Redline Communications Reports Q3 2014 Results

TORONTO, Nov. 3, 2014 /CNW/ - Redline Communications (www.rdlcom.com) Group Inc. (TSX: RDL), a leading provider of mission-critical networks, today announced unaudited operating results¹ for the three and nine months ended September 30, 2014.

Financial summary for the three months ended September 30, 2014 (Q3 2014):

• Revenue of $9.1 million
• Gross Margin of 50%
• Adjusted EBITDA² of $0.4 million
• Net Loss of $0.1 million, ($0.01 per share)
• Cash balance of $16.5 million
• Order Bookings² of $8.4 million
• Order Backlog² of $17.4 million

Overall Revenue for Q3 2014 was $9.1 million, up 29% over the same period in 2013, largely attributed to increasing revenue from the oil and gas sector.

Overall gross margins for Q3 2014 were 50%, a 19 percentage point decrease from the 69% reported for the same period in 2013. In Q3 2014, Redline recognized a greater than usual percentage of revenue from services and third party products, which are sold by Redline as part of a complete solution for a customer's network. This revenue, typically sold at lower margins than the hardware and software portion of a network, was sold at a lower than average margin during this quarter, pulling down the overall gross margin.

"We're pleased to see our revenues increase year over year, and quarter over quarter as Q3 is traditionally a slower quarter for Redline." said George Kypreos, Redline CFO. "We continue to see demand for Redline to act as the overall network solution provider which gives us better control over the quality of the solution and increased revenue for services and third party products. While the increase in revenue from third party products has put and may continue to put downward pressure on overall margins, we expect to see them improve and be closer to normal levels in future quarters."

Overall operating expenses for Q3 2014, were $4.5 million, a decrease of 34% compared to $6.8 million reported for the same period in 2013, with the decrease attributed to the restructuring plan put in place in December 2013.

Adjusted EBITDA for Q3 2014 was $0.4 million, an increase of $1.9 million over the Adjusted EBITDA loss of $1.5 million for the corresponding period in 2013. The improvement was primarily the result of lower operating costs resulting from the restructuring program initiated in December 2013.

Net loss for Q3 2014 was $0.1 million or ($0.01) per share, a $1.1 million improvement over the net loss of $1.2 million, or ($0.08) per share reported in the same period in 2013.

During Q3 2014, the Company used $2 million in cash for working capital and $2 million to acquire the assets of Purewave Networks, bringing the Company's cash balance to $16.5 million at September 30, 2014.

Order Bookings for Q3 2014 were $8.4 million, up 34% over the same period in 2013. Total Order Backlog at September 30, 2014 was $17.4 million.

Customers in the oil and gas sector accounted for 73% of total order value for Q3 2014. Among the five orders for new oilfield networks were two large contracts for digital oilfield networks from two new South American customers as well as a smaller order in the USA for an oilfield owned and operated by a "super-major" oil company, one of the five largest publicly-owned global oil and gas companies. This is the second super-major oil company to deploy Redline into their digital oilfield operations. This brings the total number of deployments for oilfield networks in 2014 to 12, up from three during the same nine-month period in 2013.

"With a record 12 pilot projects started in Q3, Redline continues to successfully penetrate the oil and gas sector," said Robert Williams, Redline CEO. "We now have 22 prospective customers piloting our products in their actual field environments, paving the way for many more full deployments to add to the 39 Redline networks already in place across the globe."

Redline tracks the number of pilot projects within the Energy sector as an indicator of future Order Bookings. Pilot projects vary in size and scope and give prospective customers the opportunity to evaluate Redline's solutions in a real field setting. In Q3 2014 Redline initiated pilot projects in 12 new oilfields in 10 different countries. This brings the total number of pilot projects deployed in 2014 to 20, as compared to 4 pilot projects initiated during the same nine-month period in 2013.

On September 9, 2014 Redline announced that it had signed a definitive agreement to acquire the assets of PureWave Networks, a privately-held LTE wireless technology company for a cash purchase price of $2 million. Redline has hired 7 former PureWave Networks employees and is working to integrate the team and the technology. The acquisition of PureWave's technology assets will enable Redline to accelerate the expansion of its suite of high performance rugged network solutions to include LTE-based capabilities.

