Redline Communications Reports 2013 Third Quarter Financial Results, Provides Update on Previously Announced Potential Acquisitions

TORONTO, Nov. 14, 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 and nine months ended September 30, 2013.

Financial summary for the three months ended September 30, 2013 (Q3-2013):

• Order Bookings² of $6.3 million
  
  
• Overall revenue was $7.1 million
  
  
• Overall gross margin of 69%
  
  
• Adjusted EBITDA² loss of $1.5 million
  
  
• Completed a Cdn. $10.6 million private placement financing
  
  
• Cash net of bank indebtedness of $14.3 million

Financial Review

Order Bookings² for Q3-2013 were $6.3 million for Q3-2013, down 58% over the same period in 2012. The shortfall was largely due to fewer orders from the energy sector where orders were estimated by Management to be approximately 24% of total Bookings.

"We are seeing strong growth in our sales pipeline and we are not losing business to competitors," said Robert Williams, interim CEO of Redline Communications. "While our excitement about the potential in the energy market is greater than ever, the timing of the growing number of potential orders in our pipeline is dependent on the buying cycles of these large companies."

Order Backlog² at September 30, 2013 was $20.1 million, an increase of $4.0 million over the September 30, 2012 backlog of $16.1 million.

Revenue for Q3-2013 was $7.1 million, down 13% from the $8.1 million reported for the same period in 2012. Lower revenue was related to the timing of the roll-out of two large contracted oil & gas projects underway in the Middle East - both are expected to continue to ship in the fourth quarter of 2013 and into 2014.

Gross margin on core (BWI) product sales for Q3-2013 was very strong at 72%, an increase of 15 percentage points over the same period last year. Overall gross margin was 69%, an increase of 13 percentage points over 56% reported in the same period in 2012. Higher overall margins in Q3-2013 were due to an increased percentage of higher margin software sales associated with the BWI product line, an increase in revenue from high margin professional services, and a reduction in the amount of lower margin "other" products that were included in revenue during the same period last year.

Overall operating expenses for Q3-2013 were in line with management's expectations at $6.8 million, an increase of 13% over $6.0 million reported for the same period in 2012, and relatively unchanged from Q2-2013.

The Adjusted EBITDA² loss for Q3-2013 was $1.5 million, as compared to the adjusted EBITDA² loss of $1.1 million for the same period in 2012.

Net Loss for Q3-2013 was $1.2 million, or ($0.08) per share, compared to a net loss of $5.2 million, or ($0.55) per share for the same period in 2012.

During Q3-2012, the Company completed a bought deal private placement financing for aggregate gross proceeds of Cdn $10.6 million, bringing Redline's current cash position to over $17.6 million with cash net of bank indebtedness of $14.3 million.

On June 20, 2013 Redline announced that it had executed two separate non-binding letters of intent to acquire two companies. Following due diligence, Redline has now concluded that it will not pursue these acquisitions.

Significant company milestones for Q3- 2013:

• Key Customer Wins:
• Redline won a strategic managed services contract with a long term Middle East oil & gas client, demonstrating additional value beyond network infrastructure. Part of this contract was to develop a long term plan to expand this client's Redline network.
• Service Provider revenue continues to be strong, especially in the Middle East.
• After a successful pilot program, one of the top 10 oil & gas producers in the world, a "supermajor", has standardized on Redline for their oilfield networks worldwide, and is now including Redline in their corporate field telecom shared infrastructure architecture.
• Product Milestones:
• Redline announced that its wireless broadband system for the sub-700 MHz frequency bands - the so-called television white space - is the fastest white space technology with the longest range to be certified by both the U.S. Federal Communications Commission (FCC) and Industry Canada.
• Management and Board Changes:
• Redline announced the appointment of John Wilson to its board of directors. Mr. Wilson has spent the past 32 years working at the intersection of technology and the oil & gas industry and is president and chief executive officer of Quantapoint Inc, a technology-driven solutions provider to the oil & gas industry.
• Redline announced that Eric Melka, Redline's CEO, would be taking a medical leave of absence to address a back injury and subsequent to the end of the quarter, announced that Mr. Melka would not be returning to his duties as CEO or Board Member. Robert Williams, President Middle East and Africa (MENA) for Redline, has assumed the role of interim CEO.

