13 Nov 2008 07:45
Redline Reports Third Quarter 2008 Financial Results
NOT FOR DISTRIBUTION IN THE UNITED STATES All figures in US Dollars unless specified
TORONTO, Nov. 13 /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 nine-month periods ended September 30, 2008.
Financial Results - Revenue was $9.6 million, compared to $13.7 million in Q3 2007 and $9.5 million in Q2 2008 - WiMAX Forum Certified(TM) RedMAX revenue was $2.4 million, reflecting a transition of existing and new customers from Fixed to Mobile WiMAX products - BWI revenue increased to $7.2 million, from $5.9 million in Q3 2007 and $5.1 million in Q2 2008 - Gross margin remained strong at 38%, compared to 37% in both Q3 2007 and Q2 2008 - Net loss was $6.2 million compared to a net loss of $3.8 million in Q3 2007 and $5.3 million in Q2 2008 - Net cash at quarter end was $8.8 million versus $15.5 million at the end of Q2 2008 - Subsequent to quarter end, implemented a rights plan that is triggered by a 15% holding in Redline Operational Highlights - 175 WiMAX trials and deployments including 68 commercial deployments at the end of Q3 2008 - Announced key RedMAX 4C Mobile WiMAX deployment with Milcom Systems in Thailand - Strengthened Redline's sales team with a new VP Sales and regional sales managers - Received WiMAX Forum Certified(R) mark for the RedMAX 4C(TM) Mobile WiMAX RPM (RedMAX personal modem) subscriber devices - Debuted the Redline RRH (Remote Radio Head) - the smallest, lightest and highest output power Mobile WiMAX radio available on the market today
"We reported steady performance in softening markets, although the revenue mix differed from expectations," said Majed Sifri, President and CEO of Redline Communications Group Inc. "Revenue from our backhaul business increased 41% sequentially, which reflects the impact of new BWI product offerings and increased focus on driving sales of these product families over the last several months. While it was a tough quarter for our WiMAX business, we believe a significant market opportunity is developing for our Mobile WiMAX product line, which is currently in trials with numerous customers including Milcom Systems of Thailand. Although the revenue mix has changed, we are re- iterating our revenue guidance of $20-25 million for the second half of 2008."
Financial Review
In the third quarter of 2008, revenue was $9.6 million, compared to $9.5 million in Q2 2008 and $13.7 million in Q3 2007. The Company's WiMAX products accounted for $2.4 million, compared to $4.4 million in Q2 2008. WiMAX sales declined quarter-over-quarter as current and prospective customers considered the transition from Fixed to Mobile WiMAX products. In addition, channel partners have delayed re-stocking inventory in light of a general economic slowdown. Broadband Wireless Infrastructure (BWI) generated revenues of $7.2 million, representing an increase of 22% year-over-year and 41% sequentially, and reflecting the increased focus on this business unit.
Gross margin for the three months ended September 30, 2008 was 38%, or $3.6 million, compared to 37%, or $5.1 million, for the same period last year. Operating expenses were $9.1 million in Q3 2008, compared to $8.2 million in Q3 2007 and $8.6 million in Q2 2008. Net loss for the third quarter of 2008 was $6.2 million, or $0.29 per share, compared to $3.8 million, or $0.35 per share, for Q3 2007 and $5.3 million, or $0.25 per share, in Q2 2008.
As at September 30, 2008, the Company had $8.8 million of cash, cash equivalents and restricted cash, compared with $15.5 million as at June 30, 2008. The decrease in cash during the third quarter primarily reflects the net loss of $6.2 million.
Chief Executive Officer Review
In the third quarter of 2008, Redline continued to deliver on several key strategic initiatives:
Accelerating Mobile WiMAX Delivery
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Redline received the WiMAX Forum Certified(R) mark for its RPM (Redline Personal Modem) subscriber unit, verifying that its products meet stringent requirements for performance and reliability. In addition, the Company hosted live demonstrations of its RedMAX 4C Mobile WiMAX products, including the Redline RRH (Remote Radio Head), at both WiMAX World in Chicago and Gitex Technology Week in Dubai.
Expanding RedMAX trials and commercial deployments
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Redline has increased the number of trials and deployments to 175, compared to 150 at the end of 2007, including several trials of its RedMAX 4C products. There are now 68 carriers that have converted to commercial revenue- generating RedMAX deployments, compared with 49 at the end of 2007.
