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Redline Communications Reports Q3 2012 Financial Results(Canada Newswire Via Acquire Media NewsEdge) Sales Momentum Drives Significant Order Bookings TORONTO, Nov. 13, 2012 /CNW/ - Redline Communications Group Inc. (TSX: RDL) ("Redline" or the "Company"), a leading provider of ruggedized wireless infrastructure systems, today reported financial results for the three and nine month periods ended September 30, 2012. Financial Summary for the three months ended September 30, 2012 (Q3 2012) $15.0M Bookings¹, up 24% from Q2 2012 $6.5M Shipments¹, down 36% from Q2 2012 $16.1M Order Backlog¹, up 108% from Q2 2012 $8.1M Total Revenue, down 41% over same period last year due to completion of RedMAX deferred revenue period, core BWI revenue up 8% $6.0M Operating Expenses, an 18% improvement over the same period last year ($1.0M) Adjusted EBITDA², down from $1.5M over the same period last year Subsequent to Q3 2012, finalized a Cdn. $10.0 million credit facility with HSBC Bank Canada Subsequent to Q3 2012, amended loan agreement with the Ontario Ministry of Economic Development and Innovation reducing interest charge by $0.7 million Subsequent to Q3, received notice from warrant holders of their intention to exercise their warrants Highlights for the three months ended September 30, 2012 (Q3 2012) Sales momentum within the Energy and Telecom sectors resulted in significant quarterly order Bookings totaling $15.0 million, up 24% over Q2 2012. Bookings included orders for two multi-million dollar projects - an oil and gas project in the Middle East and a telecom service provider project in Pakistan. The Company's success in securing larger orders with delivery timeframes that often span many months has resulted in an increased order Backlog of $16.1 million, up 108% from $7.8 million in Q2 2012. Third quarter 2012 revenue from BWI product increased 8% over the same period last year to $7.1 million. The Company continues to manage operating expenses tightly, reporting a reduction of 18% to $6.0 million in the quarter as compared to the same period in 2011. Subsequent to the quarter end, in October 2012 Redline finalized a Cdn. $10.0 million credit facility with HSBC Bank Canada and amended their loan agreement with the Ontario Ministry of Economic Development and Innovation. Subsequent to the quarter end, on November 12, 2012 Redline announced that they had received confirmation from several warrant holders that they intend to exercise some of the warrants associated with the Debenture financing completed in June 2011. As a result the Company could receive up to Cdn. $13.67 million before the end of November 2012. Of the possible total, Cdn. $1.3 million has already been received.³ "The combination of a new credit facility with HSBC and the funds from the anticipated exercise of warrants will give Redline significant flexibility, allowing us to support increased growth without diluting our shareholders," said Eric Melka, Redline CEO. "We are excited about the strength of our sales pipeline and a stronger balance sheet will help us go after the larger opportunities we have identified." Q3 Operating Highlights In August 2012, Redline announced the availability of the ruggedized nomadic RAS system, the first wireless broadband networking system to automatically locate, steer toward and connect to a network base station. Roving RAS-equipped rigs, vehicles and other equipment will enjoy automatic, continuous and reliable wireless connectivity even as they move from place to place across large distances. In September 2012, Redline received a contract representing approximately 10% of Redline's annual revenue for 2012 with an existing American oil and gas customer for a high-capacity wireless network for communications between wells, other assets, and drilling rigs in the oilfield, and their centralized control offices in their new Oman location. The Company has been selected to be the prime contractor on this project, and, in addition to providing Redline BWI product, will be providing significant professional services. Also in September 2012, Redline received a large order for BWI product from an existing service provider customer in Pakistan. The customer will migrate from Redline's WiMAX products to Redline's BWI products, using them to deliver business access services to their more demanding