Redline Updates 2008 Revenue Outlook

9 Jul 2008 12:00

Redline Updates 2008 Revenue Outlook

/NOT FOR DISTRIBUTION IN THE UNITED STATES/ All figures in U.S. Dollars unless specified

TORONTO, July 9 /CNW/ - Redline Communications Group Inc. ("Redline" or "the Company"), , a leading provider of standards-based WiMAX and broadband wireless infrastructure products, today updated its outlook for fiscal 2008 and provided estimated revenue for the second quarter ended June 30, 2008.

Preliminary results for the second quarter indicate revenue to be approximately $9.0 million to $9.5 million, a decrease of approximately $6.0 million from analyst forecasts. The second quarter financial results were affected by several factors, including a softening in the overall demand for WiMAX products based on the current 802.16d standard as operators consider whether or not to wait for the next generation of Mobile WiMAX technologies. Their decisions have been impacted by recent industry developments, including the early level certification of next generation 802.16e Mobile WiMAX equipment.

The impact of these market forces was compounded by two key customers delaying network expansions due to complications in integrating the latest release of the Redline Management Suite (RMS) with their existing networks. RMS is a software product that acts as a gateway between Redline's WiMAX equipment in the network and the network management system. The latest release of the RMS is an industry first in that it supports auto-provisioning of WiMAX subscriber units, as well as seamless billing and subscriber management. The integration of the RMS involved the re-architecture of fully operational core networks that support existing GSM voice and data mobility services with a new fixed WiMAX network that supports Voice over IP (VoIP) and data services. The Company has now successfully completed the integration for one key operator and is working with its partners to integrate the other network.

The results for the second quarter were also affected by senior sales management changes, including the departure in April of the Managing Director for Europe, who has since been replaced, and the unexpected long-term medical leave of the Managing Director for the Middle East region later in the quarter. Redline has also initiated the process to replace its Vice President of Worldwide Sales and expects to fill the position in the third quarter of 2008.

As a result of these factors, Redline now expects second half 2008 revenue of approximately $20 million to $25 million. The Company will therefore not achieve EBITDA profitability in the fourth quarter as previously projected. At quarter-end, the Company's balance sheet showed cash and cash equivalents of $14.8 million.

"Some prospective and existing customers have delayed their rollouts and purchasing decisions as they review the option of adopting a next generation mobile WiMAX solution," said Majed Sifri, President and CEO of Redline Communications. "We believe that market opportunities remain strong due to the demand for broadband access, but the timing of customer decisions has become more difficult to predict. Based on compelling proven and projected returns on investment, we continue to believe in the long-term growth potential of fixed and mobile WiMAX and in Redline's ability to be a leader in these markets."

"We acted quickly to resolve the integration complications with the RMS; however, we expect the delays to impact the timing of revenue from new orders from current customers, which were in our original forecast for the year. We are moving quickly to strengthen our management and sales teams in several key areas and are confident we will secure a strong telecommunications veteran to lead the further growth of our WiMAX business. We are also examining several strategic options to leverage the value of our BWI business unit."

"We continue to focus on accelerating the development of our RedMAX 4C Mobile WiMAX product family, while offering a leading fixed WiMAX solution to customers that are successfully rolling out WiMAX networks today. The WiMAX Forum's announcement on the first phase of Mobile WiMAX certification is a good proof point for the WiMAX industry. We have submitted products for the next phase of certification and will deliver solutions that offer the features and functionality necessary for the successful rollout of a Mobile WiMAX network," added Sifri.

Redline plans to release its complete financial results for the fiscal 2008 second quarter in early August.

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 RedCONNEX(TM) and RedACCESS(TM) families of broadband wireless infrastructure products 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 installations 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. 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 Broadband Wireless Infrastructure (BWI) 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.

For further information: Redline Communications: Tom Hearne/Carolyn Anderson, 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, Neil Johnson/Andrew Chubb, Tel: +44 (0)20 7050 6500 (RDL. RDL)