31 Jul 2008 07:00
Redline Reports Second Quarter 2008 Financial Results
- Company expands in key markets; accelerates delivery of new family of WiMAX products - /NOT FOR DISTRIBUTION IN THE UNITED STATES/ All figures in US Dollars unless specified
TORONTO, July 31 /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- and six-month periods ended June 30, 2008.
Financial Results: - Revenue was $9.5 million, compared to $14.1 million in Q2 2007 and $13.8 million sequentially - WiMAX Forum Certified(TM) RedMAX revenue of $4.4 million or 43% of total product revenue - Broadband wireless infrastructure (BWI) revenue was $5.1 million or 57% of total product revenue - Gross margin was 37%, compared to 33% for Q2 2007 - Net loss of $5.3 million, or $0.25 per share, based on 21,048,635 fully diluted shares, compared to net loss of $2.8 million, or $0.26 per share, for the same period in 2007 - Net cash at quarter end was $15.5 million versus $20.8 million at the end of Q1 2008 Operational Highlights: - 166 paid trials and deployments of WiMAX Forum Certified(TM) RedMAX systems, compared to 160 at the end of Q1 - 63 commercial WiMAX networks compared with 58 at the end of Q1 - Shipped latest version of RedMAX 4C base station to major carrier in the Middle East - RedMAX 4C granted Best of WiMAX World EMEA "Industry Choice" and Frost and Sullivan Innovation Awards
The second quarter financial results were affected both by market and operational issues, including a softening in the demand for 802.16d WiMAX products as a result of recent industry announcements, customers delaying network expansions due to complications in integrating the Redline Management Suite (RMS), and changes in the Company's senior sales management.
"Redline has worked quickly to address the operational issues we experienced late in the second quarter," said Majed Sifri, President and CEO, Redline Communications Inc. "We have appointed new managing directors for Europe and Africa, and are adding seasoned sales representatives to strengthen our sales teams in other territories. In addition, we expect to replace our Vice President of Worldwide Sales this quarter. The technical issues with the integration of the RMS have been resolved and we are working closely with our customers to continue with network expansion plans."
"We are confident that we will execute on our plan to expand WiMAX deployments among our key WiMAX customers and to accelerate the development and delivery of our RedMAX 4C Mobile WiMAX products this year," added Sifri. "We have also been successful in increasing our customer base in the Asia-Pacific region, including the addition of Sify Technologies Limited, an emerging telecommunications company in India that is rolling out our RedMAX products in five major cities. Our international growth has also been bolstered by continued uptake and the recent FCC certification of our complete family of 3.65 GHz products in the United States. To ensure continued growth in WiMAX, we are also looking at strategic options to leverage the value of our Broadband Wireless Infrastructure business unit."
Financial Review
In the second quarter of 2008, Redline's revenue was $9.5 million, compared to $14.1 million in the second quarter of 2007 and $13.8 million in the first quarter of 2008. The Company's WiMAX Forum Certified(TM) products accounted for $4.4 million, or 43% of product revenue, and BWI generated revenues of $5.1 million. In 2008, the Company expects that its WiMAX and BWI businesses will make equal contributions to revenues for the year, with some quarter-by-quarter variations.
Gross margin for the three months ended June 30, 2008 was 37%, or $3.5 million, compared to 33%, or $4.7 million, for the same period last year. Operating expenses were $8.6 million in Q2 2008 compared to $6.8 million in Q2 2007 and $9.4 million in Q1 2008. Net loss for the second quarter of 2008 was $5.3 million, or $0.25 per share, compared to $2.8 million, or $0.26 per share, for the second quarter of 2007 and $4.2 million, or $0.20 per share, in Q1 2008. As at June 30, 2008, the Company had $15.5 million of cash, cash equivalents and restricted cash, compared with $20.8 million as at March 31, 2008. The decrease in cash during the quarter reflects an operating loss of $5.1 million.
Chief Executive Officer Review
In the second quarter of 2008, Redline continued to deliver on its key strategic initiatives:
Accelerating Mobile WiMAX Delivery
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Redline continues to accelerate development and delivery of its RedMAX 4C Mobile WiMAX products and expects to be included in the next phase of WiMAX Forum Certification. The Company's Mobile WiMAX offerings now includes a variety of base stations and customer premise equipment that offer the flexibility to deploy networks in a range of markets, providing ubiquitous enterprise and personal broadband access.