Conference Call and Webcast - November 15th, 2013 at 10:00 a.m. ET
A conference call and webcast to discuss the results has been scheduled for November 15^th, 2013 at 10:00 a.m. Eastern Time. To participate, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call, and provide passcode 90027350.  A recording of the call will be available through November 30, 2013. To listen to the rebroadcast please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 90027350.  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 oilfields 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 & 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 uses non-IFRS measures to assess its operating performance. These include but are not limited to "Orders or Bookings", "Shipped or Shipments", "Backlog", "EBITDA", "Adjusted EBITDA", "Income before non-operating items", "EPS excluding the non-cash expense relating to the fair market adjustment on the Debenture", and "Amortized Deferred Revenue". Securities regulations require that companies caution readers that earnings and other measures adjusted to a basis other than IFRS do not have standardized meanings and are unlikely to be comparable to similar measures used by other companies. Accordingly, they should not be considered in isolation. Further information including definitions of these categories can be found in the Company's Management Discussion and Analysis for the three months and nine months ended September 30, 2013 ("Q3 2013 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the results for the three and nine  months ended September 30, 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 and nine months ended September 30, 2013 and the Q3 2013 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.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)
					September 30, 2013			December 31, 2012
ASSETS
Current assets:
	Cash			$	17,607,660		$	8,286,732
	Trade receivables				12,388,761			12,639,570
	Other receivables				1,414,889			571,382
	Inventories				5,951,883			6,973,414
	Deferred cost of revenue				87,888			905,250
	Prepaid expenses and other deposits				945,289			1,061,622
					38,396,370			30,437,970
Non-current assets:
	Property, plant and equipment				1,834,406			875,352
	Intangible assets				80,090			107,593
	Other assets				102,174			99,180
					2,016,670			1,082,125
Total Assets				$	40,413,040		$	31,520,095
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Bank indebtedness			$	3,353,590		$	2,296,855
	Trade and other payables				5,928,243			4,249,973
	Income tax payable				142,953			292,927
	Deferred revenue				1,351,683			2,796,497
	Borrowings				5,091,321			5,116,527
					15,867,790			14,752,779
Non-current liabilities
	Other payables				896,861			418,622
	Other financial liability				375,657			-
	Convertible debenture (principal and interest)				295,796			1,100,788
	Fair market value adjustment on debenture				3,066,951			8,357,396
					4,635,265			9,876,806
Total Liabilities					20,503,055			24,629,585
SHAREHOLDERS' EQUITY
Share capital					168,903,267			152,123,803
Share purchase loan					(365,780)			(365,780)
Warrant					310,000			310,000
Contributed surplus					8,845,609			8,361,465
Deficit					(157,783,111)			(153,538,978)
					19,909,985			6,890,510
Total liabilities and equity				$	40,413,040		$	31,520,095

 

REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Comprehensive Loss
(Unaudited, expressed in U.S. dollars)
			Three months ended September 30,					Nine months ended September 30,
			2013		2012			2013		2012
Revenue		$	7,068,730	$	8,145,984		$	24,015,729	$	38,033,918
Cost of revenue			2,157,280		3,606,736			9,330,462		17,131,369
Gross profit			4,911,450		4,539,248			14,685,267		20,902,549
Expenses:
	Research and development		1,657,640		1,426,750			4,842,290		4,577,763
	Finance and administration		2,151,735		1,841,489			6,074,321		5,397,817
	Sales and marketing		2,592,551		2,277,960			8,034,017		7,083,711
	Operations and customer support		390,616		441,107			1,154,250		1,375,796
			6,792,542		5,987,306			20,104,878		18,435,087
(Loss) profit before other expenses			(1,881,092)		(1,448,058)			(5,419,611)		2,467,462
Other expenses
	Finance expense		65,946		41,267			233,074		214,758
	(Gain) loss on fair market value of financial instruments		(955,713)		3,192,165			(1,476,534)		5,840,382
	Foreign exchange loss (gain)		226,215		480,272			(129,538)		317,272
			(663,552)		3,713,704			(1,372,998)		6,372,412
Loss before income taxes			(1,217,540)		(5,161,762)			(4,046,613)		(3,904,950)
Income tax expense			24,456		-			197,520		-
Net loss and total comprehensive loss		$	(1,241,996)	$	(5,161,762)		$	(4,244,133)	$	(3,904,950)
Loss per share
	Basic	$	(0.08)	$	(0.55)		$	(0.30)	$	(0.42)
	Diluted	$	(0.08)	$	(0.55)		$	(0.30)	$	(0.42)

 

