Redline Communications Reports Third Quarter 2009 Results and Announces
Management Changes
All figures in US Dollars unless otherwise specified
Q3 2009 Financial Highlights:
- Revenue of $9.1 million, compared to $10.4 million in Q2 2009 and
$9.6 million in Q3 2008
- Gross margin was 42.6% (53% excluding inventory provisions), compared
to 37.7% (41.3% excluding inventory provision) in Q2 2009 and 37.7%
in Q3 2008 (51.1% excluding inventory provision)
- Net loss of $2.4 million, or $0.11 per share, compared to $2.6
million, or $0.12 per share in Q2, 2009 and $6.2 million, or $0.29
per share, in Q3 2008
- Cash and short-term investments at quarter end was $5.1 million,
compared to $4.2 million on June 30, 2009 and $4.4 million as at
December 31, 2008
Q3 2009 Operational Highlights:
- Launched RedMAX 4C SC-100e Mobile WiMAX base station designed to meet
specific technical requirements for vertical market applications such
as Smart Grid networks
- Continued customer outreach and support programs to assist customers
that have been short-listed for American Recovery and Reinvestment
Act (ARRA) stimulus funding
- Selected as WiMAX vendor for several projects in Latin America that
will be funded by government stimulus programs
- Added new leadership to Product Management team to focus on delivery
of new products for key industry verticals and applications
"As expected, Q3 was our slowest quarter in 2009, and this was largely reflected in our WiMAX revenues," said Majed Sifri, President and Chief Executive Officer, Redline Communications Group. "However, this was partially offset by stronger sales of our Backhaul BWI products, as many of our existing customers are upgrading their networks in response to the increasing demand for more bandwidth to support voice, video and data applications."
Q3 2009 Financial Review
Redline's revenue for the three months ended
WiMAX product revenue was
Gross margin for Q32009 was 42.6% (53% excluding inventory provisions) as compared to 37.7% in Q2 2009 (41.3% excluding inventory provision) and 37.7% for the three months ended
In addition, when comparing Q3 2009 gross margin to the same period last year, Redline recorded a lower net write-down of inventory, which totaled
Prior to amortization and stock based compensation, operating expenses were
EBITDA(1) loss for Q3 2009 was
Net loss for Q3 2009 was
As of
2009 Nine Month Financial Summary:
- Revenue of $29.0 million, compared with $32.9 million for the same
period of 2008
- WiMAX product revenue was $12.6 million (46.3% of product revenue),
compared to $11.8 million (38.9% of product revenue) for the same
period of 2008
- BWI product revenue was $14.6 million (53.7% of product revenue),
compared to $18.6 million (61.1% of product revenue) for the same
period of 2008
- Gross margin was 41.3%, compared with 38.3% for the same period of
2008
- Net loss of $7.0 million, or $0.33 per share, compared to $15.7
million, or $0.74 per share, for the same period of 2008
2009 Outlook
Redline believes it remains on track to achieve its 2009 guidance of revenue levels similar to 2008, with an approximate 30% reduction in operating expenses compared with last year. The revenue outlook for Q4 2009 is strong, as the Company expects higher-than-normal sales and margins resulting from the delivery of product to fulfill certain large contracts; therefore, the Company also expects to achieve positive EBITDA and cash flow in the fourth quarter of 2009.
Management Changes
Redline today also announced changes to its senior management team. Effective immediately, Majed Sifri has been appointed Vice-Chairman of Redline's Board of Directors, and will no longer serve as President and Chief Executive Officer of the Company. Eric Melka, a Director of the Company, will assume the role of acting Chief Executive Officer, working closely with the Board of Directors.
In addition,
"Over the past eight years, Majed has been instrumental in Redline's development into a leading provider of wireless broadband solutions, in particular by establishing international partnerships and extending the Company's global reach to serve customers in more than 100 countries," said Philippe de Gaspé Beaubien III, Chairman of the Board of Directors. "With Majed as Vice-Chairman of the Board, focusing on international partnerships, we will benefit from his extensive industry knowledge and relationships."