customers. This solution also allows them to continue using their WiMAX spectrum with Redline's more powerful BWI products. Redline continued to develop relationships with other industry leaders, joining Honeywell's PKS Advantage™ program to demonstrate that the companies together can deliver complete, integrated M2M solutions comprised of their combined solutions for the oil and gas industry. Q3 Financial Review Highest Bookings to date of $15.05 million were recorded for Q3 2012 were up 24.1% over Q2 2012. Bookings were driven primarily from strong sales to the energy sector. Management estimates, based on the amount of direct business and on their knowledge of their Channel Partners' business, that approximately 60% of Bookings in the quarter were to customers in the Energy sector. The Company continues to phase out their RedMAX product line, which represented only 11% of total product Bookings for Q3 2012. Backlog grew quarter over quarter by 108% to $16.1 million at the end of Q3 2012 as compared to $7.75 million at the end of Q2 2012, with the growth primarily due to two significant orders received in the quarter, the larger of which (in oil and gas) is expected to be delivered over an eighteen month period, and the other (in telecom) by the end of December 2012. Management estimates, based on the amount of direct business and on their knowledge of their Channel Partners' business, approximately 40% of Shipments in the quarter were to customers in the Energy sector. Overall shipments decreased by 35.8% to $6.49 million for Q3 2012 as compared to $10.11 million for Q2 2012, with the decrease due to seasonality, high temperatures and holidays in both the Middle East and the Americas delaying the start of deployments. "I am very pleased with the continued growth in Bookings, demonstrating the ongoing demand for Redline solutions worldwide," said Eric Melka, President and CEO of Redline Communications. "Our success in closing larger opportunities has significantly increased our backlog, providing improved visibility into future revenue." BWI revenue was $7.05 million, up 7.8% from $6.54 million for the same period last year. Total Revenue for Q3 2012 was $8.15 million, down $5.54 million from $13.69 million for the same period last year. The completion of the RedMAX Amortized Deferred Revenue period at June 30, 2012 makes year over year comparisons difficult, but total RedMAX Amortized Deferred revenue for Q3 2011 was $7.15 million, and $0 for Q3 2012, accounting for the decrease in total revenue. Overall gross margin for Q3 2012 was 56% compared to gross margins of 61% for Q3 2011. The decrease was a result of product mix. Margins on core BWI product remain high at 57%. The Company's commitment to managing operating costs and improving operating efficiencies has resulted in a decrease in overall operating expenses of 17.9% to $5.99 million for Q3 2012 compared to $7.29 million reported for the same period last year. Cost reductions were realized in all functional areas of the business. Adjusted EBITDA for the three months ended September 30, 2012 was ($1.05) million, a decrease of $2.54 million over $1.49 million for the corresponding period in 2011. Lower operating costs in Q3 2012 did not fully offset lower overall revenues resulting from the completion of the amortization period of RedMAX Amortized Deferred Revenue. The Company reported a non-cash charge of $3.71 million for Q3 2012 as compared to a non-cash gain of $0.70 million for Q3 2011. The charge in Q3 2012 relates primarily to the fair market value adjustment of the debenture and warrants associated with a private placement financing completed in June 2011, and the non-cash gain in Q3 2011 relates primarily to foreign exchange. As a result, for the third quarter of 2012, Redline realized a net Loss of $5.16 million, or ($0.55) per share fully diluted, compared to net Income of $1.80 million, or $0.20 per share fully diluted, in the same period last year. As of September 30, 2012 the Company had $0.75 million of cash as compared to $4.65 million as at December 31, 2011. Subsequent to the end of Q3 2012, the Company delivered on its commitment to leverage its working capital, closing a Cdn. $10.0 million line of credit with HSBC. They also received exercise notices from several warrant holders indicating that a number of warrants associated with the Debenture financing