Redline Communications Reports 2019 Fourth Quarter and Year End Results

TORONTO, March 30, 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 fourth quarter and the year ended December 31, 2019.

Key financial highlights for the three months ended December 31, 2019 ("Q4 2019") versus Q4 2018 include:

• Revenue of $5.0 million, down 33%
• Gross margins of 59%, up 4 percentage points
• Operating expenses of $4.1 million, down 1%
• Net loss of $1.3 million, as compared to net profit of $0.2 million
• Adjusted EBITDA¹ loss of $0.9 million, as compared to Adjusted EBITDA of $0.2 million
• Bookings¹ of $6.3 million, down 42%
• Cash balance of $6.5 million, down $1.7 million from September 30, 2019
• Order Backlog¹ was $8.5 million, up 16% from September 30, 2019

Key financial highlights for the year ended December 31, 2019 versus 2018 include: 

• Revenue of $23.7 million, down 13%
• Gross margins of 55%, up 3 percentage points
• Operating expenses of $16.6 million including severance costs of $0.8 million, up 12%
• Net loss of $3.7 million, as compared to net loss of $0.4 million
• Adjusted EBITDA loss of $2.3 million, as compared to Adjusted EBITDA of $0.3 million
• Bookings of $23.9 million, down 28%
• Cash balance of $6.5 million, down $3.1 million from December 31, 2018
• Order Backlog was $8.5 million, down 15% from December 31, 2018

Financial and Business Review

Revenue for the fourth quarter and year ended December 31, 2019 was $5.0 million and $23.7 million, down 33% and 13%, respectively, over the same periods in 2018. In both time frames, the revenue decrease was driven largely by lower sales to oil & gas customers in South America, partially offset by an increase in sales in the Middle East.

Order Bookings for the fourth quarter and year ended December 31, 2019 were $6.3 million and $24.0 million, down 42% and 28%, respectively, over the same periods in 2018. The decrease was primarily due to large multi-year contracts with oil & gas and military customers signed in late 2018 not repeated in 2019.

"We are focused on diversifying our product development towards industrial applications of 5G in our iLTE products as well as our next generation of Virtual Fiber supporting our core markets – oil & gas, mining and utilities where our rugged products are well suited," stated Stephen Sorocky, Redline CEO. "This won't happen overnight, and these are uncertain times, but we are seeing early signs of market momentum. We are pleased to see new customer additions and repeat orders from existing clients, including in the energy sector. As all companies today, we are closely monitoring the impacts of the COVID-19 pandemic and the recent decline in oil prices on our business and we are proactively taking measures to mitigate any effects upon our business. We continue to support our customers operations while ensuring the safety of our staff."

Gross margin for the fourth quarter and year ended December 31, 2019 was 59% and 55%, 4 percentage point and 3 percentage point improvements, respectively, over the same periods in 2018. The improvements reflect the Company's success in lowering supply chain costs.

Overall operating expenses for the fourth quarter of 2019 were $4.1 million, essentially unchanged over the same period in 2018 and over Q3 2019. Overall operating expenses for 2019 were $16.6 million, up 12% over 2018, primarily a result of increase in personnel costs (mainly in research and development,) and severance costs ($0.8 million) associated with organizational changes implemented by the new executive team.  Additionally, the Company has closed its Santa Clara office in 2019 as the technical capability there has been transferred to the Markham engineering team.

Net loss for the Q4 2019 was $1.3 million, or ($0.08) per share, as compared to net profit of $0.2 million, or $0.01 per share, for Q4 2018. Net loss for 2019 was $3.7 million, or ($0.22) per share, as compared to net loss of $0.4 million, or ($0.02) per share, for 2018.

Adjusted EBITDA loss for Q4 2019 was $0.9 million, as compared to Adjusted EBITDA of 0.2 million for Q4 2018. Adjusted EBITDA loss for 2019 was $2.3 million, as compared to Adjusted EBITDA of 0.3 million for 2018.