Mr. de Gaspé Beaubien continued: "We would also like to acknowledge
(1) Earnings Before Interest, Taxes, Depreciation and Amortization.
About Redline Communications
Redline Communications (www.redlinecommunications.com) is the leading provider of fixed and mobile standards-based wireless broadband solutions. Redline's RedMAX(TM) WiMAX Forum Certified(TM) system, RedMAX 4C Mobile WiMAX(TM) products, and its award-winning broadband wireless infrastructure family of products - RedCONNEX(TM) and RedACCESS(TM) - enable service providers and other network operators to cost-effectively deliver high-bandwidth services, including voice, video and data communications. Redline is committed to maintaining its wireless industry leadership with the continued development of WiMAX and other advanced wireless broadband products. With more than 150,000 installations in 130 countries, and a global network of over 160 partners, Redline's experience and expertise helps service providers, enterprises and government organizations roll out wireless broadband networks to support advanced communications.
Forward-Looking Statements
Certain statements in this release, including the estimate of future revenues, sales, margins, EBITDA and cash flow provided above, 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 2008 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 Balance Sheets
(expressed in U.S. dollars)
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September 30, December 31,
2009 2008
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(unaudited) (audited)
Assets
Current assets:
Cash and cash equivalents $ 5,047,118 $ 4,355,254
Restricted short-term investments 93,373 -
Accounts receivable 9,440,973 11,627,388
Other receivables 206,617 230,563
Inventories 7,658,846 12,896,286
Prepaid expenses 428,650 457,437
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22,875,577 29,566,928
Capital assets:
Property, plant and equipment 1,043,065 1,291,597
Intangible assets subject to amortization 322,415 496,092
Other assets 69,020 194,002
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$ 24,310,077 $ 31,548,619
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and
accrued liabilities $ 7,177,764 $ 9,905,615
Deferred revenue 1,196,533 1,267,498
Current portion of capital
lease obligations 23,276 50,898
Current portion of loans payable 3,828,554 1,675,741
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12,226,127 12,899,752
Loans payable 126,371 250,313
Capital lease obligations 18,124 27,600
Shareholders' equity:
Share capital 128,503,724 128,444,175
Share purchase loan (365,780) (365,780)
Warrant 310,000 310,000
Contributed surplus 6,467,166 5,917,460
Deficit (123,287,123) (116,246,369)
Accumulated other comprehensive income 311,468 311,468
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11,939,455 18,370,954
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$ 24,310,077 $ 31,548,619
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REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statement of Operations and Deficit
(expressed in U.S. dollars)
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Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
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(unaudited) (unaudited)
Revenue:
Product $ 8,365,951 $ 8,939,115 $ 27,238,218 $ 30,376,698
Maintenance 726,391 668,653 1,804,637 2,554,331
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9,092,342 9,607,768 29,042,855 32,931,029
Cost of
revenue(1) 5,214,998 5,985,250 17,051,473 20,309,723
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Gross Margin 3,877,344 3,622,518 11,991,382 12,621,306
Expenses:
Sales and
marke-
ting(1) 2,710,111 3,947,131 7,995,196 12,438,158
Research
and develo-
pment(1) 2,273,655 4,014,980 7,010,326 10,546,822
Finance
and admini-
stration(1) 921,653 1,092,467 2,821,396 4,136,596
Amortization
of property,
plant &
equipment 261,786 461,861 736,894 897,543
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6,167,205 9,516,439 18,563,812 28,019,119
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Loss before
the under-
noted (2,289,861) (5,893,921) (6,572,430) (15,397,813)
Other expenses
/(income):
