RNS Number : 3637V
Redknee Solutions Inc.
28 May 2008
Immediate release 28 May 2008
Redknee Solutions Inc.
("Redknee" or "the Company)
Interim Results for the six months to March 31, 2008
Redknee (AIM: RKN), a leading provider of mission-critical software and services for communications service providers, including
end-to-end convergent billing, real-time charging and rating and personalization, today announced its interim results for the six months
ended March 31, 2008.
Financial Highlights:
* Orders up 37% to 33.0 million (2007 - $ 24.1 million)
* Revenue up 16% to $24.1 million (2007 - $20.7 million)
* Basic loss per share of $0.02 per share (2007 - $0.08 per share)
* Backlog up 49% to $28.4 million (Sept. 30, 2007 - $19.1 million)
* Cash at $16.0 million (Sept. 30, 2007 - $23.7 million)
Canadian-based Redknee reports in Canadian dollars but generates a majority of its revenue from US dollar, Euro and UK pound priced and
denominated contracts.
Operating Highlights:
* Over 16 new operators across APAC, EMEA and Americas (2007 - four new operators)
* Leveraging heightened investment in operations and R&D
* Successful completion of the integration of Argent Networks acquisition
* Three new products introduced in first half '08
* Reaffirming revenue guidance at CAN $45 - $48 million
Lucas Skoczkowski, CEO for Redknee commented:
"Redknee continues to make progress across multiple facets: expansion of our customer footprint, increasing our sales capacity and
solidifying our technological advantage in our markets. Our business momentum in the high growth markets of Africa, Middle East and South
East Asia and increasing demand for our innovation in Tier 1 markets continue to drive our business forward."
"With revenue increasing as we expand our customer-centric product and services portfolio, the future business prospects for Redknee
remain very encouraging."
Please see section regarding Forward-Looking Statements which forms an integral part of this release.
For further details please contact:
Redknee Solutions Inc.
Lucas Skoczkowski, Tel: +1 905 625 2622
Chief Executive Officer Fax: +1 905 625 2773
Colley Clarke, Chief
Financial Officer
Buchanan Communications Tel: +44 (0) 20 7466 5000
Jeremy Garcia / Simon
Gold
Canaccord Adams Tel: +44 (0) 20 7050 6500
Neil Johnson / Ryan
Gaffney
CHIEF EXECUTIVE REVIEW
Introduction
The first six months of the fiscal year have been encouraging in terms of new business momentum and the operating leverage realized from
the investments made in 2007. As stated last year, we remain focused on providing industry leading solutions to some of the most innovative
and fastest growing mobile service providers across a number of regions throughout the world. In addition, management is focused on
returning the company to profitability as we grow the revenue base and are able to leverage investments made in building out Redknee's
global sales, product operations and R&D infrastructure.
As a result of our continued progress, we have achieved record levels of orders ($33.0 million), revenues ($24.1 million) and backlog
($28.4 million).
Growth Strategy
The Redknee management team continues to be dedicated to delivering on the following three long-term measures of success:
* Achieve market leadership in our served addressable market (SAM), including the high growth market regions consisting of Africa,
the Middle East and South East Asia.
* Continue to increase the proportion of recurring revenues in our business model, and
* Provide mission-critical solutions to our global customer base.
Increasing Redknee's market share in key geographic regions will remain a priority, as we continue to add new operators and increase
sales within our existing customer base and follow our disciplined product strategy. Going forward, Redknee will continue to selectively
assess strategic acquisition opportunities as well as key technical and sales partnerships. These indicators, along with others mentioned
below, explain how Redknee will continue to move along its path of success. Management looks forward to providing further updates on the
progress of our growth strategy execution.
Acquisition Update
In February 2008, Redknee announced its first acquisition - the revenue assurance, interconnect and content settlement software solution
and operations group of Argent Networks PTY. InBill, as it is branded, currently services over 10 operators from offices in Australia and
the United States, providing opportunities to up- sell existing Redknee products and services into these accounts.
