Redknee Solutions Inc. Reports Fourth Quarter and Full Year Fiscal 2017 Results

– Q4 and Fiscal Year Results Showing Progress Against Strategic Plan –

TORONTO, Dec. 6, 2017 /CNW/ - Redknee Solutions Inc. (TSX: RKN), an innovative software and solutions company offering mission-critical monetization and subscriber management to leading communication service providers around the globe, reported results for its fiscal fourth quarter and full year ended September 30^th, 2017. (All figures are in U.S. dollars unless otherwise stated.)

"The results of the fourth quarter reflect our continuing efforts to strengthen and enhance our long-term value proposition for shareholders," said Danielle Royston, CEO of Redknee. "Using the proceeds from our Rights Offering, we are full speed ahead with our Strategic Plan and have already executed on a number of our restructuring initiatives. Furthermore, from an operational perspective, we continue to make noticeable progress on both our product revitalization plan and our Customer Success efforts worldwide. We remain committed to rebuilding a great company founded on great people and great products."

Fiscal Q4 2017 Financial Highlights
(Comparisons made between fiscal Q4FY2017 and fiscal Q4FY2016 results, unless otherwise noted)

• Revenue totalled $33.8 million compared to $40.7 million;
• Gross profit was $20.0 million (59% gross margin) compared to $23.1 million (57% gross margin);
• Recurring revenue was 76% of revenue, compared to 63%;
• Operating expenses for the period were $27.5 million compared to $34.4 million;
• Net loss was $10.4 million, or $0.07 loss per share compared to a net loss of $14.7 million, or $0.14 loss per share; and
• Cash used in operations was $10.8 million.

Fiscal 2017 Financial Highlights
(Comparisons made between fiscal 2017 and fiscal 2016 results, unless otherwise noted)

• Revenue totalled $137.9 million compared to $171.1 million;
• Gross profit was $79.9 million (58% gross margin) compared to $92.6 million (54% gross margin);
• Recurring revenue was 69% of revenue, compared to 60%;
• Operating expenses for the year were $116.0 million compared to $145.9 million;
• Net loss was $58.8 million (including $18.8 million of restructuring charge), or $0.49 loss per share compared to a net loss of $66.9 million (including $35.2 million of restructuring charge), or $0.62 loss per share; and,
• Cash used in operations was $29.0 million.

Operational Highlights - Q4, 2017 and Subsequent:

• Received shareholder approval for and completed Rights Offering raising CDN$96.5 million;
• Appointed Robert Stabile to Board of Directors;
• Launched a restructuring plan to reduce employees, close down and streamline facilities globally and make organizational changes for an estimated total cost of $48-$50 million; and,
• Announced collaboration between Redknee and Google Cloud engineering teams to integrate Cloud Spanner innovation into Redknee products and began offering high-performance Google Cloud Spanner to customers.

"Our revenue has been tracking lower, and although our customers and other stakeholders are supportive of the actions we are taking to improve our business, we expect to see revenue shrinking further in 2018 and potentially into 2019 until our restructuring is fully completed," added Royston.

"This is a long turnaround story, and while we have made a good start in executing on our Strategic Plan, there is still a lot of work to do. We have added strength to our Board of Directors, made numerous product improvements, and are seeing directional improvement in our Customer Success rates.  For the next several quarters, we will invest the proceeds from our Rights Offering in our continued restructuring.  In turn, the savings realized from our restructuring will be channeled into Customer Success efforts and ongoing product revitalization."

Please refer to the section regarding Forward-Looking Statements below which form an integral part of this release.  These results, along with the annual audited consolidated financial statements and the Company's MD&A, are available on the Company's website at www.redknee.com and on SEDAR at www.sedar.com.

Conference Call

The Company will host a conference call tomorrow (December 7, 2017) to discuss their Q4 and FY 2017 results. CEO Danielle Royston  and Interim CFO Anin Basu will host the presentation starting at 8:30 a.m. Eastern time. A question and answer session will follow management's presentation.

Date: Thursday, December 7, 2017
Time: 8:30 a.m. Eastern time (5:30 a.m. Pacific time)
Dial-In Number: 1 [phone]
International: 1 [phone]
Conference ID#: 3579199

The presentation will be webcast live and available for replay via either the Investors section of Redknee's website (www.redknee.com) or http://bit.ly/2h01z3v.

Please call the conference telephone number 5-10 minutes prior to the start time. An operator will register your name and organization.

A replay of the call will be available until 12:00 midnight (EST) Thursday, December 14, 2017.

Toll-Free Replay Number: 1 [phone]
International Replay Number: 1 [phone]
Replay PIN: 3579199

Media Inquiries:  [email protected]

About Redknee

Redknee monetizes today's digital world for communications service providers. Our market-leading portfolio of monetization and subscriber management solutions includes real-time billing, charging, policy and customer care modules and is available on premise, cloud-based, or as Software-as-a-Service. With a central focus on driving customer success, Redknee's products power growth and innovation for operators globally. Established in 1999, Redknee Solutions Inc. (TSX: RKN) can be found on the Toronto Stock Exchange. For more information about Redknee, please go to www.redknee.com.