Expanding RedMAX trials and commercial deployments:
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Redline has increased the number of trials and deployments to 166, compared to 150 at the end of 2007, including several trials of its RedMAX 4C products. There are now 63 carriers that have converted to commercial revenue-generating RedMAX deployments, compared with 49 at the end of 2007.
Expanding Redline's global reach:
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Redline has over 170 global reseller and deployment partners for its RedMAX and BWI products, including global systems integrators and other companies with expertise in planning and installing wireless networks for markets including oil and gas, transportation, public safety and the military. The Company has also developed alliances with partners that will assist with the sales and deployment of its RedMAX 4C Mobile WiMAX products.
Broadening customer base:
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Redline is focused on delivering solutions for key high-growth international markets. While the Company continues to derive a significant portion of its revenue from the Americas and Middle East, it has seen recent rapid growth in the Asia Pacific market, with that region now generating 11% of total revenues. The Company is also broadening to new types of operators, including mobile carriers that are trialing or deploying its WiMAX products.
Maintaining technology leadership:
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Redline has 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. Under the Redline Ecosystem Verification (REV) program, Redline has completed interoperability testing with Tranzeo Wireless Technologies' Canadian WiMAX vendor. In addition, Redline continues to accelerate development and delivery of its RedMAX 4C Mobile WiMAX products and expects to be included in the next phase of WiMAX Forum Certification.
Outlook
Redline has revised its revenue guidance for the second half of 2008 to approximately $20 million to $25 million.
Investor Conference Call
Redline's Q2 2008 conference call is on Thursday, July 31, 2008 at 8:30 am ET (1:30 pm BST). Conference call dial in numbers are 416-644-3429 or 1-800-732-9303 (Canada) or 00-800-2288-3501 (UK). The live webcast of the conference call and a copy of this news release and financial statements are 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) ------------------------------------------------------------------------- June 30, December 31, 2008 2007 ------------------------------------------------------------------------- (Unaudited) Assets Current assets: Cash $ 15,494,035 $ 28,713,405 Restricted cash 8,033 8,033 Accounts receivable 15,726,384 17,423,119 Other receivables 364,363 360,855 Inventories 13,258,906 9,028,620 Prepaid expenses 834,781 576,741 ----------------------------------------------------------------------- 45,686,502 56,110,773 Property, plant and equipment 1,736,926 1,339,721 Other assets 93,974 94,054 ------------------------------------------------------------------------- $ 47,517,402 $ 57,544,548 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 9,402,165 $ 9,657,119 Deferred revenue 1,884,030 2,706,656 Current portion of capital lease obligations 177,335 229,322 Current portion of loans payable 1,998,010 1,776,633 ----------------------------------------------------------------------- 13,461,540 14,369,730 Loans payable 895,897 1,375,424 Capital lease obligations 47,633 60,462 Shareholders' equity: Share capital 128,444,175 128,538,474 Share purchase loan (365,780) (365,780) Warrants 310,000 310,000 Contributed surplus 5,384,196 4,651,508 Deficit (100,971,727) (91,706,738) Accumulated other comprehensive income 311,468 311,468 ----------------------------------------------------------------------- 33,112,332 41,738,932 ------------------------------------------------------------------------- $ 47,517,402 $ 57,544,548 ------------------------------------------------------------------------- ------------------------------------------------------------------------- REDLINE COMMUNICATIONS GROUP INC. Interim Consolidated Statements of Operations and Deficit (Expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Revenue: Product $ 8,796,461 $ 13,224,445 $ 21,437,583 $ 24,028,778 Maintenance 728,723 909,762 1,885,678 1,737,174 ----------------------------------------------------------------------- 9,525,184 14,134,207 23,323,261 25,765,952 Cost of revenue(1) 5,977,014 9,419,247 14,324,473 16,504,245 ------------------------------------------------------------------------- Gross margin 3,548,170 4,714,960 8,998,788 9,261,707 Expenses: Research and development(1) 3,116,277 1,915,156 6,531,842 4,524,174 Finance and admin- istration(1) 1,471,501 