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	-	-	-	-	(3,904,950)	(3,904,950)
	Shares issued on   conversion of debenture	205,450	-	-	-	-	205,450
	Shares issued on   conversion of warrants	66,434	-	-	-	-	66,434
	Exercise of options	124,273	-	-	(70,164)	-	54,109
	Share-based payments	-	-	-	648,125	-	648,125
Balance at September 30, 2012		$ 134,732,180	$ (365,780)	$ 310,000	$ 8,213,467	$  (147,942,386)	$ (5,052,519)
Balance at December 31, 2012		$ 152,123,803	$ (365,780)	$ 310,000	$ 8,361,465	$  (153,538,978)	$ 6,890,510
	Net loss	-	-	-	-	(4,244,133)	(4,244,133)
	Shares issued on   conversion of debenture	2,132,243	-	-	-	-	2,132,243
	Shares issued on   conversion of warrants	5,334,306	-	-	-	-	5,334,306
	Shares issued on   private placement	8,835,392	-	-	-	-	8,835,392
	Exercise of options	477,523	-	-	(209,795)	-	267,728
	Share-based payments	-	-	-	693,939	-	693,939
Balance at September 30, 2013		$ 168,903,267	$ (365,780)	$ 310,000	$ 8,845,609	$  (157,783,111)	$ 19,909,985

 

REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited, expressed in U.S. dollars)
					Three months ended September 30,					Nine months ended September 30,
					2013		2012			2013		2012
Cash flows from operating activities:
	Net loss			$	(1,241,996)	$	(5,161,762)		$	(4,244,133)		$ (3,904,950)
	Adjustments to reconcile net (loss) profit to net cash from operating activities
		Finance expense			65,946		41,267			233,074		214,758
		Depreciation and amortization of non-current assets			105,701		104,508			274,839		311,396
		Loss on disposal of asset			28,963		-			28,963		-
		Recognition of share based payments			209,413		296,073			693,939		753,851
		Foreign exchange loss (gain) on cash held in foreign currency			42,079		(6,651)			170,636		(47,768)
		Foreign exchange loss (gain) on borrowings			187,490		460,173			(376,090)		252,713
		(Gain) loss on fair market value of financial instruments			(955,713)		3,192,165			(1,476,534)		5,840,382
		Income tax			24,456		-			197,520		-
					(1,533,661)		(1,074,227)			(4,497,786)		3,420,382
	Change in non-cash operating assets and liabilities
		(Increase) decrease in deferred cost of revenue			(87,888)		921,387			817,362		6,973,135
		Decrease (increase) in deferred revenue			350,100		(1,821,965)			(1,444,814)		(13,431,515)
		Change in other non-cash operating assets and liabilities			1,663,395		382,651			2,360,985		(955,291)
Cash from (used in) operating activities					391,946		(1,592,154)			(2,764,253)		(3,993,289)
Cash flows from investing activities:
	Acquisition of property, plant and equipment				(832,276)		(38,263)			(1,202,398)		(102,549)
	Acquisition of intangible assets				(16,855)		(4,635)			(32,955)		(54,711)
	Redemption of investments				-		-			-		92,144
Cash (used in) investing activities					(849,131)		(42,898)			(1,235,353)		(65,116)
Cash flows from financing activities:
	Finance costs				(14,903)		34,694			(77,449)		26,267
	Proceeds from exercise of options				88,841		35,153			267,728		54,109
	Proceeds from conversion of warrants				-		31,493			2,931,614		31,493
	(Payment) proceeds from bank indebtedness				(952,007)		-			1,056,735		-
	Proceeds from private placement				9,322,340		-			9,322,340		-
	Principal payment of obligations under finance leases				(9,798)		-			(9,798)		-
Cash from financing activities					8,434,473		101,340			13,491,170		111,869
Foreign exchange (loss) gain on cash held in foreign currency					(42,079)		6,651			(170,636)		47,768
Increase (decrease) in cash					7,935,209		(1,527,061)			9,320,928		(3,898,768)
Cash, beginning of the period					9,672,451		2,279,577			8,286,732		4,651,284
Cash, end of the period				$	17,607,660	$	752,516		$	17,607,660	$	752,516
Cash				$	17,607,660	$	752,516		$	17,607,660	$	752,516
Bank indebtedness					(3,353,590)		-			(3,353,590)		-
Cash net of bank indebtedness				$	14,254,070	$	752,516		$	14,254,070	$	752,516

 

SOURCE: Redline Communications Group Inc.

Redline Contact(s)
Lynda Partner
Chief Communications Officer
[phone]
[email protected]

George Kypreos
Chief Financial Officer
[phone]
[email protected]

Cory Pala
Investor Relations
[phone]
[email protected]