Redline Communications Reports 2021 Second Quarter Results

Q2 2021 Revenue grows by 27% sequentially with gross margin of 61%

TORONTO, Aug. 12, 2021 /CNW/ - Redline Communications (www.rdlcom.com) Group Inc. (TSX: RDL), the creator of powerful wireless data infrastructure for mission-critical applications in challenging locations, today announced operating results (in US dollars unless otherwise noted) for the second quarter ended June 30, 2021.

Revenue for the second quarter ended June 30, 2021 ("Q2 2021") was $4.7 million, up 15% from Q2 2020 and up 27% from Q1 2021. Order Bookings¹ for Q2 2021 were $5.3 million, up 15% compared to same quarter in the previous period and up 60% quarter over quarter. Order Backlog¹ for the quarter ended June 30, 2021 was $11.8 million, up 4% from Q1 2021.

"In Q2 20201, Redline saw an increase in orders from customers across all core vertical markets" stated Ronan McGrath, Redline's acting CEO and member of the Board of Directors.  "Pent up demand from ongoing sales efforts during COVID-19 restrictions is now being turned into orders and shipments as the impact of the global pandemic diminishes" he added. "The Middle East and South America, both key markets for Redline, were especially active in the quarter with orders coming from a broad range of customers.  I am pleased with the continued success of our strategy of driving revenue through our distribution channels since 2019, when it was 14% of revenues, increasing to 25% in 2020 and now at 30% year to date.  Driving sales through our distribution channels is also key in reducing the amount of inventory on hand."

Key financial highlights for the three months ended June 30, 2021 ("Q2 2021") include:

	Q2 2021	Q2 2020	Increase (decrease)	% Change
Revenue	$4.7 M	$4.1 M	$0.6 M	15%
Gross profit margin %	61%	58%	3%
Operating expenses	$3.9 M	$3.8 M	$0.1 M	2%
Net loss	$0.7 M	$0.9 M	$0.2 M	18%
Adjusted EBITDA loss^1	$0.7 M	$1.1 M	$0.4 M	40%
CEWS benefit	$0.4 M	$0.7 M	($0.3 M)	(47%)
Bookings^1	$5.3 M	$4.6 M	$0.7 M	15%
	June 30, 2021	March 31, 2021	Increase (decrease)	% Change
Cash	$2.7 M	$4.3 M	($1.6 M)	(37%)
Inventory	$5.1 M	$6.0 M	($0.9 M)	(15%)
Order Backlog^1	$11.8 M	$11.3 M	$0.5 M	4%

Key financial highlights for the six months ended June 30, 2021 include:

	2021-06 YTD	2020-06 YTD	Increase (decrease)	% Change
Revenue	$8.5 M	$8.6 M	($0.1 M)	(1%)
Gross profit margin %	64%	60%	4%
Operating expenses	$7.8 M	$7.9 M	($0.1 M)	(2%)
Net loss	$1.9 M	$1.9 M	Unchanged
Adjusted EBITDA loss^1	$1.7 M	$2.1 M	$0.4 M	16%
CEWS benefit	$0.67 M	$0.71 M	($0.04 M)	(5%)
Bookings^1	$8.6M	$10.5 M	($1.9 M)	(18%)
	June 30, 2021	December 31, 2020	Increase (decrease)	% Change
Cash	$2.7 M	$5.3 M	($2.6 M)	(49%)
Inventory	$5.1 M	$5.5 M	($0.4 M)	(8%)
Order Backlog^1	$11.8 M	$11.8 M	Unchanged

1 See Definitions of non-GAAP measures below

Financial and Business Review

Due to consistent sequential build of higher margin from recurring revenue streams over the previous ten quarters, the company achieved gross margins of 61% in the quarter, an increase of 3 percentage points compared to Q2 2021.

Operating expenses for Q2 2021 were $3.9 million, down 2% over Q2 2020. The decline year-over-year was mainly driven by lower severance costs incurred in the current year, compared to the same period in the prior year, combined with government grants in support of R&D activities.  These decreases are partially offset by increases in the Research and Development and Operations functions as the company moves forward with new product development and new product launches.

In the quarter, the Company continued to participate in the Canada Emergency Wage Subsidy ("CEWS") program recognizing a benefit of $0.4 million which is recorded within other income.