of June 2011 would be exercised. The Company has also received preliminary indications that other non-insiders may be exercising their warrants shortly, and has been informed that certain insiders would be exercising some of their warrants once the Company's blackout period has been lifted. Assuming that all these warrants are exercised, a total of 3,755,705 warrants of the 4,497,281 total outstanding warrants would be exercised for a total aggregate consideration of approximately Cdn. $13.67 million. Conference Call and Webcast - November 13, 2012 at 8:00 a.m. EDT A conference call and webcast to discuss the results will be held November 13, 2012 at 8:00 a.m. EDT. To participate in the conference call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call, and provide passcode 59506212. A recording of the call will be available through November 20, 2012. Please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 59506212 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. 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: All amounts reported in this press release are in US dollars unless otherwise stated. To better assess the health and growth of the Redline's business, the Company reports on several key metrics, including "Orders or Bookings", "Shipped or Shipments", "Backlog", "EBITDA" and "Amortized Deferred Revenue". Further information including definitions of these categories can be found in the Company's Management Discussion and Analysis for the three and nine months ended September 30, 2012, copies of which are available on SEDAR at www.sedar.com. Further details on the three and nine month results ended September 30, 2012 can be found in the condensed consolidated interim statement of financial position, condensed consolidated interim statement of comprehensive income, 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 and nine months ended September 30, 2012 and MD&A for the same time period. The term Adjusted EBITDA refers to Profit before deducting share-based payment expense, finance expense, foreign exchange gain (loss), FMV gain (loss) on debenture, depreciation and income taxes. Adjusted EBITDA margin refers to the percentage that Adjusted EBITDA for any period represents as a portion of total revenue for that period. We believe that Adjusted EBITDA and Adjusted EBITDA margin are useful supplemental information as they provide an indication of the results generated by the Company's main business activities prior to taking into consideration how those activities are financed and taxed and also prior to taking into consideration share-based payment expense and the other items listed above. Accordingly, we believe that these measures may also be useful to investors in enhancing their understanding of the Company's operating performance. See ?Results of Operations - Adjusted EBITDA. While the Company has no reason to believe that the warrants referred to in this release will not be exercised, until Redline has received all exercise forms and associated payments, there can be no assurance that they will. 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 30,2012 December 31, 2011 ASSETS Current assets: Cash $ 752,516 $ 4,651,284 Short-term investment 33,003 92,144 Restricted short-term investments - 33,003 Trade receivables 10,240,106 9,913,208 Other receivables 293,046 340,499 Inventories 7,799,996 7,851,884 Deferred WiMAX cost of revenue - 7,484,581 Deferred cost of revenue 844,733 333,287 Prepaid expenses and other deposits 814,941 2,214,309 20,778,341 32,914,199 Non-current assets: Property, plant and equipment 898,548 1,026,480 Intangible assets 132,035 158,239 Other assets 100,148 97,365 1,130,731 1,282,084 Total Assets $ 21,909,072 $ 34,196,283 LIABILITIES AND SHAREHOLDERS' DEFICIENCY Current liabilities Trade and other payables $ 6,578,486 $ 9,081,197 Income tax payable 292,927 292,927 Deferred WiMAX revenue - 14,213,501 Deferred revenue 3,067,392 2,285,406 Current portion of borrowings 6,576,752 6,182,398 16,515,557 32,055,429 Non-current liabilities Other payables 484,118 - Convertible debenture (principal and interest) 1,354,152 1,344,095 Fair market value adjustment on convertible debenture 8,607,764 2,918,446 10,446,034 4,262,541 Total Liabilities 26,961,591 36,317,970 SHAREHOLDERS' DEFICIENCY Share capital 134,732,180 134,336,023 Share purchase loan (365,780) (365,780) Warrant 310,000 