The process of integrating the InBill product line and employees into Redknee is now complete and the overall response from the InBill
employees and customers has been positive. We believe this transaction has enhanced our service offering with existing and new customers,
particularly in the high growth markets.
Revenue
Redknee has posted strong revenue numbers for first half fiscal 2008, showing a 16% increase over the same period 2007. The substantial
addition of orders placed for first half fiscal 2008 has resulted in an increase in our order backlog, which will translate to continued
revenue growth in the near term. Furthermore, we have seen the percent of revenue from high-growth markets increase from 30% to 45%, once
again reaffirming our strategy.
With respect to Redknee's goal of increasing the percentage of recurring revenues, this objective was advanced through the recent
acquisition and integration of Argent Networks' InBill revenue assurance, interconnect and content settlement software solution and
associated service bureau operations. We will continue to invest in, and support going forward, both the product and the service bureau
operations.
Operators
We made good progress during the first six months of fiscal 2008 with regards to expanding our customer base. Redknee added not only
Argent's existing customers, but an additional six operators from our core sales efforts. Redknee's customer base includes some of the
largest mobile communications service providers worldwide, and consists of more than 60 operators in over 50 countries. In the last six
months, Redknee has grown our operator customer base by over 30% through both organic and inorganic means.
The Market
Our business is firmly focused on addressing two significant market opportunities - Tier 1 operators and the high-growth markets of
Africa, the Middle East and South East Asia. According to Strategy Analytics, high-growth markets account for 40% of wireless operator
EBITDA and over 90% of revenue growth. Redknee has been successful in these global markets because of our dedicated, local technical and
sales support, and our turnkey billing solutions that address the real needs of the high-growth operators - fast, flexible, convergent,
end-to-end, and reliable. Redknee is quickly gaining a reputation as the monetization solution-of-choice among high-growth market operators.
While Tier-1 operators continue to remain highly competitive, we believe this only serves as an advantage to Redknee in the long-term.
In the mature market, Tier-1 operators will continue to look for ways to increase their subscriber base and their average revenue per user
(ARPU) through differentiation of services and the ability to charge for these new services. These are the precise issues Redknee's product
and service suite address. According to OSS Observer, a respected industry analyst organization, the overall market for real-time charging,
which is one of Redknee's key solutions for the Tier-1 markets, will grow at 10.6% CAGR from $2.67 billion in 2007 to $4.41 billion in
2012.
Software Products
Redknee leverages one unified software platform for all of our products, relying on a common core of proven technology as the backbone
for our entire suite of customer-focused solutions. For high-growth operators, Redknee delivers end-to-end Turnkey Converged Billing (TCB)
along with our Inbill interconnect solutions that fully address the operators' needs and make Redknee their single-source vendor of choice
for these mission-critical activities. Redknee's TCB solution, in many cases, 'touches' 100% of the operator's revenue stream as it passes
from subscriber to the operator, illustrating just how mission critical we have become. Redknee is working to continue delivering
high-value, innovative solutions in the mobile money space that address the unique infrastructure related challenges of these developing
regions, such as lack of retail and banking resources.
Redknee is addressing the Tier-1 markets by focusing on providing innovative, best-of-breed, next generation services for pre- and
post-IMS platforms that operators can use to increase ARPU and attract new subscribers. Personalizing the user experience and monetizing
services are two ways that Redknee brings value to both the operator and the end-user.
The Company has made continued progress in affirming its technological achievements as evidenced by its growing patent portfolio, which
now comprises over 40 issued patents and pending patent applications, along with the recently issued European patent for SMS rating and
billing. The granting of this patent further highlights Redknee's strong commitment to research and development ('R&D') and to maintaining
its position as a key industry innovator in the real-time OSS/BSS software space.
Outlook
The continued demand for our products and services in the high-growth markets as well as among Tier-1 operators is an encouraging start
to the year as indicated by our record level of new orders and increased revenues. Our product suite is positioned to capitalize on the
growing demand by operators for delivering innovative solutions that enhance the customer experience, while increasing revenue and ARPU.