Growing Redline's Broadband Wireless Infrastructure Business
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In Q3, Redline debuted the new 3.5GHz RedCONNEX MAX+ AN-80i backhaul solution, designed for deployment by WiMAX spectrum holders as a complementary offering to Redline's Fixed and Mobile WiMAX products. Also this quarter, Redline implemented programs that focused on increasing the delivery of BWI to strategic accounts in key geographic regions. The BWI business unit now has several customers that have purchased more than $1 million of Redline's RedCONNEX and RedACCESS products in 2008 alone.
Broadening customer base
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Redline is focused on delivering solutions for key high-growth international markets. New WiMAX customer wins announced over the past several months include Milcom Systems in Thailand, Sify Technologies in India, IDNet in Costa Rica, Azulstar in New Mexico and Nex-Tech in Kansas.
Maintaining WiMAX technology leadership
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In September 2008, Redline's RedMAX 4C Mobile WiMAX subscriber units were certified by the WiMAX Forum, verifying that Redline products meet stringent requirements for performance and reliability. The Company has also developed the smallest, lightest and highest output power Mobile WiMAX radio available on the market, providing operators with significant cost savings due to the radio's ease and speed of deployment and its light weight. Redline strengthened its technology leadership in the U.S. with FCC certification for additional 3.65 GHz WiMAX products in July 2008 and U.S. Department of Agriculture acceptance and Buy American status for its products in October 2008.
Outlook
Management reiterates its revenue guidance of $20-25 million in the second half of 2008. Given the current cash position and funding requirements of the business, management and the Board continue to evaluate the Company's strategic options. These options include divesting a portion of the business, seeking alternative forms of financing, cost restructuring or some combination of the above.
Investor Conference Call
Redline's Q3 2008 conference call is on Thursday, November 13, 2008 at 8:30 am ET (1:30 pm UK time). Conference call dial in numbers are 416-644-3432 or 1-800-589-8577 (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) ------------------------------------------------------------------------- September 30, December 31, 2008 2007 ------------------------------------------------------------------------- (Unaudited) Assets Current assets: Cash $ 8,831,112 $ 28,713,405 Restricted cash 8,033 8,033 Accounts receivable 15,361,177 17,423,119 Other receivables 171,516 360,855 Inventories 14,731,403 9,028,620 Prepaid expenses 790,215 576,741 ----------------------------------------------------------------------- 39,893,456 56,110,773 Property, plant and equipment 2,002,144 1,339,721 Other assets 93,974 94,054 ------------------------------------------------------------------------- $ 41,989,574 $ 57,544,548 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities and Shareholders' Equity Current liabilities: Accounts payable and accrued liabilities $ 10,283,028 $ 9,657,119 Deferred revenue 1,884,277 2,706,656 Current portion of capital lease obligations 102,127 229,322 Current portion of loans payable 2,106,999 1,776,633 ----------------------------------------------------------------------- 14,376,431 14,369,730 Loans payable 356,775 1,375,424 Capital lease obligations 34,432 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 5,665,748 4,651,508 Deficit (107,143,675) (91,706,738) Accumulated other comprehensive income 311,468 311,468 ----------------------------------------------------------------------- 27,221,936 41,738,932 ------------------------------------------------------------------------- $ 41,989,574 $ 57,544,548 ------------------------------------------------------------------------- ------------------------------------------------------------------------- REDLINE COMMUNICATIONS group INC. Interim Consolidated Statements of Operations and Deficit (Expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Revenue: Product $ 8,939,115 $ 12,615,596 $ 30,376,698 $ 36,644,374 Mainten- ance 668,653 1,046,205 2,554,331 2,783,379 ----------------------------------------------------------------------- 9,607,768 13,661,801 32,931,029 39,427,753 Cost of revenue(1) 5,985,250 8,554,735 20,309,723 25,058,980 ------------------------------------------------------------------------- Gross margin 3,622,518 5,107,066 12,621,306 14,368,773 Expenses: Research and develop- ment(1) 4,014,980 2,471,877 10,546,822 6,996,051 Finance and adminis- tration (1) 1,092,467 2,036,762 4,136,596 