Non-IFRS Measures

The Company reports "Recurring revenue," which is not a financial measure calculated and presented in accordance with International Financial Reporting Standards (IFRS), should not be considered in isolation or as a substitute to revenue. Recurring revenue includes revenue from support and maintenance agreements, long term service agreements, and term-based product licenses and software subscription.

Other companies (including competitors) may define recurring revenue differently. The Company presents recurring revenue because management believes this to be an important supplemental measure of performance that is commonly used by securities analysts, investors and other interested parties in the evaluation of companies in Redknee's industry. Management uses this information internally for forecasting and budgeting. It may not be indicative of the historical operating results of Redknee nor is it intended to be predictive of potential future results.

Forward-Looking Statements 

Certain statements in this document may constitute "forward-looking" statements which involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. When used in this document, such statements use such words as "may," "will," "expect," "continue," "believe," "plan," "intend," "would," "could," "should," "anticipate" and other similar terminology. Forward-looking statements are provided for the purpose of providing information about management's current expectations and plans relating to the future. Persons reading this news release are cautioned that such information may not be appropriate for other purposes. Such forward-looking statements include statements respecting revenue visibility for the Fiscal 2018; the impact of the challenging macro environment on the Company's revenue; the impact of our restructuring initiatives and ongoing cost management efforts on our results in  next year; as well as statements regarding Redknee's future plans, objectives or performance for the current period and subsequent periods and regarding the markets for our products. These statements reflect current assumptions and expectations regarding future events and operating performance and speak only as of the date of this document. Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements to differ materially. Such factors include, but are not limited to, assumptions respecting : (i) the conversion of sales pipeline into orders and orders into revenue based on the extent and timing of historical conversion; (ii)  the anticipated mix of the sale of products and services of the Company and associated margin being consistent with that realized in the past; (iii) the ability of Redknee to bring new products and services to market and to increase sales; (iv) the strength of the Company's product development pipeline; (v) the estimated size and growth prospects of the markets Redknee seeks to address; (vi) the Company's competitive position in those markets and its ability to take advantage of future opportunities in those markets; (vii) the benefits of the Company's products and services to be realized by its customers; (viii) the demand for the Company's products and services and the extent of deployment of the Company's products and services; (ix) the Company's financial condition and capital requirements; * the stability of general economic and market conditions; (xi) currency exchange rates and interest rates; (xii) capital markets continuing to provide the Company with access to capital. The risks and uncertainties that may affect forward-looking statements include, but are not limited to: the failure of demand for Redknee's products to develop as anticipated, the failure to obtain customer orders or meet customer requirements, the inability of Redknee's products to perform as expected, the inability of Redknee to achieve anticipated cost savings in the time frames and to the extent anticipated, unanticipated negative impacts on customer service or product development as a result of costs savings implemented, a material adverse change in the affairs of Redknee, and the factors discussed under the "Risk Factors" section of Redknee's most recently filed AIF which is available on SEDAR at www.sedar.com and on Redknee's web-site at www.redknee.com. Other unknown or unpredictable factors or underlying assumptions subsequently proving to be incorrect could cause actual results to differ materially from those in the forward-looking statements. Redknee does not undertake or accept any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements to reflect any change in its expectations or any change in events, conditions or circumstances on which any such statement is based, except as required by law.

REDKNEE SOLUTIONS INC. Consolidated Statements of Financial Position (Expressed in U.S. dollars)
September 30, 2017 and 2016
			2017		2016
Assets
Current assets:
	Cash and cash equivalents	$	110,891,744	$	37,080,510
	Trade accounts and other receivables		26,329,505		43,209,046
	Unbilled revenue		17,928,405		27,290,500
	Prepaid expenses		2,205,887		2,999,539
	Income taxes receivable		4,329,580		2,662,163
	Other assets		–		268,929
	Inventories		1,101,929		710,591
	Total current assets		162,787,050		114,221,278
Restricted cash			4,553,623		4,582,293
Property and equipment			3,457,611		6,262,965
Deferred income taxes			2,328,129		1,984,479
Investment tax credits			374,387		355,914
Other assets			1,353,968		1,656,971
Intangible assets			25,505,620		35,721,065
Goodwill			32,271,078		32,271,078
Total assets		$	232,631,466	$	197,056,043
Liabilities and Shareholders' Equity
Current liabilities:
	Trade payables	$	11,229,091	$	14,212,869
	Accrued liabilities		16,853,190		23,405,832
	Provisions		18,653,817		21,981,367
	Income taxes payable		322,403		724,412
	Deferred revenue		15,572,620		18,915,596
	Loans and borrowings		–		50,445,790
	Total current liabilities		62,631,121		129,685,866
Deferred revenue			894,409		639,688
Other liabilities			807,390		2,264,482
Pension and other long-term employment benefit plans			17,886,630		20,387,584
Provisions			824,626		6,683,256
Preferred shares			59,670,913		–
Series A Warrant			29,622,772		–
Deferred income taxes			120,000		687,947
Total liabilities			172,457,861		160,348,823
Shareholders' equity:
	Share capital		248,680,325		172,436,385
	Standby Warrant		997,500		–
	Treasury stock		(141,917)		(141,917)
	Contributed surplus		11,826,454		9,812,545
	Deficit		(192,727,334)		(133,954,043)
	Accumulated other comprehensive loss		(8,461,423)		(11,445,750)
	Total shareholders' equity		60,173,605		36,707,220
Total liabilities and shareholders' equity		$	232,631,466	$	197,056,043

