, as well as non-telecom monetization to serve the evolving Internet of Things market.”
Fiscal Q3 2014 Financial Results Revenue was $63.9 million compared to $58.6 million in the same year-ago quarter. The revenue growth was primarily due to increased license and third-party sales.
Redknee enjoyed strong order bookings in the quarter driving order backlog to grow to a record $172.7 million. Order backlog includes the new license expansion contract signed that due to its terms did not contribute revenue in the current period, but is expected to result in the recognition of approximately $9 million of incremental high margin license revenue in Q1 FY15.
Recurring revenue was 51% of total revenue compared to 54% for the same year-ago quarter. Recurring revenue consists of support and maintenance, long-term service contracts, and revenue from term-based licenses.
Gross margin was 44% compared to 55% in the same year-ago quarter. The change in gross margin was primarily attributable to an increase in the use of subcontractors as the company expands into new regions. Over the coming quarters, the Company expects margin to improve as costs of providing service are improved and revenue mix shifts as a result of an expected increase in revenue from high-margin software license deals.
Accounts receivable was $85.7M at the end of the quarter as compared to $66.4 million as at September 30, 2013. On a quarter over quarter basis accounts receivables have declined by $11.4 million, or 13%, from $97.1 million as at March 31, 2014, reflecting the positive impact of changes the Company has implemented in its billing practices earlier this year.
Adjusted EBITDA loss was $3.2 million compared to Adjusted EBITDA of $7.3 million in the same year-ago quarter (see discussion about the presentation of Adjusted EBITDA, a non-IFRS measure, below).
Net loss totaled $6.9 million, or $0.06 loss per diluted share, compared to a net income of $0.1 million, or $0.00 per diluted share, in the same year-ago quarter. The “Reconciliation of Net Income (Loss) to Adjusted EBITDA” is presented below.
At June 30, 2014, cash and cash equivalents totaled $99.0 million.
The Company has commenced a comprehensive review of its cost structure in light of its recent completion of the Nokia Networks BSS asset integration. Over the next 12 to 18 month period, the Company intends to reduce its reliance on external contractors, eliminate satellite office locations, concentrate R&D and support staff into existing locations and consolidate activities to lower cost centres. The Company expects this process will reduce its annual overall expenses by $30 million to $35 million by fiscal 2016, with partial savings occurring throughout fiscal 2015. A onetime charge of approximately $15 million to $20 million is expected to be incurred over Q4 2014 and Q1 2015.
“Having completed the integration of the Nokia Networks asset, it is a logical time to assess our global operations in order to ensure the business meets the objectives we’ve set in terms of top-line growth, profitability and cash flow,” said Lucas Skoczkowski, CEO of Redknee. “As a requirement of the integration, we opened additional work centres and took on external contractors. Now that integration is complete, we are taking appropriate and disciplined steps to streamline our global operations and further optimize our cost structure.”
The proposed changes are expected to have no direct impact on customer service or the Company’s product development, delivery or support.
Please refer to the section regarding forward-looking statements which form an integral part of this release. These results, along with the unaudited condensed consolidated interim financial statements and the Company’s unaudited MD&A, are available on the Company’s website at www.redknee.com and on SEDAR at www.sedar.com .
The company will host a conference call tomorrow (Thursday, August 7, 2014) to discuss these results. CEO Lucas Skoczkowski 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.