Conference Call and Webcast – November 4th, 2014 at 10:00 a.m. ET

A conference call and webcast to discuss the Company's financial results have been scheduled for November 4, 2014 at 10:00 a.m. Eastern Time. To participate in the call, please dial 1-647-427-7450 approximately 10 minutes before the conference call, and provide passcode 24222776. A recording of the call will be available through January 31, 2015 on Redline's website at http://www.rdlcom.com/en/about/investors/webcasts.

About Redline Communications

Redline Communications (www.rdlcom.com) is the creator of powerful wide-area wireless networks for the most challenging applications and locations.  They are used by oil and gas companies to manage their assets, militaries for secure battlefield communications, municipalities to remotely monitor highways, utilities and other infrastructures, and telecom service providers to deliver premium services. Redline's powerful and versatile networks reliably and securely deliver voice, data, M2M and video communications for mission-critical applications. 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 sometimes reports on several non-IFRS financial measures, including "Orders or Bookings", "Backlog", "EBITDA", "Adjusted EBITDA", "EPS excluding the non-cash expense relating to the fair market adjustment on financial instruments".  Further information including definitions of these categories and reconciliation to their most directly comparable IFRS measures can be found in the Company's Management Discussion and Analysis for the three months ended September 30, 2014 ("Q3 2014 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three month results ended September 30, 2014 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 ended September 30, 2014 and the Q3 2014 MD&A.  Any non-IFRS financial measures should be considered in context with the IFRS financial statement presentation and should not be considered in isolation or as a substitute for IFRS revenues, net income or cash flows. Further, Redline's financial measures may be calculated differently from similarly titled financial measures of other companies.

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.redlinecommunications.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, 2014		December 31, 2013
ASSETS
Current assets:
	Cash		$        16,532,255		$        13,473,246
	Trade receivables		10,121,824		10,340,537
	Other receivables		791,473		1,155,514
	Inventories		6,376,448		6,138,547
	Deferred cost of revenue		-		40,059
	Prepaid expenses and other deposits		423,992		928,350
			34,245,992		32,076,253
Non-current assets:
	Property, plant and equipment		1,857,316		1,768,479
	Intangible assets		1,833,173		59,809
	Other assets		80,016		99,753
			3,770,505		1,928,041
Total Assets			$        38,016,497		$        34,004,294
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Trade and other payables		6,047,636		5,553,916
	Income tax payable		155,063		153,403
	Deferred revenue		1,515,532		1,105,333
	Borrowings		4,868,777		4,981,078
			12,587,008		11,793,730
Non-current liabilities
	Other payables		519,256		788,592
	Other financial liability		75,785		111,548
	Convertible debenture (principal and interest)		274,516		287,175
	Fair market value adjustment on convertible debenture		127,596		920,739
			997,153		2,108,054
Total Liabilities			13,584,161		13,901,784
SHAREHOLDERS' EQUITY
Share capital			172,591,351		168,903,267
Share purchase loan			-		(365,780)
Warrant			310,000		310,000
Contributed surplus			8,120,418		8,911,025
Deficit			(156,589,433)		(157,656,002)
			24,432,336		20,102,510
Total liabilities and equity			$        38,016,497		$        34,004,294

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,
			2014		2013		2014		2013
Revenue			$     9,126,636		$    7,068,730		$   24,896,705		$  24,015,729
Cost of revenue			4,565,806		2,157,280		10,540,933		9,330,462
Gross profit			4,560,830		4,911,450		14,355,772		14,685,267
Expenses:
	Research and development		795,351		1,657,640		2,239,205		4,842,290
	Administration and finance		1,264,466		2,151,735		4,343,789		6,074,321
	Sales and marketing		2,112,682		2,592,551		5,995,789		8,034,017
	Operations and customer support		308,404		390,616		902,729		1,154,250
			4,480,903		6,792,542		13,481,512		20,104,878
Profit (loss) before undernoted items			79,927		(1,881,092)		874,260		(5,419,611)
Other expenses (gains)
	Finance expense		26,398		65,946		100,854		233,074
	Loss (gain) on fair market value   of financial instruments		(61,283)		(955,713)		(451,130)		(1,476,534)
	Foreign exchange loss (gain)		203,860		226,215		114,899		(129,538)
			168,975		(663,552)		(235,377)		(1,372,998)
Profit (loss) before income taxes			(89,048)		(1,217,540)		1,109,637		(4,046,613)
Income tax expense			5,649		24,456		43,068		197,520
Net profit (loss) and total comprehensive income (loss)			$         (94,697)		$   (1,241,996)		$     1,066,569		$   (4,244,133)
Earnings (loss) per share
	Basic		$             (0.01)		$            (0.08)		$              0.07		$            (0.30)
	Diluted		$             (0.01)		$            (0.08)		$              0.06		$            (0.30)

