Redline Communications reports record revenue and profit for 2011

TORONTO, March 29, 2012 /CNW/ - Redline Communications Group Inc. (TSX: RDL) ("Redline" or the "Company"), a leading provider of ruggedized wireless infrastructure systems, today announced record revenue and profit for the three and twelve month periods ended December 31, 2011.  All amounts reported in this press release are in US dollars unless otherwise stated.

After two years of significant restructuring, the Company reports that it has substantially completed a corporate turnaround.

Highlights for the Full Fiscal Year:

• Revenue of $58.0 million, compared to $54.4 million for 2010
• Revenue includes $18.7 million of Amortized Deferred Revenue, unchanged from 2010
• 33.8% growth in core business revenues (BWI - Broadband Wireless Products and Services)
• Gross Margin increased to 58.2%, from 55.5% year over year
• 131% increase in Adjusted EBITDA¹ to $7.8 million year over year
• Operating Expenses essentially unchanged at $27.8 million
• 119% increase in Net Profit year over year
• EPS doubles to $0.19 year over year

Highlights from the fourth quarter

• 16% increase in Revenues year over year to $18.2 million
• Revenue includes $4.7 million of Amortized Deferred Revenue, unchanged from the same quarter 2010
• 84.5% growth in BWI revenues
• Gross Margin of 52.3%
• 65% Gross Margin on BWI product revenue
• 174% increase in Adjusted EBITDA
• Operating Expenses drop 5%
• Net Profit doubled
• EPS increases to $0.05 from $0.03

"We are pleased to report that we have executed a successful turnaround, and we can now focus on growth," said Eric Melka, CEO of Redline.  "I am pleased with our results. Our fastest growth came from the Energy sector where our innovative and rugged BWI products have generated strong interest and allowed us to acquire new customers. We plan to accelerate innovation and delivery of our ruggedized wireless solutions in the growing field of machine-to-machine (M2M) communications, a market where we see great potential. Our sales pipeline is bigger than ever and I am excited about our future."

Throughout 2011, Redline increased emphasis on its higher margin, higher growth broadband wireless infrastructure (BWI) product line and continued to de-emphasize its lower margin RedMAX™ WiMAX business. Redline's ruggedized BWI products are sold for industrial use in select vertical markets and currently generate over 80% of Redline's current sales, versus approximately 55% of current sales at the end of 2010.

Total revenue for the fourth quarter of 2011 was $18.2 million, a 16% increase from the same period in 2010. Included in total revenue for the reporting quarter was $4.7 million of Amortized Deferred Revenue (revenue from RedMAX™ sales deferred from prior periods dating from 2006 to the end of the third quarter of 2009), consistent with 2010. In addition, some product orders expected in the first quarter of 2012 were shipped and recognized at the end of the fourth quarter of 2011. Excluding amortized deferred revenue, core BWI product revenue increased 84.5% over the fourth quarter of 2010.

For the 2011 full year, total revenue was $58 million, an increase of 7% over 2010. Included in total revenue in 2011 was $18.7 million of amortized deferred revenue from prior RedMAX™ sales. A remaining balance of approximately $9 million in amortized deferred revenue from prior RedMAX™ sales will be recognized during the first half of 2012.  Excluding amortized deferred revenue, in 2011 core BWI product revenue increased 33.8% over 2010. The growth in core product revenue was primarily driven by sales in the energy sector, and in sales across all verticals in the Middle East and Mexico.

Full year gross margins increased 2.7 percentage points to 58.2%, as compared to 55.5% for 2010, supported by an increased overall contribution of higher margin BWI products. Gross margin for the fourth quarter was 52.3% compared to 53.4% for the fourth quarter of 2010, moderately lower due to revenue mix for the reporting quarter.

2011 fourth quarter operating expenses were $7.1 million, a decrease of 5% from $7.5 million for the same period in 2010. The decrease reflects Management's commitment to cost containment and improved operating efficiencies. Total operating expenses for the year were $27.8 million, essentially unchanged from $27.6 million in 2010.