We therefore reaffirm fiscal 2008 revenues will be between $45 million and $48 million based on account plans for certain existing and
new customers, and based on international exchange rates at the date of this release.
Financial Review
The consolidated financial statements for the six month period ended March 31, 2008 are included at the end of this release.
In February 2007, Redknee completed its IPO with the intended use of proceeds to be used to expand its sales and marketing and customer
support capabilities as well as to fund ongoing research and product development. Redknee's first half results for fiscal 2008 reflect the
investment in these areas which resulted in orders increasing by 37% as compared to the first half of fiscal 2007. Operating costs also
increased to support our continued growth in the high growth markets of Africa, Middle East and South East Asia, and our continued
investment in providing mission critical solutions to our customers. Going forward, Redknee intends to leverage its operating infrastructure
as it grows its revenue.
RESULTS OF OPERATIONS
The following table outlines the Company's results of operations for the period indicated.
1H08 1H07
Unaudited Six Months Ended Six Months Ended * %
vs.
1H07
Cdn $000's 31-Mar-08 31-Mar-07
Revenue
Software and services 17,891 15,119 18%
Support 6,197 5,566 11%
24,088 20,684 16%
Cost of sales 7,386 5,497 34%
Gross profit 16,702 15,188 10%
69% 73%
Operating expenses:
Sales and Marketing 8,111 6,955 17%
General and Administrative 4,840 4,077 19%
Research and Development 6,521 5,611 16%
Amortization of property and 127 174 -27%
equipment
Foreign exchange loss/(gain) (1,709) (373) 358%
17,890 16,444 9%
Loss from operations (1,188) (1,256) -5%
Interest income 334 166 102%
Interest expenses (10) (1,650) -99%
Loss before income taxes (863) (2,741) -69%
Income taxes 592 424 40%
Loss for the period (1,455) (3,165) -54%
Orders and Revenue
Total orders received from customers for the first half of fiscal 2008 grew 37% to $33.0 million compared to $24.1 million for the same
period last year. As a result of the strong increase in orders, backlog increased by 49% to $28.4 million as at March 31, 2008 as compared
to $19.1 million as at September 30, 2007.
Revenue for the period grew by 16% to $24.1 million compared to $20.7 million for the same period last year. The primary increase
related to deployments with new customers in the APAC region which increased from 6% to 22% of revenue between the periods.
The In-Bill operations which were acquired at the end of February 2008 contributed $0.2 million in revenue in the period.
Operating Costs
The following table provides additional analysis of the Company's operating expenses for the period indicated with the comments below
explaining the significant changes between the periods.
Unaudited Six Months Ended Six Months Ended
Cdn $000's 31-Mar-08 31-Mar-07
Revenue 24,088 20,684
Cost of Revenue 7,386 5,497
% of revenue 30.7% 26.6%
Sales and marketing 8,111 6,955
% of revenue 33.7% 33.6%
General and administrative 4,840 4,077
% of revenue 20.1% 19.7%
Research and development 6,521 5,611
% of revenue 27.1% 27.1%
Amortization of property and equipment 127 174
% of revenue 0.5% 0.8%
Foreign exchange (gain) (1,709) (373)
% of revenue -7.1% -1.8%
Cost of Revenue and Gross Profit
Cost of revenue consists of the cost of third party components sold as part of Redknee's solutions, in addition to the payroll expense
of personnel providing professional services to implement and support our solutions and agency fees. It also includes an allocation of
certain direct and indirect costs attributable to these activities. Gross Profit for the six month period ended March 31, 2008 decreased to
69% or $16.7 million as compared to 73% or $15.2 million for the six month period ended March 31, 2007. The reduction in gross margin
reflects the Company's investment in personnel related to the increased number of new deployments and related travel to support the
expansion of our global footprint, primarily in the high growth regions in APAC, the Middle East and Africa. As stated, Redknee intends to
leverage this operating infrastructure as it grows its revenue.
Gross Profit was also negatively impacted by a change in the revenue mix with an increase in revenue from third party solutions and a
decrease in revenue from capacity expansions.
