Redline Communications Reports Second Quarter 2009 Results
Fri Aug 14, 7:00 AM
Revenue growth reflects ongoing demand for broadband wireless services;
Government stimulus programs expected to accelerate customers' broadband
wireless deployments
All figures in US Dollars unless specified
TORONTO, Aug. 14 /CNW/ - Redline Communications Group Inc. ("Redline" or the "Company"), (TSX: RDL.TO), a leading provider of WiMAX and wireless broadband solutions, today announced its financial and operational results for the three- and six-month periods ended June 30, 2009.
Q2 2009 Financial Highlights:
- Revenue of $10.4 million, up from $9.6 million in Q1 2009 and $9.5
million in Q2 2008
- WiMAX revenue was $5.3 million (54.6% of product revenue), compared
to $4.9 million (53.3% of product revenue) in Q1 and $4.0 million
(45.5% of product revenue) in Q2 2008
- Broadband Wireless Infrastructure (BWI) revenue was $4.4 million
(45.4% of product revenue), compared to $4.3 million (46.7% of
product revenue) in Q1 2009 and $4.8 million (54.5% of product
revenue) in Q2 2008
- Gross margin was 37.7% (41.3% excluding Company's inventory
provision) compared to 43.9% in Q1 2009 and 37.3% in Q2 2008
- Net loss of $2.6 million, or $0.12 per share, compared to $2.0
million, or $0.10 per share, in Q1 2009 and $5.3 million, or $0.25
per share, in Q2 2008
- Finalized CDN$10 million funding arrangement with the Ontario
Ministry of Economic Development and received CDN$2.1 million (US$1.9
million) in cash
- Net cash and short-term investments at quarter end was $4.2 million,
compared to $5.8 million as at March 31, 2009 and $4.4 million as at
December 31, 2008
- Inventory was $9.8 million as at June 30, 2009, down $1.9 million
from $11.7 million as at March 31, 2009, and down $3.1 million from
$12.9 million as at December 31, 2008
Q2 2009 Operational Highlights:
- Signed agreement with HydroOne in Ontario for development and
delivery of RedMAX 4C products for Smart Grid applications
- Selected by Rapid Link to be a key supplier in its $7.0 million
broadband wireless network build out, which is being funded in part
through the California Advanced Services Fund (CASF)
- Submitted Redline products to the National Institute of Standards and
Technology in the United States for FIPS 140-2 validation, a
specialized security certification, to address specific needs for
public safety and military market segments
- Launched customer outreach and support programs to assist in the
preparation of customers' American Recovery and Reinvestment Act
(ARRA) stimulus funding submissions
- Strengthened marketing and staff resources to address key vertical
markets
- Realigned Executive Team, streamlining operations and product
development functions
"Our business is performing to plan, as we continue to execute on our strategies for each of our product categories, while maintaining strict cost controls," said Majed Sifri, President and Chief Executive Officer, Redline Communications Group. "In the second quarter, we experienced healthy demand for our RedMAX products, as several large operators in emerging markets as well as wireless service providers in North America continued to roll out and expand networks. Our 4C Mobile WiMAX products also gained momentum, with new product development well underway. In addition, we achieved greater traction in our target verticals for our BWI product families, particularly in the public safety and energy segments where our products are well suited to support video surveillance and oil and gas exploration applications."
Mr. Sifri continued: "Our customers are still exercising caution given the challenging global economic environment. For example, the U.S. Department of Defense is currently in a spending freeze for many of its broadband connectivity programs. However, we believe the industry is heading into a recovery phase. Regulators are starting to allocate more spectrum for deployments, and governments are introducing telecommunications infrastructure stimulus programs. Specifically, the United States government is now accepting proposals for the allocation of funding for the delivery of broadband services in unserved and underserved markets, and the parameters for these programs are favorable for the deployment of our WiMAX and BWI products. While these programs may result in customers delaying spending decisions in the near term, we have a solid roster of customers and partners that are strong candidates for financing under these programs. We are excited about the long-term growth prospects this creates for Redline."
Q2 2009 Financial Review
Driven by increased sales of both Redline's WIMAX and BWI products, the Company's revenue for Q2 2009 increased to $10.4 million, up 8.3% from $9.6 million in the previous quarter. Revenue increased 9.5% year-over-year from $9.5 million in second quarter of 2008.
Gross margin for the three months ended June 30, 2009 was 37.7%, or $3.9 million, as compared to 43.9%, or $4.2 million in the previous quarter, and 37.3%, or $3.5 million, for the same period last year. The sequential decline in gross margin was a result of product mix and a $0.4 million inventory provision (2008 - $0.7 million). Excluding the inventory provision, Q2 2009 gross margin would have been 41.3%. Redline remains focused on effectively managing its production costs and inventory levels, and expects margins to return to a normalized level of approximately 40% over the long-term.
Operating expenses were $6.3 million, down 29.2% from $8.9 million in Q2 2008, reflecting the ongoing cost saving initiatives the Company implemented in December 2008. Operating expenses were up slightly from $6.1 million in Q1 2009, primarily as a result of changes in the Canadian dollar exchange rate.