"Our 2011 results have begun to illustrate the scalability of our business model as our sales grow faster than our expenses," explained Mr. Melka. "In 2011 more than 90% of sales were completed through our channel partners which include value-added resellers, value-added distributors, and increasingly, large systems integrators. For many of our systems integrators, our rugged, high-bandwidth wireless technology has become the critical communications enabler for long-distance M2M communication."

Fourth quarter adjusted EBITDA¹, was $2.9 million, an increase of 174%, compared to adjusted EBITDA of $1.1 million for the fourth quarter of 2010.  For the year ended December 31, 2011, adjusted EBITDA was $7.8 million, a 131% increase from adjusted EBITDA of $3.4 million in 2010.

Fourth quarter net Profit increased 120% to $1.1 million, or $0.05 per share, as compared to net Profit of $0.5 million, or $0.03 per share for the fourth quarter of 2010.  Net Profit in the reporting quarter included a non-cash $0.7 million charge for a mark-to-market adjustment for the Company's debentures resulting from the increase in the share price.  As the share price has continued to increase, a charge may also be taken in the first quarter of 2012.

For the full year, Redline Communications reported net Profit of $4.1 million, or $0.19 per basic share, compared to net Profit of $1.9 million, or $0.09 per basic share, in 2010.

At December 31, 2011, Redline held cash and short-term investments of approximately $4.8 million, and working capital of $0.8 million, a substantial improvement from negative working capital of $8.7 million at December 31, 2010. $16.5 million of total deferred revenue remained on the balance sheet at the end of 2011, a decrease from $37.1 million one year prior.

2011 operating highlights included:

• Expanded Redline's wireless Virtual Fiber product line with the launch of the RDL-3000 - the world's longest range, highest capacity Point-to-Multipoint radio.
• Announced the RDL-5000, a high-capacity, high-power, packet microwave radio platform for telecom backhaul and large enterprise connectivity, delivering throughput of up to 800 megabits per second; high-power, high-sensitivity and low latency.
• Opened a branch office/warehouse in Dubai and signed a strategic partnership agreement with Waseela, a leading systems integrator, to expand presence and better serve customers in the Middle East.
• Expanded into new geographies by partnering with PromonLogicalis for South America, and with Plessey for greater coverage of the African market.
• Deployed two new major digital oil field projects in the Middle East and North America. In addition, Redline technology now successfully enables a 45,000 Km2 coverage area for Petroleum Development (PDO) of Oman's wireless digital oil field.
• Increased customer sales in the Middle East include revenue from telecom service providers Saudi Telecom Company (STC), Zain, Etisalat, Orascom and du - for backhaul and business access applications.
• Continued to expand the number of municipalities in Mexico who are using Redline products to provide wide-area connectivity and video surveillance coverage for public safety.

Redline also announces today that all conditions precedent have been met to the effectiveness of the settlement of the proposed class action lawsuit commenced in Ontario in September of 2010 against the Company, certain of its current and former directors and officers, and its former auditors. The settlement received court approval in November 2011 and is now final and binding. The agreement provides for the settlement, release and dismissal of all claims asserted against the Company, its former auditors and the individual proposed defendants. As previously announced, substantially all of the contribution to the settlement amount from Redline and the individual proposed defendants was funded through insurance coverage, the remaining nominal amount being funded by the Company. The settlement does not constitute any admission of liability by Redline or its officers, directors and employees.

Conference Call and Webcast

A conference call to discuss the results will be held at 11:00 a.m. EDT on Thursday, March 29, 2012. To participate in the conference call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call.  A recording of the call will be available through April 4, 2012. Please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 63005811 to listen to the rebroadcast.  A webcast of the call will also be available on Redline's website at http://www.rdlcom.com/en/about/investors/webcasts.

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 year ended December 31, 2011 and the Company's Management Discussion and Analysis for the three and twelve month periods ended December 31, 2011 ("2011 MD&A"), copies of which are available on SEDAR at www.sedar.com.