1,278,542 3,044,129 2,380,616 Sales and marketing(1) 4,046,056 3,582,204 8,491,027 7,267,679 ----------------------------------------------------------------------- 8,633,834 6,775,902 18,066,998 14,172,469 ------------------------------------------------------------------------- Loss before the undernoted (5,085,664) (2,060,942) (9,068,210) (4,910,762) Other expenses (income): Interest and other 167,656 49,891 132,279 115,400 Foreign exchange loss (gain) (260,207) 388,873 (110,121) 172,244 Gain on disposal of assets - - (70,296) - Amortization of property, plant and equipment 248,479 270,815 435,682 490,499 ----------------------------------------------------------------------- 155,928 709,579 387,544 778,143 ------------------------------------------------------------------------- Loss before income taxes (5,241,592) (2,770,521) (9,455,754) (5,688,905) Income taxes 8,919 50,883 39,761 50,883 ------------------------------------------------------------------------- Loss and comprehensive loss for the period (5,250,511) (2,821,404) (9,495,515) (5,739,788) Deficit, beginning of period: As previously reported (95,721,216) (78,876,610) (91,706,738) (75,958,226) Change in accounting policy - - 230,526 - ----------------------------------------------------------------------- As revised (95,721,216) (78,876,610) (91,476,212) (75,958,226) ------------------------------------------------------------------------- Deficit, end of period $(100,971,727) $ (81,698,014) $(100,971,727) $ (81,698,014) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Loss per share: Basic and diluted $ (0.25) $ (0.26) $ (0.45) $ (0.53) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Weighted average number of common shares used in basic and diluted loss per share 21,048,635 10,793,362 21,048,267 10,776,422 ------------------------------------------------------------------------- ------------------------------------------------------------------------- (1) Includes stock-based compensation expense as follows: Cost of revenue $ 28,262 $ 29,677 $ 59,122 $ 63,126 Expenses: Research and development 140,007 72,574 285,190 216,663 Finance and administration 72,222 83,355 155,038 178,557 Sales and marketing 178,775 136,731 381,714 296,259 ------------------------------------------------------------------------- ------------------------------------------------------------------------- REDLINE COMMUNICATIONS GROUP INC. Interim Consolidated Statements of Cash Flows (Expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Six months ended June 30, June 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Cash provided by (used in): Operating activities: Loss for the period $ (5,250,511) $ (2,821,404) $ (9,495,515) $ (5,739,788) Items not affecting cash: Amortization of property, plant and equipment 248,479 270,815 435,682 490,499 Gain on disposal of assets - - (70,296) - Stock-based compen- sation expense 419,266 322,337 881,064 754,605 Accretion of debt 26,324 - 52,648 - Foreign exchange loss (gain) (53,846) (12,447) 232,871 (12,447) Change in non- cash operating working capital (8,756) (1,371,971) (3,642,073) (7,182,947) ----------------------------------------------------------------------- (4,619,044) (3,612,670) (11,605,619) (11,690,078) Financing activities: Issuance of share capital, net of issuance costs (52,522) (49,336) (94,299) 2,546,098 Repayment of loans (445,432) (432,667) (855,024) (432,667) Principal payment of capital lease obligations (36,145) (69,701) (97,059) (165,538) ----------------------------------------------------------------------- (534,099) (551,704) (1,046,382) 1,947,893 Investing activities: Purchase of property, plant and equipment (159,020) (295,457) (334,498) (551,615) Foreign exchange gain (loss) on cash held in foreign currency 53,846 12,447 (232,871) 12,447 ------------------------------------------------------------------------- Decrease in cash (5,258,317) (4,447,384) (13,219,370) (10,281,353) Cash, beginning of period 20,752,352 12,151,422 28,713,405 17,985,391 ------------------------------------------------------------------------- Cash, end of period $ 15,494,035 $ 7,704,038 $ 15,494,035 $ 7,704,038 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 103,566 $ 102,702 $ 206,640 $ 245,771 Supplemental disclosures relating to non-cash financing and investing activities: Purchase of property, plant and equipment under capital leases 32,243 34,143 32,243 145,793 Purchase of property, plant and equipment under loans 544,226 - 544,226 - 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.
NOTE: All registered and unregistered trademarks mentioned in this release are the property of their respective owners.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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