9 May 2008 07:00
Redline Reports First Quarter 2008 Financial Results
/NOT FOR DISTRIBUTION IN THE UNITED STATES/ All figures in US Dollars unless specified - Revenue growth of 19% year-over-year driven by 33% growth in WiMAX revenue -
TORONTO, May 9 /CNW/ - Redline Communications Group Inc. ("Redline" or "the Company"), , a leading provider of WiMAX and wireless broadband solutions, today announced its financial results for the three months ended March 31, 2008.
Financial Highlights: - Revenue of $13.8 million, up 19% compared to Q1 2007 and up 8% sequentially - WiMAX Forum Certified(TM) RedMAX revenue rose 33% year-over-year to $7.6 million and 15% sequentially - Broadband wireless infrastructure (BWI) revenue increased 5% versus Q1 2007 to $6.2 million - Gross margin was 40%, a significant increase from 28% in Q4 2007 - Net loss of $4.2 million, or $0.20 per share, compared to $6.2 million, or $0.48 per share, in Q4 2007 - Net cash at quarter end was $20.8 million versus $28.7 million at the close of 2007 Operational Highlights: - 40 RedMAX customers placed multiple or recurring equipment orders as of the end of Q1 2008 - 58 RedMAX customers with live commercial, revenue-generating WiMAX Forum Certified(TM) product deployments, compared to 49 at the end of 2007 - More than 160 paid trials and deployments of WiMAX Forum Certified(TM) RedMAX systems - Began shipments of 3.65 GHz WiMAX products to service providers in the United States - Shipped RedMAX 4C(TM) Mobile WiMAX products to the WiMAX Forum for certification - Unveiled new RedCONNEX(TM) and RedACCESS(TM) products for the 4.9 GHz band, designed for public safety and military communications networks.
"We are pleased with the solid revenue growth achieved in the first quarter from both of Redline's key product lines," said Majed Sifri, President and Chief Executive Officer. "On the WiMAX front, we continue to convert trials into full deployments. The number of commercial RedMAX customers increased by nine, highlighted by major regional telecom companies such as Divona Telecom, UUNET Kenya and CityLink in Cambodia. We have gained traction in the United States with the adoption of our 3.65 GHz products by companies such as Rapid Link and Azulstar. In mobile WiMAX, we continue to trial RedMAX 4C products with customers and have shipped products to the WiMAX Forum for certification. The improved results from BWI show that our renewed focus on our backhaul products is paying off. With a strong start to the year, we believe we are on target to deliver revenue growth of 40% year-over-year and to achieve positive EBITDA in the fourth quarter."
Financial Review
In the first quarter of 2008, Redline's revenue rose 19% to $13.8 million, compared with $11.6 million in the first quarter of 2007. Both of Redline product lines saw strong revenue increases, with WiMAX Forum Certified(TM) revenue rising 33% to $7.6 million and BWI revenue increasing 5% to $6.2 million. The growth in Redline's RedMAX products reflects the rollout of existing deployments, as well as new paid trials and deployments. The growth in the BWI division reflects the rollout of a new product, as well as the Company's renewed focus on the RedCONNEX(TM) and RedACCESS(TM) product line.
Gross margin for the first quarter of 2008 increased to 40%, compared with 39% in Q1 2007 and 28% in Q4 2007. Operating expenses increased by $2 million to $9.4 million in Q1 2008 compared to Q1 2007. More than 60% of this change was due to the increase in the value of the Canadian dollar relative to the U.S. dollar. Net loss for the first quarter of 2008 was $4.2 million or $0.20 per share, compared with a net loss of $2.9 million, or $0.27 per share, in Q1 2007, and a net loss of $6.2 million, or $0.48 per share, in Q4 2007.
As at March 31, 2008, the Company had $20.8 million of cash, cash equivalents and restricted cash, compared with $28.7 million at December, 31, 2007. The decrease in cash in the first quarter of 2008 reflects losses of $4.2 million and an increase in accounts receivables of $2.3 million. Since the end of March, Redline has collected over half of its overdue receivables.