Interest
and other 70,084 68,943 260,981 201,222
Gain on
disposal
of assets - - - (70,296)
Foreign
exchange 88,256 200,996 199,241 90,875
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158,340 269,939 460,222 221,801
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Loss before
income
taxes (2,448,201) (6,163,860) (7,032,652) (15,619,614)
Income taxes (1,498) 8,088 8,102 47,849
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Loss and
comprehensive
loss (2,446,703) (6,171,948) (7,040,754) (15,667,463)
Deficit,
beginning of
the period (120,840,420) (100,971,727) (116,246,369) (91,706,738)
Effect of
change in
accounting
policy - - - 230,526
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Deficit,
end of
period $(123,287,123) $(107,143,675) $(123,287,123) $(107,143,675)
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Loss per
share -
basic and
diluted $ (0.11) $ (0.29) $ (0.33) $ (0.74)
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Weighted
average
number of
common shares
used in basic
and diluted
loss per
share 21,272,764 21,048,635 21,142,121 21,048,385
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(1)Includes
stock-based
compensation
expense as
follows:
Cost of
revenue $ 5,432 $ 24,572 $ 30,407 $ 83,694
Expenses:
Sales and
marketing 66,041 7,139 237,318 388,853
Research and
development 32,078 175,905 172,580 461,095
Finance and
adminis-
tration 13,277 73,936 109,401 228,974
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Total $ 116,828 $ 281,552 $ 549,706 $ 1,162,616
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REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
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Three months ended Nine months ended
September 30 September 30
2009 2008 2009 2008
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(unaudited) (unaudited)
Cash provided by (used in):
Loss for the
period $ (2,446,703) $ (6,171,948) $ (7,040,754) $ (15,667,463)
Items not
affecting cash:
Amortization
of property,
plant and
equipment 261,786 461,861 736,894 897,543
Stock-based
compensation
expense 116,828 281,552 549,706 1,162,616
Accretion
of debt 26,324 26,324 78,972 78,972
Gain on
disposal
of assets - - - (70,296)
Foreign
exchange (219,763) 125,248 (226,003) 358,119
Change in
non-cash
working
capital 2,045,045 11,233 4,802,754 (3,630,840)
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(216,483) (5,265,730) (1,098,431) (16,871,349)
Financing
activities:
Issuance of
share capital,
net of
issuance
costs 14,592 - 59,549 (94,299)
Government
of Ontario
loan 1,761,851 - 3,618,307 -
Repayment
of loans (678,981) (456,457) (1,668,408) (1,311,481)
Principal
payment of
capital lease
obligations (8,227) (88,409) (37,098) (185,468)
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1,089,235 (544,866) 1,972,350 (1,591,248)
Investing
activities:
Purchase
of capital
assets (116,375) (727,079) (314,685) (1,061,577)
Increase in
restricted
short-term
investments (366) - (93,373) -
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(116,741) (727,079) (408,058) (1,061,577)
Foreign
exchange
gain (loss)
on cash held
in foreign
currency 219,763 (125,248) 226,003 (358,119)
Increase
(decrease)
in cash &
cash
equivalents 975,774 (6,662,923) 691,864 (19,882,293)
Cash and
cash
equivalents,
beginning
of period 4,071,344 15,494,035 4,355,254 28,713,405
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Cash and
cash
equivalents,
end of
period $ 5,047,118 $ 8,831,112 $ 5,047,118 $ 8,831,112
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Supplemental
cash flow
information:
Interest
paid $ 40,734 $ 77,688 $ 192,762 $ 284,328
Income
taxes paid (1,498) 8,088 8,102 47,849
Supplemental
disclosures
relating to
non-cash
financing and
investing
activities:
Purchase of
property,
plant &
equipment
under capital
leases - - - 32,243
Purchase of
property,
plant &
equipment
under loan - - - 544,226
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For further information: Redline Communications, Carolyn Anderson, [email protected], Tel: (905) 479-8344; Equicom Group, Craig Armitage, Kristen Dickson, [email protected], [email protected], Tel: (416) 815-0700
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