Redline Communications Reports 2019 Third Quarter Results

TORONTO, Nov. 11, 2019 /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 third quarter ended September 30, 2019 ("Q3 2019").

Key financial highlights for Q3 2019 versus Q3 2018 include:

• Revenues of $7.1 million, up 8%
• Gross margins of 54%, up 8 percentage points
• Operating expenses of $4.1 million, up 15%
• Net loss of $0.2 million, an improvement of $0.3 million
• Adjusted EBITDA¹ loss of $0.03 million, an improvement of $0.3 million
• Bookings¹ of $5.8 million, down 25%
• Order Backlog¹ of $7.4 million, down 7%

Key financial highlights for the nine months ended September 30, 2019 versus the same period in 2018 include: 

• Revenues of $18.6 million, down 5%
• Gross margins of 54%, up 3 percentage points
• Operating expenses of $12.5 million (including severance costs of $0.6 million), up 18%
• Net loss of $2.4 million, as compared to net loss of $0.6 million
• Adjusted EBITDA loss of $1.4 million, as compared to Adjusted EBITDA of $0.1 million
• Bookings of $17.6 million, down 20%

At September 30^th, 2019, Redline held cash of $8.2 million, up $0.4 million from June 30, 2019.

Financial and Business Review

Revenues for Q3 2019 were $7.1 million, an increase of $0.5 million or 8% over the same period in 2018 and an increase of $1.4 million or 24% from Q2 2019. In both time frames revenue growth was driven largely by sales to customers in the oil and gas market as existing customers, especially those outside of North America, continue to extend their Redline networks.

Compared to Q2 2019, the Company's Q3 results reflect progress toward the goal of improved profitability. Q3 revenues grew 24% quarter over quarter and profitability improved by $0.7 million. Despite showing a small loss in the quarter, cash increased by $0.4 million quarter over quarter as a result of improved inventory management and receivable collections.

The Company continues to focus its efforts on sales to core vertical markets including oil & gas, mining and utilities. "We are pleased with our progress towards improved financial performance," stated Stephen Sorocky, Redline CEO. "We've improved our bottom line with an almost $1 million improvement in the last two quarters, and increased cash in the quarter."

Order Bookings for Q3 2019 were $5.8 million, down 25% over Q3 2018 with the decrease primarily due to a large order received from a telecom service provider in Q3 2018 that was not repeated in Q3 2019. Order backlog was $7.4 million at end of Q3 2019, down 7% from the end of Q2 as the Company focuses on reducing the time from order to shipment.

Looking forward, the Company points to the September announcement by the FCC that they have given permission for limited commercial deployments of services using CBRS spectrum. Until this announcement the lack of readily available cost-effective LTE spectrum made the deployment of private LTE networks challenging. Initial trials are underway with Redline being an early participant.

Overall gross margin for Q3 2019 was 54%, an 8 percentage point improvement over the 46% recorded in the same period in 2018. The increase reflects both the product mix, which consisted of higher margin sector controller hardware and software keys, combined with cost reduction initiatives on high-volume products achieved through re-engineering.

Overall operating expenses for the third quarter of 2019 were $4.1 million, up 15% over the same period in 2018 and down 6% over Q2 2019.  The increase in operating expenses in the third quarter 2019 over the same period in 2018 was the result of an increase in headcount and other personnel related costs.

Adjusted EBITDA loss for Q3 2019 was $0.03 million, an improvement of $0.3 million over the Adjusted EBITDA loss of $0.3 million for Q3 2018 and an improvement of $0.6 million over Q2 2019.

Net loss for the third quarter of 2019 was $0.2 million, or ($0.01) per share, as compared to net loss of $0.5 million, or ($0.03) per share, in Q3 2018 and net loss of $0.9 million, or ($0.05) per share, in Q2 2019.

Conference Call and Webcast – November 12^th, 2019 at 10:00 a.m. ET

A conference call and webcast to discuss the results has been scheduled for Tuesday, November 12^th, 2019 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 4466128. A recording of the call will be available through November 19, 2019 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 "Orders or Bookings", "Shipped or Shipments", "Backlog", "EBITDA", 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 nine months ended September 30, 2019 ("Q3 2019 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three and nine months ended September 30, 2019 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 nine months ended September 30, 2019 and the Q3 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 September 30,				Nine months ended September 30,
		2019		2018		2019		2018
Revenue		$	7,089	$	6,575	$	18,645	$	19,581
Net loss		(248)		(516)		(2,420)		(595)
Add back:
Share based payments		44		65		279		260
Depreciation and amortization		210		147		647		451
Finance (income) expense		(11)		(18)		(43)		(40)
(Gain) Loss on fair market value
of financial instruments		(27)		(11)		(10)		(11)
Foreign exchange (gain) loss		(6)		17		94		(6)
Income tax expense		5		9		12		17
Total		215		209		980		671
Adjusted EBITDA (loss)		$	(33)	$	(307)	$	(1,440)	$	76
Adjusted EBITDA margin		0%		-5%		-8%		0%

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)
		September 30, 2019		December 31, 2018
ASSETS
Current assets:
	Cash	$	8,185,608	$	9,625,845
	Trade receivables	6,543,565		9,857,857
	Other receivables	368,172		392,632
	Inventories	7,091,100		6,605,517
	Deferred cost of revenue	8,349		-
	Prepaid expenses and other deposits	340,493		308,273
		22,537,287		26,790,124
Non-current assets:
	Property, plant and equipment	646,186		800,374
	Intangible assets	1,047,508		1,277,637
	Right of use assets	865,501		-
	Other assets	75,049		73,538
		2,634,244		2,151,549
Total Assets		$	25,171,531	$	28,941,673
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Trade and other payables	$	5,447,432	$	7,415,403
	Income tax payable	10,741		10,741
	Deferred revenue	1,751,350		1,626,687
	Lease liabilities	285,582		-
	Borrowings	695,923		705,413
		8,191,028		9,758,244
Non-current liabilities:
	Lease liabilities	823,490		-
	Borrowings	-		659,522
	Other payables	-		135,184
		823,490		794,706
Total Liabilities		9,014,518		10,552,950
SHAREHOLDERS' EQUITY
Share capital		172,929,341		172,929,341
Contributed surplus		9,481,093		9,292,321
Deficit		(166,253,421)		(163,832,939)
		16,157,013		18,388,723
Total Liabilities and Equity		$	25,171,531	$	28,941,673

REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
(Unaudited, Expressed in U.S. dollars)
		Three months ended September 30,				Nine months ended September 30,
			2019		2018		2019	2018
Revenue		$	7,089,235	$	6,575,071	$	18,644,734	$	19,581,404
Cost of revenue		3,291,151		3,557,287		8,543,973		9,611,289
Gross profit		3,798,084		3,017,784		10,100,761		9,970,115
Expenses:
	Research and development	1,063,385		597,706		2,376,048		1,794,589
	Administration and finance	1,156,924		977,165		3,766,480		3,240,639
	Sales and marketing	1,588,275		1,749,347		5,563,229		4,964,627
	Operations and customer support	276,808		212,729		763,042		604,634
		4,085,392		3,536,947		12,468,799		10,604,489
Loss before undernoted items		(287,308)		(519,163)		(2,368,038)		(634,374)
Other (income) expenses:
	Finance (income) expense	(10,966)		(18,440)		(43,195)		(40,273)
	(Gain) loss on fair market value of financial instruments	(27,073)		(10,736)		(9,913)		(10,736)
	Foreign exchange (gain) loss	(6,237)		17,333		93,528		(5,589)
		(44,276)		(11,843)		40,420		(56,598)
Loss before income taxes		(243,032)		(507,320)		(2,408,458)		(577,776)
Income tax expense		4,967		9,111		12,024		17,426
Net loss and total comprehensive loss		$	(247,999)	$	(516,431)	$	(2,420,482)	$	(595,202)
Loss per share
	Basic and diluted	$	(0.01)	$	(0.03)	$	(0.14)	$	(0.03)

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, 2018		$	172,929,341	$	9,155,798	$	(163,308,323)	$	18,776,816
	IFRS 15 transition adjustment	-		-		(136,000)		(136,000)
	Net loss	-		-		(595,202)		(595,202)
	Stock option expense	-		115,639		-		115,639
Balance at September 30, 2018		$	172,929,341	$	9,271,437	$	(164,039,525)	$	18,161,253
Balance at January 1, 2019		$	172,929,341	$	9,292,321	$	(163,832,939)	$	18,388,723
	Net loss	-		-		(2,420,482)		(2,420,482)
	Stock option expense	-		188,772		-		188,772
Balance at September 30, 2019		$	172,929,341	$	9,481,093	$	(166,253,421)	$	16,157,013

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,
			2019		2018		2019		2018
Cash flows from (used in) operating activities:
	Net loss		$	(247,999)	$	(516,431)	$	(2,420,482)	$	(595,202)
	Adjustments to reconcile net loss to net cash from operating activities:
		Finance (income) expense	(10,966)		(18,440)		(43,195)		(40,273)
		Depreciation and amortization of non-current assets	210,422		146,886		647,741		451,337
		Gain on disposal of assets	(1,801)		-		(1,801)		-
		Stock option expense	38,009		31,225		188,772		115,639
		Foreign exchange (gain) loss on cash held in foreign currency	17,385		(20,882)		(29,800)		59,536
		Foreign exchange (gain) loss on borrowings and lease liabilities	(21,561)		23,935		75,413		(49,187)
		IFRS 15 transition adjustment	-		-		-		(136,000)
			(16,511)		(353,707)		(1,583,352)		(194,150)
	Change in non-cash operating assets and liabilities:
		(Increase) decrease in deferred cost of revenue	(3,155)		-		(8,349)		-
		Increase (decrease) in deferred revenue	341,324		166,837		124,663		(18,004)
		Change in other non-cash operating assets and liabilities	113,864		(1,422,108)		999,514		(805,805)
Cash from (used in) operating activities			435,522		(1,608,978)		(467,524)		(1,017,959)
Cash flows used in investing activities:
	Acquisition of property, plant and equipment		(15,739)		(76,063)		(112,752)		(196,255)
	Proceeds on sale of property, plant and equipment		25,812		-		25,812		-
	Acquisition of intangible assets		-		(16,948)		(14,100)		(210,394)
Cash from (used in) investing activities			10,073		(93,011)		(101,040)		(406,649)
Cash flows used in financing activities:
	Interest income		31,331		33,759		109,876		90,945
	Interest expense		(13,250)		(847)		(41,041)		(2,472)
	Repayment of borrowings		-		-		(735,505)		(801,565)
	Repayment of lease liabilities		(64,136)		-		(234,803)		-
Cash from (used in) financing activities			(46,055)		32,912		(901,473)		(713,092)
Foreign exchange gain (loss) on cash held in foreign currency			(17,385)		20,882		29,800		(59,536)
Increase (decrease) in cash			382,155		(1,648,195)		(1,440,237)		(2,197,236)
Cash, beginning of the period			7,803,453		11,411,021		9,625,845		11,960,062
Cash, end of the period			$	8,185,608	$	9,762,826	$	8,185,608	$	9,762,826

SOURCE Redline Communications Group Inc.

Stephen Sorocky, Chief Executive Officer, [phone], [email protected]; Joan Ritchie, Chief Financial Officer, [phone], [email protected]

Related Links

http://www.redlinecommunications.com