Chief Executive Officer Review
In the first quarter of 2008, Redline continued to deliver on its key strategic initiatives:
Converting RedMAX trials into commercial deployments: Redline has increased the number of trials and deployments to more than 160 in Q1 2008, compared to 150 at the end of 2007. Of these, 58 carriers have converted to commercial revenue-generating RedMAX deployments, compared with 49 at the end of 2007. More than 40 RedMAX network operators have placed multiple or recurring equipment orders to expand their network and subscriber base. Expanding Redline's global reach: Redline has over 170 global reseller and deployment partners including global systems integrators, as well as a growing roster of companies with expertise in planning and installing wireless networks in key regional and vertical markets including oil and gas, transportation, public safety and military. Broadening customer base: Redline has increased its presence in key high-growth international markets. The Company has built a strong customer base in both Latin America and the Middle East, and has also seen strong growth recently from Africa and Asia. Redline also made significant inroads in the U.S. with over 15 customer wins in the quarter relating to its 3.65 GHz WiMAX products, which management believe reflects pent-up demand for fixed and nomadic WiMAX networks in developed markets. Maintaining technology leadership: Redline maintained its technology leadership in both its WiMAX and BWI business units. The RedMAX product family continues to offer the highest capacity in the market, highest scalability and open architecture, which translates into an easy to deploy network with a rapid return on investment for its customers. As part of the Redline Ecosystem Verification (REV) program, Redline completed interoperability testing with Patapsco Communications to verify that service providers can extend the reach of traditional TDM service offerings via Redline's WiMAX networks. In addition, Redline unveiled its new RedCONNEX(TM) and RedACCESS(TM) products for the 4.9GHz band, designed for used in public safety and military communications networks in the United States as well as international markets. Outlook
In 2008, Redline expects revenue growth of 40% year-over-year and to achieve positive EBITDA in the fourth quarter. Revenue growth is expected to come from an increase in the number and size of WiMAX deployments and from increased sales of the Company's BWI products. In addition, the Company continues to position itself for long-term growth with the development and market introduction of RedMAX 4C Mobile WiMAX products.
Investor Conference Call
Redline's Q1 2008 conference call is on Friday, May 9, 2008 at 8:30 am ET (1:30 pm GMT). Conference call dial in numbers are 416-644-3423 or 1-800-590-1508 (Canada) or 00-800-2288-3501 (UK). The live webcast of the conference call and a copy of this news release and financial statements, is available on the 'Investors' section of Redline's website www.redlinecommunications.com or at www.newswire.ca.
REDLINE COMMUNICATIONS GROUP INC. Interim Consolidated Balance Sheets (Expressed in U.S. dollars) ------------------------------------------------------------------------- March 31, December 31, 2008 2007 ------------------------------------------------------------------------- (Unaudited) Assets Current assets: Cash $ 20,752,352 $ 28,713,405 Restricted cash 8,033 8,033 Accounts receivable 19,723,736 17,423,119 Other receivables 245,699 360,855 Inventories 9,137,755 9,028,620 Prepaid expenses 1,016,869 576,741 ----------------------------------------------------------------------- 50,884,444 56,110,773 Property, plant and equipment 1,249,916 1,339,721 Other assets 93,974 94,054 ------------------------------------------------------------------------- $ 52,228,334 $ 57,544,548 ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 9,331,936 $ 9,657,119 Deferred revenue 1,902,640 2,706,656 Current portion of capital lease obligations 181,595 229,322 Current portion of loan payable 1,830,467 1,776,633 ----------------------------------------------------------------------- 13,246,638 14,369,730 Loan payable 938,322 1,375,424 Capital lease obligations 47,275 60,462 Shareholders' equity: Share capital 133,405,847 133,134,202 Deficit (95,721,216) (91,706,738) Accumulated other comprehensive income 311,468 311,468 ----------------------------------------------------------------------- 37,996,099 41,738,932 ------------------------------------------------------------------------- $ 52,228,334 $ 57,544,548 ------------------------------------------------------------------------- ------------------------------------------------------------------------- REDLINE COMMUNICATIONS GROUP INC. Interim Consolidated Statements of Operations and Deficit (Expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended March 31, 2008 2007 ------------------------------------------------------------------------- (Unaudited) Revenue: Product $ 12,641,124 $ 10,804,333 Maintenance 1,156,955 827,412 ----------------------------------------------------------------------- 13,798,079 11,631,745 Cost of revenue(1) 8,347,459 7,084,998 ------------------------------------------------------------------------- Gross margin 5,450,620 4,546,747 Expenses: Research and development(1) 3,415,565 2,609,018 Finance and administration(1) 1,572,630 1,102,074 Sales and marketing(1) 4,444,971 3,685,475 ----------------------------------------------------------------------- 9,433,166 7,396,567 ------------------------------------------------------------------------- Loss before the undernoted (3,982,546) (2,849,820) Other expenses 231,616 68,564 Loss before income taxes (4,214,162) (2,918,384) Income taxes 30,842 - ------------------------------------------------------------------------- Loss for the period and other comprehensive loss (4,245,004) (2,918,384) Deficit, beginning of period as previously reported (91,706,738) (75,958,226) Change in accounting policy 230,526 - ------------------------------------------------------------------------- Deficit, beginning of period as revised (91,476,212) (75,958,226) ------------------------------------------------------------------------- Deficit, end of period $(95,721,216) $(78,876,610) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per share: Basic and diluted $ (0.20) $ (0.27) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares used in basic and diluted loss per share 21,047,900 10,759,293 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Includes stock-based compensation expense as follows: Cost of revenue $ 30,860 $ 33,449 Expenses: Research and development 145,183 144,089 Finance and administration 82,816 95,202 Sales and marketing 202,939 159,528 ------------------------------------------------------------------------- ------------------------------------------------------------------------- REDLINE