Conference Call and Webcast – March 31, 2020 at 10:00 a.m. ET

A conference call and webcast to discuss the results has been scheduled for Tuesday, March 31, 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 8782527. A recording of the call will be available through April 6, 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 months and year ended December 31, 2019 ("Q4 2019 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three months and year ended December 31, 2019 can be found in the consolidated 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 consolidated financial statements of the Company for the three months and year ended December 31, 2019 and the Q4 2019 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 December 31,				Year ended December 31,
		2019		2018		2019		2018
Revenue		$	5,014	$	7,522	$	23,659	$	27,103
Net profit (loss)		(1,324)		206		(3,745)		(389)
Add back:
	Share based payments	42		45		322		305
	Depreciation and amortization	252		154		900		605
	Finance (income) expense	(1)		(19)		(44)		(58)
	Gain on fair market value of financial instruments	(49)		(130)		(59)		(141)
	Foreign exchange (gain) loss	29		(65)		123		(71)
	Income tax expense	167		10		179		27
	Total	440		(5)		1,422		667
Adjusted EBITDA (loss)		$	(884)	$	201	$	(2,323)	$	278
Adjusted EBITDA margin		-18%		3%		-10%		1%

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.
Consolidated Statements of Financial Position
(Expressed in U.S. dollars)
		December 31, 2019		December 31, 2018
ASSETS
Current assets:
	Cash	$	6,507,606	$	9,625,845
	Trade receivables	7,089,043		9,857,857
	Other receivables	260,216		392,632
	Inventories	7,707,578		6,605,517
	Deferred cost of revenue	6,910		-
	Prepaid expenses and other deposits	285,519		308,273
		21,856,872		26,790,124
Non-current assets:
	Property, plant and equipment	999,435		800,374
	Intangible assets	1,373,526		1,277,637
	Right of use assets	798,080		-
	Other assets	76,284		73,538
		3,247,325		2,151,549
Total Assets		$	25,104,197	$	28,941,673
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Trade and other payables	$	6,035,496	$	7,415,403
	Income tax payable	12,398		10,741
	Deferred revenue	1,966,282		1,022,252
	Lease liabilities	277,945		-
	Borrowings	716,832		705,413
		9,008,953		9,153,809
Non-current liabilities:
	Deferred revenue	429,414		604,435
	Lease liabilities	788,572		-
	Borrowings	-		659,522
	Other payables	-		135,184
		1,217,986		1,399,141
Total Liabilities		10,226,939		10,552,950
SHAREHOLDERS' EQUITY
Share capital		172,929,341		172,929,341
Contributed surplus		9,525,694		9,292,321
Deficit		(167,577,777)		(163,832,939)
		14,877,258		18,388,723
Total Liabilities and Equity		$	25,104,197	$	28,941,673

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Comprehensive Income (Loss)
(Expressed in U.S. dollars)
		Three months ended December 31,						Year ended December 31,
		2019				2018			2019			2018
Revenue		$	5,014,264		$	7,522,023		$	23,658,998		$	27,103,427
Cost of revenue		2,077,014			3,373,562			10,620,987			12,984,851
Gross profit		2,937,250			4,148,461			13,038,011			14,118,576
Expenses:
	Research and development	1,032,259			739,306			3,408,307			2,533,895
	General and administrative	1,380,234			1,065,240			5,146,714			4,305,879
	Sales and marketing	1,453,002			2,112,638			7,016,231			7,077,265
	Operations and customer support	250,081			228,973			1,013,123			833,607
		4,115,576			4,146,157			16,584,375			14,750,646
Profit (loss) before undernoted items		(1,178,326)			2,304			(3,546,364)			(632,070)
Other (income) expenses:
	Finance (income) expense	(949)			(18,650)			(44,144)			(58,923)
	Gain on fair market value of financial instruments	(49,118)			(130,224)			(59,031)			(140,960)
	Foreign exchange (gain) loss	29,390			(65,357)			122,918			(70,946)
		(20,677)			(214,231)			19,743			(270,829)
Profit (loss) before income taxes		(1,157,649)			216,535			(3,566,107)			(361,241)
Income tax expense		166,707			9,949			178,731			27,375
Net profit (loss) and total comprehensive income (loss)		$	(1,324,356)		$	206,586		$	(3,744,838)		$	(388,616)
Earnings (loss) per share
	Basic and diluted	$	(0.08)		$	0.01		$	(0.22)		$	(0.02)