Sales and Marketing
Sales and Marketing expenses ("S&M") consist of all expenses related to the sales and marketing of Redknee's solutions plus the
allocation of certain overhead costs. S&M costs totalled $8.1 million for the period ended March 31, 2008 which represents a 17% increase
from the $7.0 million incurred for the same period last year. These costs represent the Company's investment in additional sales and
marketing resources to drive revenue growth with new and existing customers.
General and Administrative
General and administrative ("G&A") expenses consist of the Company's support activities such as finance, human resources and IT.
Overhead costs such as facilities, communications and computer costs are allocated to the other departments based on a per headcount basis.
G&A expenses totalled at $4.8 million in the period which represents a 19% increase as compared to $4.1 million in the first half of fiscal
2007. G&A expenses increased by a slightly higher rate than revenue due to the increased costs of compliance related to being a public
company, preparation of Bill 198 compliance in Canada and the non-capitalized costs related to the acquisition of InBill.
Research and Development
Research and Development ("R&D") expenses consist primarily of personnel costs associated with product design, development and testing
plus the allocation of certain overhead costs. R&D expenditures increased by $0.9 million to $6.5 million for the six month period ended
March 31, 2008, which represents a 16% increase from the $5.6 million incurred in the same period last year. This reflects the Company's
investment in Turnkey Converged Billing, our Mobile Money Solution as well as the launch of IP Rating and Charging, in addition to enhancing
interoperability with other Network Equipment Providers.
Cash
Cash balances declined by $7.7 million in the period from $23.7 million at September 30, 2007 to $16.0 million at March 31, 2008. Cash
usages in the period included:
* The operating loss of $1.5 million,
* The acquisition of Argent for $1.1 million,
* An increase in accounts receivable due to an increase in orders and billings at the period end and an increase in the aging of
receivables in the quarter.
The increase in the aging is due primarily to one account which has been approved for payment by the customer but is awaiting approval
for payment by local government authorities.
FORWARD-LOOKING STATEMENTS
This release includes statements that are, or may be deemed to be, 'forward-looking statements'. These forward-looking statements can be
identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'plans', 'projects', 'anticipates',
'expects', 'intends', 'may', 'will', or 'should' or, in each case, their negative or other variations or comparable terminology. These
forward-looking statements include matters that are not historical facts and may be affected by known or unknown risk factors. They appear
in a number of places throughout this release and include statements regarding or based on the Directors' current intentions, beliefs or
expectations concerning, among other things, competitive factors, foreign exchange rates, industry and technology developments, the
Company's results of operations, financial condition, liquidity, prospects, growth, strategies and the group's markets.
Forward-looking statements may and often do differ materially from actual results. Any forward-looking statements in this release are
based on certain factors and assumptions, including the Directors' current view with respect to future events and are subject to risks
relating to future events and other risks, uncertainties and assumptions relating to the Company's operations, results of operations, growth
strategy and liquidity. While the Directors consider these assumptions to be reasonable based on information currently available, they may
prove to be incorrect.
By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. Actual
results and developments could differ materially from those expressed or implied by the forward-looking statements. Investors should not
place undue reliance on forward-looking statements as a prediction of actual results.
The Company undertakes no obligation, except as required by law, to update publicly or otherwise any forward-looking information,
whether as a result of new information, future events or otherwise, or the above list of factors affecting this information.
About Redknee
Redknee is a leading global provider of innovative communication software products, solutions and services. Redknee's award-winning
solutions enable operators to monetize the lifetime value of each subscriber transaction, while personalizing the subscriber experience to
meet mainstream, niche and individual market segment requirements. Redknee's revenue generating solutions provide advanced converged
billing, rating, charging and policy for voice, messaging and new generation data services to over 60 network operators in over 50
countries. Established in 1999, Redknee Solutions Inc. (AIM: RKN) is the parent of the wholly-owned operating subsidiary Redknee Inc. and
its various subsidiaries. References to Redknee refer to the combined operations of those entities. For more information, please visit
www.redknee.com.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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