About Redline Communications
Redline Communications (www.rdlcom.com) is the innovator of Virtual Fiber™, a rugged broadband wireless solution used to cost-effectively deploy and extend secure networks, enable machine-to-machine (M2M) applications, connect digital oil fields and smart grids, facilitate and enhance public safety networks, and bring Internet access wherever and whenever it's needed - regardless of terrain or remote location. For more than a decade Redline has delivered powerful, versatile and reliable wireless systems to governments, militaries, oil and gas companies and telecom service providers through its global network of certified partners.

NOTES:

1  Adjusted EBITDA is conventionally measured as net Profit before discontinued operations, as reported in accordance with GAAP, plus interest expense, taxes, depreciation and amortization (all elements being as reported in the IFRS financial statements). Stated directly, EBITDA is the entity's revenue less its operating costs before the costs of consuming capital assets, financing, and taxes. As such, EBITDA is a measure of Profit, specifically directed at an entity's operating performance without the effects of its finance strategy or the recognition of certain costs for its tangible and intangible capital assets. EBITDA has application beyond financial reporting and is often the operating performance measure used in debt covenants and executive compensation plans.  For a reconciliation of EBITDA to IFRS, please see the "Results of Operations" section of the 2011 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.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.
Consolidated Statements of Financial Position
(Expressed in U.S. dollars)
			December 31, 2011		December 31, 2010		January 1, 2010
ASSETS
Current assets:
	Cash	$	4,651,284	$	6,023,070	$	4,758,719
	Short-term investment		92,144		-		-
	Restricted short-term investments		33,003		92,440		92,266
	Trade receivables		9,913,208		6,714,090		4,860,646
	Other receivables		340,499		604,725		78,445
	Inventories		7,851,884		4,752,656		9,275,410
	Deferred cost of revenue		7,817,868		12,722,036		9,995,981
	Prepaid expenses and other deposits		2,214,309		2,134,360		682,645
			32,914,199		33,043,377		29,744,112
Non-current assets:
	Deferred cost of revenue		-		6,093,214		14,200,887
	Property, plant and equipment		1,026,480		691,936		919,121
	Intangible assets		158,239		75,860		257,116
	Other assets		97,365		99,733		87,288
			1,282,084		6,960,743		15,464,412
Total Assets		$	34,196,283	$	40,004,120	$	45,208,524
LIABILITIES AND SHAREHOLDERS' DEFICIENCY
Current liabilities
	Trade and other payables	$	9,081,197	$	9,852,065	$	7,574,088
	Income tax payable		292,927		172,927		164,799
	Deferred revenue		16,498,907		25,581,597		22,304,330
	Current portion of obligations under finance leases		-		-		25,852
	Current portion of borrowings		6,182,398		6,161,251		4,806,054
			32,055,429		41,767,840		34,875,123
Non-current liabilities
	Deferred revenue		-		11,472,039		25,438,931
	Obligations under finance leases		-		-		15,397
	Borrowings		4,262,541		-		73,916
			4,262,541		11,472,039		25,528,244
Total Liabilities			36,317,970		53,239,879		60,403,367
SHAREHOLDERS' DEFICIENCY
Share capital			134,336,023		128,532,124		128,532,124
Share purchase loan			(365,780)		(365,780)		(365,780)
Warrant			310,000		310,000		310,000
Contributed surplus			7,635,506		6,387,487		6,286,044
Deficit			(144,037,436)		(148,099,590)		(149,957,231)
			(2,121,687)		(13,235,759)		(15,194,843)
Total liabilities and equity		$	34,196,283	$	40,004,120	$	45,208,524

 

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Comprehensive Income
(Expressed in U.S. dollars)
Years ended December 31,			2011		2010
Revenue		$	58,023,426	$	54,444,256
Cost of revenue			24,248,263		24,251,145
Gross profit			33,775,163		30,193,111
Expenses:
	Research and development		5,776,334		6,961,870
	Finance and administration		9,489,000		8,062,007
	Sales and marketing		10,314,476		9,579,908
	Operations and customer support		2,303,826		2,962,161
	Gain on disposal of assets		(51,519)		(3,693)
			27,832,117		27,562,253
Income before non-operating items			5,943,046		2,630,858
Other expenses (income)
	Finance expense		749,295		365,352
	Loss on fair market value of Debenture		1,285,811		-
	Foreign exchange (gain) loss		(274,214)		399,737
			1,760,892		765,089
Profit before income taxes			4,182,154		1,865,769
Income tax expense			120,000		8,128
Net profit and total comprehensive income		$	4,062,154	$	1,857,641
Earnings per share
	Basic	$	0.19	$	0.09
	Diluted	$	0.18	$	0.09