Net loss for Q2 2021 was $0.7 million, an improvement of $0.2 million over Q2 2020.  Adjusted EBITDA loss for Q2 2021 was $0.7 million, as compared to a loss of $1.1 million in Q2, 2020.

Cash Balance,  at the end of Q2 2021 was $2.7 million, a decrease of $2.6 million compared to Q4 2020. The decline is cash balances is the result of operating losses and increases in working capital.   As at August 5, 2021 the cash balance is in excess of $3.0 million

On March 31, 2021 Redline announced that the Canadian Government had approved an investment into Redline via their Strategic Innovation Fund (SIF). This investment brings up to CDN $14 million into the Company, earmarked for the development of an innovative industrial 5G network solution.  Under the terms of the agreement, the fund will reimburse 41.52% of eligible R&D costs (labor, equipment and materials) incurred by Redline. The first investment submission of approximately USD$460K for the period between August 2020 and March 31, 2021 received by Redline in Q2 2021 and going forward, payments to Redline from the fund will be made quarterly. 

Conference Call and Webcast – August 12, 2021 at 10:00 a.m. ET

A conference call and webcast to discuss the results has been scheduled for Thursday, August 12, 2021 at 10:00 a.m. Eastern Time. To participate, please dial 1-416-764-8659 approximately 10 minutes before the conference call and provide passcode 90193733. A recording of the call will be available through August 19, 2021 on Redline's website or by dialing 1-416-764-8677 and entering the passcode 193733.

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 certain non-IFRS metrics, including "Bookings", "Order Backlog","Adjusted EBITDA" and "Adjusted EBITDA Margin". Further information including definitions of these measures and a reconciliation to their closest IFRS measure, if applicable, can be found in the Company's Management Discussion and Analysis for the three and six months  ended June 30, 2021 ("Q2 2021 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three and six months ended June 30, 2021 can be found in the condensed consolidated  statement of financial position, statement of comprehensive 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 financial statements of the Company for the three and six months ended June 30, 2021 and the Q2 2021 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 June 30,
		(unaudited)
(in thousands)		2021		2020
Revenue		$	4,754	$	4,123
Net profit (loss)		(704)		(857)
Add back:
	Share based payments	49		40
	Depreciation and amortization	255		268
	Canada Emergency Wage Subsidy	(376)		(706)
	Finance (income) expense	8		8
	(Gain) loss on fair market value of financial instruments	46		45
	Foreign exchange (gain) loss	16		64
	Income tax expense	38		26
	Total	36		(255)
Adjusted EBITDA (loss)		$	(668)	$	(1,112)
Adjusted EBITDA margin		-14%		-27%

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)
			Note		June 30, 2021		December 31, 2020
ASSETS
Current assets:
	Cash			$	2,705,065	$	5,334,486
	Trade receivables		3		5,208,533		4,237,183
	Other receivables				270,559		180,881
	Inventories		4		5,071,875		5,492,931
	Deferred cost of revenue		11		25		498
	Prepaid expenses and other deposits				480,033		431,559
					13,736,090		15,677,538
Non-current assets:
	Property, plant and equipment		5		779,155		901,234
	Intangible assets		6		973,109		1,148,050
	Right of use assets		7		465,124		565,213
	Other assets				87,108		65,223
					2,304,496		2,679,720
Total Assets				$	16,040,586	$	18,357,258
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
	Trade and other payables		10	$	3,472,858	$	3,944,374
	Income tax payable				29,459		29,459
	Deferred revenue		11		1,697,196		2,057,944
	Lease liabilities		12		258,819		250,068
	Borrowings		13		-		-
					5,458,332		6,281,845
Non-current liabilities:
	Deferred revenue		11		354,901		364,391
	Lease liabilities		12		413,339		554,396
	Other financial liabilties -   SIF Loan		13		172,161		-
	Deferred Grant Income -  SIF Loan		13		281,389		-
					1,221,790		918,787
Total Liabilities					6,680,122		7,200,632
SHAREHOLDERS' EQUITY
Share capital			8		172,929,341		172,929,341
Contributed surplus					9,790,889		9,704,769
Deficit					(173,359,766)		(171,477,484)
					9,360,464		11,156,626
Total Liabilities and Equity				$	16,040,586	$	18,357,258
See accompanying notes to the interim condensed consolidated financial statements

REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Comprehensive Loss
(Unaudited, Expressed in U.S. dollars)
					Three months ended June 30,
					2021		2020
Revenue			15	$	4,754,178	$	4,123,330
Cost of revenue					1,864,883		1,752,201
Gross profit					2,889,295		2,371,129
Expenses:
	Research and development				1,216,628		1,045,544
	General and administrative				1,167,926		1,140,250
	Sales and marketing				1,175,946		1,397,867
	Operations and customer support				300,511		207,702
					3,861,011		3,791,363
Loss before undernoted items					(971,716)		(1,420,234)
Other (income) expenses:
	Canada Emergency Wage Subsidy				(375,584)		(705,954)
	Finance (income) expense		16		7,831		7,730
	Loss (Gain)  on fair market value of financial instruments				45,963		44,868
	Foreign exchange loss (gain)				16,360		63,938
					(305,430)		(589,418)
Loss before income taxes					(666,286)		(830,816)
Income tax expense					37,993		26,246
Net loss and total comprehensive loss				$	(704,279)	$	(857,062)
Loss per share
	Basic and diluted		9	$	(0.04)	$	(0.05)
See accompanying notes to the interim condensed consolidated financial statements

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, 2020		$	172,929,341	$	9,525,694	$	(167,577,777)		14,877,258
	Net loss		-		-		(1,901,186)		(1,901,186)
	Stock option expense		-		87,008		-		87,008
Balance at June 30, 2020		$	172,929,341	$	9,612,702	$	(169,478,963)	$	13,063,080
Balance at January 1, 2021		$	172,929,341	$	9,704,769	$	(171,477,484)	$	11,156,626
	Net loss		-		-		(1,882,282)		(1,882,282)
	Stock option expense		-		86,120		-		86,120
Balance at June 30, 2021		$	172,929,341	$	9,790,889	$	(173,359,766)	$	9,360,464
See accompanying notes to the interim condensed consolidated financial statements

REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited, Expressed in U.S. dollars)
				Three months ended June 30,
			Note		2021		2020
Cash flows from (used in) operating activities:
	Net loss			$	(704,279)	$	(857,062)
	Adjustments to reconcile net loss to net cash from operating activities:
		Finance expense			7,831		7,730
		Depreciation and Amortization			255,620		268,072
		Stock option expense			49,230		40,070
		Foreign exchange (gain) loss on cash held in foreign currency			(6,516)		(10,627)
		Foreign exchange loss (gain) on borrowings and lease liabilities			11,217		34,670
		Loss on disposal of assets			-		5,668
		IFRS 15 transition adjustment			-
		Deferred income tax			-
					(386,897)		(511,479)
	Change in non-cash operating assets and liabilities:
		Decrease in deferred cost of revenue			131		1,622
		(Increase) in deferred revenue			(24,492)		(386,801)
		Change in other non-cash operating assets and liabilities	17		(1,519,374)		(676,152)
Cash (used in) operating activities					(1,930,632)		(1,572,810)
Cash flows from (used in) investing activities:
	Acquisition of property, plant and equipment		5		(34,974)		(57,061)
	Proceeds on sale of property, plant and equipment				4,600
	Acquisition of intangible assets		6		(8,455)		(48,423)
Cash (used in) investing activities					(38,829)		(105,484)
Cash flows from (used in) financing activities:
	Interest income				1,426		3,244
	Interest expense				(8,584)		(10,974)
	Government Loan (SIF) including Deferred Grant Income		13		452,876		-
	Proceeds from exercise of options				-		-
	Repayment of borrowings				-		-
	Repayment of lease liabilities				(77,017)		(80,813)
Cash generated from (used in) financing activities					368,702		(88,543)
Foreign exchange gain (loss) on cash held in foreign currency					6,516		10,627
Decrease in cash					(1,594,243)		(1,756,210)
Cash, beginning of the period					4,299,308		6,838,831
Cash, end of the period				$	2,705,065	$	5,082,621
See accompanying notes to the interim condensed consolidated financial statements

SOURCE Redline Communications Group Inc.

Ronan McGrath, Interim Chief Executive Officer, [phone], [email protected]; Philip Jones, Chief Financial Officer, [phone], [email protected]

Related Links

http://www.redlinecommunications.com