EBITDA(1) loss for Q2 2009 was $2.2 million. Excluding the inventory provision and the impact of the changes in the Canadian dollar exchange rate in comparison to Q1 2009, EBITDA loss for Q2 2009 was $1.4 million. EBITDA loss was $1.6 million in Q1 2009 and $5.1 million in Q2 2008.
Net loss for the Q2 2009 was $2.6 million, or $0.12 per share. Excluding the inventory provision and the impact of the changes in the Canadian dollar exchange rate in comparison to Q1 2009, net loss for Q2 2009 was $1.8 million, or $0.09 per share. Net loss for Q1 2009 was $2.0 million, or $0.10 per share, and $5.3 million, or $0.25 per share, in Q2 2008.
As of June 30, 2009, the Company had net cash and short-term investments of $4.2 million, compared to $5.8 million on March 31, 2009, and $4.4 million as at December 31, 2008.
First Half 2009 Financial Summary:
- Revenue of $20.0 million, compared with $23.3 million in the first
half of 2008
- WiMAX revenue was $10.1 million (53.4% of product revenue), compared
to $9.7 million (45.0% of product revenue) in the first half of 2008
- BWI revenue was $8.8 million (46.6% of product revenue), compared to
$11.8 million (55.0% of product revenue) for the first half of 2008
- Gross margin was 40.7%, compared with 38.6% for the first half of Q2
2008
- Net loss of $4.6 million, or $0.22 per share, compared to $9.5
million, or $0.45 per share, in the first half of 2008
Outlook
Redline believes it is 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 Company also expects to achieve positive EBITDA and cash flow in the fourth quarter of 2009.
While the worldwide economic slowdown is affecting capital expenditure in the telecommunications industry in the near term, Redline customers in key international markets are continuing to move forward with network expansions and new network deployments. As a result, the Company has increased its customer base in certain vertical markets. In addition, with the allocation of government stimulus funding for broadband network deployments now underway, Redline expects that many of its customers will receive financing and begin to place recurring orders for the Company's WiMAX and BWI products. Redline also expects that with its Ontario Ministry of Economic Development funding agreement now in place, it will deliver new broadband wireless technologies, positioning the Company for long-term growth in its target vertical markets which include: government, energy, transportation and telecommunication service providers.
Investor Conference Call
Redline's Q2 2009 conference call will take place on Friday, August 14, 2009 at 8:30 am EDT. Conference call dial in numbers are 416-644-3426 or 1-800-591-7539. The live webcast of the conference call and a copy of this news release and financial statements are available at www.redlinecommunications.com and at www.newswire.ca.
(1) The Company defines EBITDA as Earnings Before Interest, Income Tax,
Depreciation, Amortization and foreign exchange
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.
REDLINE COMMUNICATIONS GROUP INC.
Consolidated Balance Sheets
(expressed in U.S. dollars)
-------------------------------------------------------------------------
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June 30, December 31,
2009 2008
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(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 4,071,344 $ 4,355,254
Restricted short-term investments 93,007 -
Accounts receivable 10,774,506 11,627,388
Other receivables 134,015 230,563
Inventories 9,788,359 12,896,286
Prepaid expenses 538,547 457,437
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25,399,778 29,566,928
Capital assets:
Property, plant and equipment 1,130,283 1,291,597
Intangible assets subject to
amortization 380,608 496,092
Other assets 66,243 194,002
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$ 26,976,912 $ 31,548,619
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 8,573,108 $ 9,905,615
Deferred revenue 1,253,708 1,267,498
Current portion of capital lease
obligations 31,151 50,898
Current portion of loans payable 2,680,330 1,675,741
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12,538,297 12,899,752
Loans payable 165,401 250,313
Capital lease obligations 18,476 27,600
Shareholders' equity:
Share capital 128,489,132 128,444,175
Share purchase loan (365,780) (365,780)
Warrant 310,000 310,000
Contributed surplus 6,350,338 5,917,460
Deficit (120,840,420) (116,246,369)
Accumulated other comprehensive income 311,468 311,468
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14,254,738 18,370,954
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$ 26,976,912 $ 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 Six months ended
June 30, June 30,
2009 2008 2009 2008
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(Unaudited) (Unaudited)
Revenue:
Product $ 9,671,490 $ 8,796,459 $ 18,872,267 $ 21,437,583
Maintenance 700,445 728,723 1,078,246 1,885,678
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10,371,935 9,525,182 19,950,513 23,323,261
Cost of
revenue(1) 6,463,061 5,977,014 11,836,475 14,324,473
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Gross Margin 3,908,874 3,548,168 8,114,038 8,998,788
Expenses:
Research and
development(1) 2,447,652 3,116,277 4,736,671 6,531,842
Finance and
admini-
stration(1) 988,224 1,471,499 1,899,743 3,044,129
Sales and
marketing(1) 2,655,879 4,046,056 5,285,085 8,491,027
Amortization of
property, plant
and equipment 246,478 248,479 475,108 435,682
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6,338,233 8,882,311 12,396,607 18,502,680
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Loss before
the undernoted (2,429,359) (5,334,143) (4,282,569) (9,503,892)
Other expenses/
(income):
Interest and
other 85,130 167,656 190,897 132,279
Gain on disposal
of assets - - - (70,296)
Foreign exchange 46,850 (260,207) 110,985 (110,121)
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131,980 (92,551) 301,882 (48,138)
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Loss before
income taxes (2,561,339) (5,241,592) (4,584,451) (9,455,754)
Income taxes 2,712 8,919 9,600 39,761
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Loss and
comprehensive
loss (2,564,051) (5,250,511) (4,594,051) (9,495,515)
Deficit,
beginning of
the period (118,276,369) (95,721,216) (116,246,369) (91,706,738)
Effect of
change in
accounting
policy - - - 230,526
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Deficit, end
of period $(120,840,420) $(100,971,727) $(120,840,420) $(100,971,727)
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Loss per
share -
basic and
diluted $ (0.12) $ (0.25) $ (0.22) $ (0.45)
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Weighted
average
number of
shares used
in basic and
diluted loss
per share 21,102,207 21,048,635 21,075,716 21,048,267
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(1) Includes
stock-based
compensation
expense as
follows:
Cost of
revenue $ 15,601 $ 28,262 $ 24,975 $ 59,122
Expenses:
Research and
development 78,840 140,007 140,502 285,190
Finance and
administration 68,456 72,222 96,124 155,038
Sales and
marketing 89,698 178,775 171,277 381,714
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Total $ 252,595 $ 419,266 $ 432,878 $ 881,064
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REDLINE COMMUNICATIONS GROUP INC.