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Changes in Equity
(Expressed in U.S. dollars)
			Share capital		Share purchase loan		Warrant		Contributed surplus		Deficit		Total
Balance at January 1, 2010		$	128,532,124	$	(365,780)	$	310,000	$	6,286,044	$	(149,957,231)	$	(15,194,843)
	Net profit		-		-		-		-		1,857,641		1,857,641
	Share-based payments		-		-		-		101,443		-		101,443
Balance at December 31, 2010		$	128,532,124	$	(365,780)	$	310,000	$	6,387,487	$	(148,099,590)	$	(13,235,759)
Balance at December 31, 2010		$	128,532,124	$	(365,780)	$	310,000	$	6,387,487	$	(148,099,590)	$	(13,235,759)
	Net profit		-		-		-		-		4,062,154		4,062,154
	Shares issued on   conversion of debenture		5,562,950		-		-		-		-		5,562,950
	Share-based payments		-		-		-		1,382,301		-		1,382,301
	Exercise of options		240,949		-		-		(134,282)		-		106,667
Balance at December 31, 2011		$	134,336,023	$	(365,780)	$	310,000	$	7,635,506	$	(144,037,436)	$	(2,121,687)

 

REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Cash Flows
(Expressed in U.S. dollars)
Year ended December 31,				2011		2010
Cash flows from operating activities:
	Net profit		$	4,062,154	$	1,857,641
	Adjustments to reconcile profit before taxes to net cash from operating activities
		Finance costs		749,295		365,352
		Depreciation and amortization of non-current assets		438,715		515,524
		Gain on disposal of asset		(51,519)		(3,693)
		Recognition of share based payments		1,382,301		101,443
		Foreign exchange loss (gain) on cash held in foreign currency		824		(3,677)
		Foreign exchange (gain) loss on borrowings		(578,584)		296,220
		Loss on fair market value of Debenture		1,285,811		-
		Income tax		120,000		8,128
				3,346,843		1,279,297
	Change in non-cash operating assets and liabilities
		Decrease in deferred cost of revenue		10,997,382		5,381,618
		Decrease in deferred revenue		(20,554,729)		(10,689,625)
		Change in other non-cash operating assets and liabilities		(6,882,569)		2,956,847
Cash (used in) from operating activities				(9,030,919)		785,778
Cash flows from investing activities:
	Acquisition of property, plant and equipment			(583,582)		(76,058)
	Acquisition of intangible assets			(272,056)		(31,025)
	Proceeds from the disposal of property, plant and equipment			51,519		3,693
	Purchase of investments			(32,707)		(174)
Cash used in investing activities				(836,826)		(103,564)
Cash flows from financing activities:
	Proceeds from exercise of options			106,667		-
	Finance costs paid			(66,424)		(135,162)
	Proceeds of borrowings			8,534,848		976,109
	Repayment of borrowings			(78,308)		(221,238)
	Principal payment of obligations under finance leases			-		(41,249)
Cash from financing activities				8,496,783		578,460
Foreign exchange (loss) gain on cash held in foreign currency				(824)		3,677
(Decrease) increase in cash				(1,371,786)		1,264,351
Cash, beginning of the year				6,023,070		4,758,719
Cash, end of the year			$	4,651,284	$	6,023,070

 

Company Contacts:

George Kypreos
Chief Financial Officer
+1.905.479.8344
[email protected]

Lynda Partner 
Corporate Communications
[phone]
[email protected]

Cory Pala
Investor Relations   
[phone]
[email protected]