4,417,378 Sales and market- ing(1) 3,947,131 3,740,085 12,438,158 11,007,764 ----------------------------------------------------------------------- 9,054,578 8,248,724 27,121,576 22,421,193 ------------------------------------------------------------------------- Loss before the under- noted (5,432,060) (3,141,658) (14,500,270) (8,052,420) Other expenses: Interest and other 68,943 101,001 201,222 216,401 Foreign exchange loss 200,996 121,540 90,875 293,786 Gain on disposal of assets - - (70,296) - Amortiza- tion of property, plant and equip- ment 461,862 392,779 897,543 883,277 ----------------------------------------------------------------------- 731,801 615,320 1,119,344 1,393,464 ------------------------------------------------------------------------- Loss before income taxes (6,163,861) (3,756,978) (15,619,614) (9,445,884) Income taxes 8,087 6,784 47,849 57,666 ------------------------------------------------------------------------- Loss and comprehen- sive loss for the period (6,171,948) (3,763,762) (15,667,463) (9,503,550) Deficit, beginning of period (100,971,727) (81,698,014) (91,706,738) (75,958,226) Effect of change in accounting policy - - 230,526 - ------------------------------------------------------------------------- Deficit, end of period $(107,143,675) $ (85,461,776) $(107,143,675) $ (85,461,776) ------------------------------------------------------------------------- Loss per share: Basic and diluted $ (0.29) $ (0.35) $ (0.74) $ (0.88) ------------------------------------------------------------------------- Weighted average number of common shares used in basic and diluted loss per share 21,048,634 10,823,940 21,048,385 10,792,435 ------------------------------------------------------------------------- (1)Includes stock- based compen- sation expense as follows: Cost of revenue $ 24,572 $ 31,548 $ 83,694 $ 94,674 Expenses: Research and develop- ment 175,905 117,838 461,095 334,501 Finance and adminis- tration 73,936 90,083 228,974 268,639 Sales and market- ing 7,139 176,984 388,853 473,243 ------------------------------------------------------------------------- REDLINE COMMUNICATIONS group INC. Interim Consolidated Statements of Cash Flows (Expressed in U.S. dollars) ------------------------------------------------------------------------- Three months ended Nine months ended September 30, September 30, 2008 2007 2008 2007 ------------------------------------------------------------------------- (Unaudited) (Unaudited) Cash provided by (used in): Operating activities: Loss for the period $ (6,171,948) $ (3,763,762) $(15,667,463) $ (9,503,550) Items not affecting cash: Amortiza- tion of property, plant and equipment 461,862 392,779 897,543 883,277 Gain on disposal of assets - - (70,296) - Stock-based compensa- tion expense 281,552 416,453 1,162,616 1,171,057 Accretion of debt 26,323 - 78,972 - Foreign exchange loss 125,248 209 358,119 209 Change in non-cash operating working capital 11,233 727,954 (3,630,840) (6,454,993) ----------------------------------------------------------------------- (5,265,730) (2,226,367) (16,871,349) (13,904,000) Financing activities: Issuance of share capital, net of issuance costs - 38,225 (94,299) 2,584,323 Repayment of loans (456,457) (399,872) (1,311,481) (832,539) Principal payment of capital lease obligations (88,409) (50,695) (185,468) (216,233) ----------------------------------------------------------------------- (544,866) (412,342) (1,591,248) 1,535,551 Investing activities: Purchase of property, plant and equipment (727,079) (375,568) (1,061,577) (927,181) Foreign exchange loss on cash held in foreign currency (125,248) (209) (358,119) (209) ------------------------------------------------------------------------- Decrease in cash (6,662,923) (3,014,486) (19,882,293) (13,295,839) Cash, beginning of period 15,494,035 7,704,038 28,713,405 17,985,391 ------------------------------------------------------------------------- Cash, end of period $ 8,831,112 $ 4,689,552 $ 8,831,112 $ 4,689,552 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Supplemental cash flow information: Interest paid $ 77,688 $ 131,032 $ 284,328 $ 376,803 Supplemental disclosures relating to non-cash financing and investing activities: Purchase of property, plant and equipment under capital leases - 42,258 32,243 188,051 Purchase of property, plant and equipment under loans - - 544,226 - ------------------------------------------------------------------------- ------------------------------------------------------------------------- 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, Carolyn Anderson, 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, Neil Johnson, Andrew Chubb, Tel: +44 (0)20 7050 6500 (RDL)
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