Consolidated Statements of Cash Flows
(expressed in U.S. dollars)
-------------------------------------------------------------------------
Three months ended Six months ended
June 30, June 30,
2009 2008 2009 2008
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(Unaudited) (Unaudited)
Cash provided by
(used in):
Loss for the
period: $ (2,564,051) $ (5,250,511) $ (4,594,051) $ (9,495,515)
Items not
affecting
cash:
Amortization
of property,
plant and
equipment 246,478 248,479 475,108 435,682
Stock-based
compensation
expense 252,595 419,266 432,878 881,064
Accretion
of debt 26,324 26,324 52,648 52,648
Gain on
disposal of
assets - - - (70,296)
Foreign
exchange (41,717) (233,558) (6,240) 232,871
Change in
non-cash
working
capital (846,118) (8,756) 2,757,709 (3,642,073)
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(2,926,489) (4,798,756) (881,948) (11,605,619)
Financing
activities:
Issuance of
share capital,
net of
issuance
costs 44,957 (52,522) 44,957 (94,299)
Government
loan
proceeds 1,856,456 - 1,856,456 -
Repayment of
loans (482,173) (445,432) (989,427) (855,024)
Principal
payment of
capital lease
obligations (9,985) (36,145) (28,871) (97,059)
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1,409,255 (534,099) 883,115 (1,046,382)
Investing
activities:
Purchase of
capital assets (139,093) (159,020) (198,310) (334,498)
Increase in
restricted
short-term
investments (878) - (93,007) -
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(139,971) (159,020) (291,317) (334,498)
Foreign exchange
gain (loss) on
cash held in
foreign
currency 41,717 233,558 6,240 (232,871)
Increase
(decrease)
in cash and
cash
equivalents (1,615,488) (5,258,317) (283,910) (13,219,370)
Cash and cash
equivalents,
beginning of
period 5,686,832 20,752,352 4,355,254 28,713,405
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Cash and cash
equivalents,
end of
period $ 4,071,344 $ 15,494,035 $ 4,071,344 $ 15,494,035
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Supplemental
cash flow
information:
Interest
paid $ 67,817 $ 103,566 $ 152,028 $ 206,640
Income taxes
paid 2,712 8,919 9,600 39,761
Supplemental
disclosures
relating to
non-cash
financing
and investing
activities:
Purchase of
property,
plant and
equipment
under capital
leases - 32,243 - 32,243
Purchase of
property,
plant and
equipment
under loan - 544,226 - 544,226
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Forward-Looking Statements
Certain statements in this release, including the guidance provided above, constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws and are made pursuant to the "safe harbour" provisions of such laws. These statements are subject to certain assumptions, risks and uncertainties. Readers are cautioned not to place undue reliance on such statements. Risk factors that may cause the actual results, performance, achievements or developments of the Company to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements can be found in the public documents filed by the Company from time to time with Canadian securities regulatory authorities. In particular, actual results could differ materially from those expressed in any forward-looking statements. Downturns in the economy or geopolitical uncertainties may cause customers to delay or cancel projects. For a more complete list of risk factors, please refer to Redline's Annual Information Form dated March 31, 2009. The Company assumes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
NOTE: All registered and unregistered trademarks mentioned in this release are the property of their respective owners.
ContactsRedline Communications
David Andrews
Carolyn Anderson
dandrews@redlinecommunications.com
canderson@redlinecommunications.com
Tel: (905) 479-8344 Equicom Group
Craig Armitage
Kristen Dickson
carmitage@equicomgroup.com
kdickson@equicomgroup.com
Tel: (416) 815-0700
85.35 (0.75%)