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Changes in Equity
(Expressed in U.S. dollars)
			Share capital		Contributed surplus		Deficit		Total
Balance at January 1, 2018			$	172,929,341	$	9,155,798	$	(163,308,323)	$	18,776,816
	IFRS 15 transition adjustment		-		-		(136,000)		(136,000)
	Net loss		-		-		(388,616)		(388,616)
	Stock option expense		-		136,523		-		136,523
Balance at December 31, 2018			$	172,929,341	$	9,292,321	$	(163,832,939)	$	18,388,723
	Net loss		-		-		(3,744,838)		(3,744,838)
	Stock option expense		-		233,373		-		233,373
Balance at December 31, 2019			$	172,929,341	$	9,525,694	$	(167,577,777)	$	14,877,258

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
				Three months ended December 31,					Year ended December 31,
				2019		2018			2019		2018
Cash flows from (used in) operating activities:
	Net profit (loss)			$	(1,324,356)	$	206,586		$	(3,744,838)	$	(388,616)
	Adjustments to reconcile net profit (loss) to net cash from operating activities:
		Finance (income) expense		(949)		(18,650)			(44,144)		(58,923)
		Depreciation and amortization of non-current assets		252,453		153,650			900,194		604,987
		Stock option expense		44,601		20,884			233,373		136,523
		Foreign exchange (gain) loss on cash held in foreign currency		(19,119)		66,182			(48,919)		125,718
		Foreign exchange (gain) loss on borrowings and lease liabilities		34,171		(73,042)			109,584		(122,229)
		Loss on disposal of assets		17,706		-			15,905		-
		IFRS 15 transition adjustment		-		-			-		(136,000)
				(995,493)		355,610			(2,578,845)		161,460
	Change in non-cash operating assets and liabilities:
		(Increase) decrease in deferred cost of revenue		1,439		-			(6,910)		-
		Increase (decrease) in deferred revenue		644,346		368,816			769,009		350,812
		Change in other non-cash operating assets and liabilities		(410,540)		(551,069)			588,974		(1,356,874)
Cash from (used in) operating activities				(760,248)		173,357			(1,227,772)		(844,602)
Cash flows used in investing activities:
	Acquisition of property, plant and equipment			(436,807)		(30,611)			(549,559)		(226,866)
	Proceeds on sale of property, plant and equipment			14,800		-			40,612		-
	Acquisition of intangible assets			(460,000)		(246,285)			(474,100)		(456,679)
Cash from (used in) investing activities				(882,007)		(276,896)			(983,047)		(683,545)
Cash flows used in financing activities:
	Interest income			19,963		34,896			129,839		127,777
	Interest expense			(11,853)		(2,156)			(52,894)		(6,564)
	Repayment of borrowings			-		-			(735,505)		(801,565)
	Repayment of lease liabilities			(62,976)		-			(297,779)		-
Cash from (used in) financing activities				(54,866)		32,740			(956,339)		(680,352)
Foreign exchange gain (loss) on cash held in foreign currency				19,119		(66,182)			48,919		(125,718)
Increase (decrease) in cash				(1,678,002)		(136,981)			(3,118,239)		(2,334,217)
Cash, beginning of the period				8,185,608		9,762,826			9,625,845		11,960,062
Cash, end of the period				$	6,507,606	$	9,625,845		$	6,507,606	$	9,625,845

SOURCE Redline Communications Group Inc.

Redline Contact(s): Stephen Sorocky, Chief Executive Officer, [phone], [email protected]; Philip Jones, Chief Financial Officer, [phone], [email protected]

Related Links

http://www.redlinecommunications.com