COMMUNICATIONS GROUP INC. Interim Consolidated Statements of Cash Flows (Expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended March 31, 2008 2007 ------------------------------------------------------------------------- (Unaudited) Cash provided by (used in): Operating activities: Loss for the period $ (4,245,004) $ (2,918,384) Items not affecting cash: Amortization of property, plant and equipment 187,203 219,684 Gain on disposal of assets (70,296) - Stock-based compensation expense 461,798 432,268 Accretion of debt 26,324 - Foreign exchange loss (gain) 466,429 (92,123) Change in non-cash operating working capital (3,633,317) (5,810,976) ----------------------------------------------------------------------- (6,806,863) (8,169,531) Financing activities: Issuance of share capital, net of issuance costs (41,777) 2,595,434 Repayment of loan (409,592) - Principal payment of capital lease obligations (60,914) (95,837) ----------------------------------------------------------------------- (512,283) 2,499,597 Investing activities: Purchase of property, plant and equipment (175,478) (256,158) Foreign exchange gain (loss) on cash held in foreign currency (466,429) 92,123 ------------------------------------------------------------------------- Decrease in cash (7,961,053) (5,833,969) Cash, beginning of period 28,713,405 17,985,391 ------------------------------------------------------------------------- Cash, end of period $ 20,752,352 $ 12,151,422 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 103,074 $ 143,069 Supplemental disclosures relating to non-cash financing and investing activities: Purchase of property, plant and equipment under capital leases - 111,650 Change in accounting policy 230,526 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- Forward-Looking Statements
Certain statements in this press release may contain words such as "could", "expects", "may", "anticipates", "believes", "intends", "estimates", "targets", "envisions", "seeks" and other similar language and are considered forward-looking statements or information under applicable securities legislation. These statements are based on Redline's current expectations, estimates, forecasts and projections about the operating environment, economies and markets in which Redline operates. These statements are subject to important assumptions, risks and uncertainties, which are difficult to predict and the actual outcome may be materially different. Redline has made various assumptions in the preparation of its financial outlook in this press release, including the following company specific assumptions: An ability to ramp sales in new WiMAX product lines and in a private label product line in its RedCONNEX business; the continued network and deployment expansion by its largest customers, especially in the Middle East and the Americas; the continued ability to have more WiMAX customers convert to commercial networks, and the ability to add new WiMAX customers, using both its 802.16-2004 and 802.16-2005 solutions; improvement in Redline's product costs due to favorable supplier pricing, offset by higher costs associated with initial customer deployments in emerging markets; increased employee costs relative to expected cost of living adjustments and employee bonuses; and the effective execution of Redline's strategy, including the execution of Redline's supply chain strategy. Redline has also made certain macroeconomic and general industry assumptions in the preparation of its financial guidance including: a modest decrease in the growth rate of the gross domestic product of global economies which is lower than the growth rate in 2007; global service provider capital expenditures in 2008 reflecting mid to high single digit growth as compared to high single digit growth in 2007; global growth rate to remain stable with investments in next generation products and services to offset declines in purchases of legacy equipment; and a moderate impact as a result of expected industry consolidation among service providers in various geographic regions, particularly in emerging markets; and the impact of the rise in the Canadian dollar in 2007 and 2008 compared to the US dollar and other world currencies. The above assumptions, although considered reasonable by Redline at the date of this press release, may prove to be inaccurate and consequently Redline's actual results could differ materially from its expectations set out in this press release.
Further, actual results or events could differ materially from those contemplated in forward-looking statements as a result of the following (i) risks and uncertainties relating to Redline's business including: significant competition, competitive pricing practice, cautious capital spending by customers, industry consolidation, rapidly changing technologies, evolving industry standards, frequent new product introductions and 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 our 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; Redline's potential inability to attract or retain the personnel necessary to achieve its business objectives or to maintain an effective risk management strategy; (ii) risks and uncertainties relating to Redline's liquidity, financing arrangements and capital including: any inability of Redline to manage cash flow fluctuations to fund working capital requirements or achieve its business objectives in a timely manner or obtain additional sources of funding; or any negative impact on Redline's ability to make future acquisitions, raise capital, issue debt and retain employees arising from stock price volatility and any declines in the market price of Redline's publicly traded securities. For additional information with respect to certain of these and other factors, see Redline's final prospectus (at page 83 under the heading "Risk Factor") which is available on Redline's website at www.redlinecommunications.com or through www.SEDAR.com. Unless otherwise required by applicable securities laws, Redline disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
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 100,000 systems in 85 countries, and a global network of over 170 partners, Redline's experience and expertise helps service providers, enterprises and government organizations roll out wireless broadband networks to support advanced communications.
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For further information: Redline Communications, Tom Hearne, CarolynAnderson, thearne(at)redlinecommunications.com,canderson(at)redlinecommunications.com, Tel: (905) 479-8344; Equicom Group,Craig Armitage, Vanessa Beresford, carmitage(at)equicomgroup.com,vberesford(at)equicomgroup.com, Tel: (416) 815-0700; Canaccord Adams, NeilJohnson, Andrew Chubb, Tel: +44 (0)20 7050 6500(RDL.)
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