REDKNEE SOLUTIONS INC. Consolidated Statements of Comprehensive Loss (Expressed in U.S. dollars, except per share and share amounts)
Years ended September 30, 2017 and 2016
				2017		2016
Revenue:
	Software, services and other		$	49,584,141	$	76,116,137
	Support and subscription			88,339,593		94,973,763
				137,923,734		171,089,900
Cost of revenue				58,028,200		78,494,715
Gross profit				79,895,534		92,595,185
Operating expenditures:
	Sales and marketing			19,221,936		28,668,973
	General and administrative			36,027,413		31,705,969
	Research and development			41,944,025		45,495,754
	Acquisition and related costs			–		4,838,371
	Restructuring costs			18,771,333		35,184,661
				115,964,707		145,893,728
Loss from operations				(36,069,173)		(53,298,543)
Foreign exchange loss				(3,073,512)		(4,216,967)
Other (expense) income				(1,450,928)		6,362,935
Finance income				247,339		83,058
Finance costs				(13,139,496)		(6,260,366)
Loss before income taxes				(53,485,770)		(57,329,883)
Income tax expense (recovery):
	Current			6,166,388		8,631,902
	Deferred			(878,867)		905,536
				5,287,521		9,537,438
Loss for the year				(58,773,291)		(66,867,321)
Other comprehensive income (loss):
	Items that will not be reclassified to net income:
		Actuarial gain (loss) on pension and non-pension post-employment benefit plans, net of income tax (recovery) expense of nil (2016 - nil)		2,984,327		(8,046,737)
Total comprehensive loss			$	(55,788,964)	$	(74,914,058)
Loss per common share:
	Basic		$	(0.49)	$	(0.62)
	Diluted			(0.49)		(0.62)
Weighted average number of common shares:
	Basic			120,106,596		108,481,143
	Diluted			120,106,596		108,481,143

REDKNEE SOLUTIONS INC. Consolidated Statements of Cash Flows (Expressed in U.S. dollars)
Years ended September 30, 2017 and 2016
				2017		2016
Cash provided by (used in):
Operating activities:
	Loss for the year		$	(58,773,291)	$	(66,867,321)
	Adjustments for:
		Depreciation of property and equipment		2,945,947		4,175,854
		Amortization of intangible assets		9,053,704		9,442,492
		Finance income		(247,339)		(83,058)
		Finance costs		13,139,496		6,260,366
		Income tax expense		5,287,521		9,537,438
		Unrealized foreign exchange loss		171,743		2,378,887
		Share-based compensation		1,584,208		3,150,239
		Pensions		483,373		923,366
		Provisions		(9,186,180)		15,885,750
	Change in non-cash operating working capital			14,640,785		34,795,821
				(20,900,033)		19,599,834
	Interest paid			(422,116)		(502,201)
	Interest received			284,285		86,335
	Income taxes paid			(7,931,044)		(11,805,732)
				(28,968,908)		7,378,236
Financing activities:
	Issue of preferred shares and warrant			79,861,542		–
	Issue of shares under rights offering			76,916,763		–
	Purchase of shares under NCIB			–		(2,556,966)
	Proceeds from exercise of stock options			204,733		249,768
	Interest paid on loans and borrowings			(2,330,904)		(4,109,186)
	Repayment of loans and borrowings			(52,750,000)		(6,800,000)
	Transaction costs on loans and borrowings			–		(90,496)
				101,902,134		(13,306,880)
Investing activities:
	Purchase of property and equipment			(514,519)		(2,552,199)
	Purchase of intangible assets			–		(41,318)
	Decrease in restricted cash			28,670		1,389,794
	Payment of settlement accrual and contingent consideration			–		(10,244,224)
				(485,849)		(11,447,947)
Effect of foreign exchange rate changes on cash and cash equivalents				1,363,857		(590,476)
Increase (decrease) in cash and cash equivalents				73,811,234		(17,967,067)
Cash and cash equivalents, beginning of year				37,080,510		55,047,577
Cash and cash equivalents, end of year			$	110,891,744	$	37,080,510

SOURCE Redknee Solutions Inc.

Redknee: Kristin Donelson, T: 905-625-2190, [email protected]; Investor Relations: Justin Canivet, NATIONAL | Equicom, T: 416-586-1942, [email protected]