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, 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)
	Conversion of debenture	2,132,243	-	-	-	-	2,132,243
	Conversion of warrants	5,334,306	-	-	-	-	5,334,306
	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
Balance at December 31, 2013		$    168,903,267	$         (365,780)	$           310,000	$        8,911,025	$  (157,656,002)	$      20,102,510
	Net profit	-	-	-	-	1,066,569	1,066,569
	Exercise of options	1,764,500	-	-	(827,460)	-	937,040
	Conversion of warrants	2,253,156	-	-	-	-	2,253,156
	Share purchase loan settlement	(329,572)	365,780	-	-	-	36,208
	Repurchase and cancellation of options	-	-	-	(201,793)	-	(201,793)
	Share-based payments	-	-	-	238,646	-	238,646
Balance at September 30, 2014		$    172,591,351	$                    -	$           310,000	$        8,120,418	$  (156,589,433)	$      24,432,336

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,
			2014	2013		2014	2013
Cash flows from operating activities:
	Net profit (loss)		$             (94,697)	$       (1,241,996)		$        1,066,569	$       (4,244,133)
	Adjustments to reconcile net profit (loss) to net cash from operating activities
		Finance expense	26,398	65,946		100,854	233,074
		Depreciation and amortization of non-current assets	169,049	105,701		378,255	274,839
		Loss on disposal of asset	-	28,963		15,652	28,963
		Recognition of share based payments	85,227	209,413		274,854	693,939
		Foreign exchange loss on cash held in foreign currency	415,412	42,079		814,604	170,636
		Foreign exchange loss (gain) on borrowings	(267,174)	187,490		(312,206)	(376,090)
		Gain on fair market value of Debenture	(61,283)	(955,713)		(451,130)	(1,476,534)
		Income tax	-	24,456		-	197,520
			272,932	(1,533,661)		1,887,452	(4,497,786)
	Change in non-cash operating assets and liabilities
		Decrease in deferred cost of revenue	-	(87,888)		40,059	817,362
		Increase (decrease) in deferred revenue	(1,059,839)	350,100		410,199	(1,444,814)
		Change in other non-cash operating assets and liabilities	(1,181,801)	1,663,395		893,199	2,360,985
Cash from (used in) operating activities			(1,968,708)	391,946		3,230,909	(2,764,253)
Cash flows from investing activities:
	Acquisition of property, plant and equipment		(340,879)	(832,276)		(396,498)	(1,202,398)
	Proceeds on sale of property, plant and equipment		-	-		14,424	-
	Acquisition of intangible assets		(1,733,534)	(16,855)		(1,874,034)	(32,955)
Cash used in investing activities			(2,074,413)	(849,131)		(2,256,108)	(1,235,353)
Cash flows from financing activities:
	Finance income (costs)		21,794	(24,701)		42,482	(87,247)
	Proceeds from exercise of options		33,981	88,841		937,040	267,728
	Proceeds from conversion of debenture and warrants			-		1,919,290	2,931,614
	Proceeds from (repayment of) bank indebtedness		-	(952,007)		-	1,056,735
	Proceeds from private placement		-	9,322,340		-	9,322,340
Cash from financing activities			55,775	8,434,473		2,898,812	13,491,170
Foreign exchange loss on cash held in foreign currency			(415,412)	(42,079)		(814,604)	(170,636)
Increase (decrease) in cash			(4,402,758)	7,935,209		3,059,009	9,320,928
Cash, beginning of the period			20,935,013	9,672,451		13,473,246	8,286,732
Cash, end of the period			$        16,532,255	$      17,607,660		$      16,532,255	$      17,607,660
Cash			$        16,532,255	$      17,607,660		$      16,532,255	$      17,607,660
Bank indebtedness			-	(3,353,590)		-	(3,353,590)
Cash, net of bank indebtedness			$        16,532,255	$      14,254,070		$      16,532,255	$      14,254,070

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]; Twitter: @rdlcom; Press Kit: http://redline.mobilitypr.com