310,000 Contributed surplus 8,213,467 7,635,506 Deficit (147,942,386) (144,037,436) (5,052,519) (2,121,687) Total liabilities and equity $ 21,909,072 $ 34,196,283 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, 2012 2011 2012 2011 Revenue $8,145,984 $ 13,693,374 $38,033,918 $ 39,864,450 Cost of revenue 3,606,736 5,306,689 17,131,369 15,583,161 Gross profit 4,539,248 8,386,685 20,902,549 24,281,289 Expenses: Research and development 1,426,750 1,685,648 4,577,763 4,278,290 Finance and administration 1,841,489 2,284,886 5,397,817 7,415,319 Sales and marketing 2,277,960 2,794,955 7,083,711 7,214,042 Operations and customer support 441,107 523,641 1,375,796 1,865,186 Gain on disposal of assets - - - (1,519) 5,987,306 7,289,130 18,435,087 20,771,318 (Loss) income before non-operating items (1,448,058) 1,097,555 2,467,462 3,509,971 Other expenses (income) Finance expense 41,267 297,721 214,758 512,957 Loss on fair market value of Debenture 3,192,165 37,298 5,840,382 620,089 Foreign exchange loss (gain) 480,272 (1,037,559) 317,272 (614,483) 3,713,704 (702,540) 6,372,412 518,563 Profit (loss) before income taxes (5,161,762) 1,800,095 (3,904,950) 2,991,408 Income tax expense - - - - Net profit (loss) and total comprehensive income (loss) $(5,161,762) $ 1,800,095 $(3,904,950) $ 2,991,408 Earnings per share Basic $(0.55) $ 0.34 $(0.42) $ 0.57 Diluted $(0.55) $ 0.20 $(0.42) $ 0.53 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, 2010 $ 128,532,124 $ (365,780) $ 310,000 $ 6,387,487 $ (148,099,590) $ (13,235,759) Net profit - - - - 2,991,408 2,991,408 Share-based payments - - - 1,031,431 - 1,031,431 Exercise of options 80,352 - - (40,833) - 39,519 Balance at September 30, 2011 $ 128,612,476 $ (365,780) $ 310,000 $ 7,378,085 $ (145,108,182) $ (9,173,401) Balance at December 31, 2011 $ 134,336,023 $ (365,780) $ 310,000 $ 7,635,506 $ (144,037,436) $ (2,121,687) Net loss - - - - (3,904,950) (3,904,950) Shares issued on conversion of debenture $ 205,450 $ - $ - $ - $ - $ 205,450 Shares issued on conversion of warrants 66,434 - - - - 66,434 Exercise of options 124,273 - - (70,164) - 54,109 Share-based payments - - - 648,125 - 648,125 Balance at September 30, 2012 $ 134,732,180 $ (365,780) $ 310,000 $ 8,213,467 $ (147,942,386) $ (5,052,519) 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, 2012 2011 2012 2011 Cash flows from operating activities: Net profit (loss) $(5,161,762) $ 1,800,095 $(3,904,950) $ 2,991,408 Adjustments to reconcile profit (loss) before taxes to net cash from operating activities Finance expense 41,267 297,721 214,758 512,957 Depreciation and amortization of non-current assets 104,508 101,879 311,396 312,747 Recognition of share based payments 296,073 295,743 753,851 1,031,431 Foreign exchange (gain) loss on cash held in foreign currency (6,651) 3,080 (47,768) 1,913 Foreign exchange loss (gain) on borrowings 460,173 (1,283,046) 252,713 (1,004,167) Loss on fair market value of Debenture 3,192,165 37,298 5,840,382 620,089 (1,074,227) 1,252,770 3,420,382 4,466,378 Change in non-cash operating assets and liabilities Decrease in deferred cost of revenue 921,387 3,115,053 6,973,135 7,200,481 Decrease in deferred revenue (1,821,965) (5,403,685) (13,431,515) (13,952,071) Change in other non-cash operating assets and liabilities 382,651 (735,187) (955,291) (6,673,927) Cash used in operating activities (1,592,154) (1,771,049) (3,993,289) (8,959,139) Cash flows from investing activities: Acquisition of property, plant and equipment (38,263) (65,798) (102,549) (131,206) Acquisition of intangible assets (4,635) (26,371) (54,711) (254,598) Redemption (purchase) of investments - 5,251,033 92,144 (33,000) Cash (used in) from investing activities (42,898) 5,158,864 (65,116) (418,804) Cash flows from financing activities: Finance costs 34,694 (26,884) 26,267 (71,986) Proceeds from exercise of options 35,153 3,767 54,109 39,519 Proceeds from conversion of warrants 31,493 - 31,493 - Proceeds of borrowings - 18,161 - 8,534,848 Repayment of borrowings - - - (78,400) Cash from (used in) financing activities 101,340 (4,956) 111,869 8,423,981 Foreign exchange gain (loss) on cash held in foreign currency 6,651 (3,080) 47,768 (1,913) Decrease (increase) in cash (1,527,061) 3,379,779 (3,898,768) (955,875) Cash, beginning of the period 2,279,577 1,687,416 4,651,284 6,023,070 Cash, end of the period $752,516 $ 5,067,195 $752,516 $ 5,067,195 |