Mr. Eric Melka reports
REDLINE COMMUNICATIONS REPORTS Q1 2012 RESULTS
Redline Communications Group Inc. has issued first quarter financial
results for the three months ended March 31, 2012. All amounts in U.S. dollars.
Financial highlights
- $12.5-million total revenue;
- $8.7-million shipments;
- $12.1-million new orders;
- Backlog increases to $5-million;
- Gross margin on BWI product shipments was 61 per cent;
- Operating expenses drop 10 per cent
- Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of $700,000;
- Non-cash FMV expense against earnings of $6.61-million due to debenture;
- Net profit of $55,000 excluding non-cash FMV charge.
Operating highlights
The company received a contract to expand a wireless video surveillance
network in the city of Cancun, Mexico. Redline outdoor broadband
wireless equipment provides machine-to-machine connectivity between
cameras located throughout the city and the central automated
monitoring center.
The company announced that, after demonstrating successful operation in
a rigorous competitive trial, Redline products were selected by GCI
Industrial Telecom for an arctic deployment on Alaska's North
Slope. The company successfully demonstrated that its rugged networking
infrastructure equipment operates flawlessly in temperatures as low as
minus 40 degrees Fahrenheit.
The company received and shipped a large BWI product order to complete a
major expansion of its network with Shell Oil in a larger second phase
of a major wireless project for Shell Oil joint venture Petroleum
Development Oman LLC (PDO). This expansion follows the successful
deployment of a wireless infrastructure network supporting over 2,000
of 5,000 oil wells on the PDO field. The PDO field covers 28,000 square
miles of desert, requiring Redline's rugged, resilient and reliable
equipment.
Strong demand for the core broadband wireless infrastructure product line helped the company secure bookings totalling $12.1-million
in the quarter. These bookings were driven primarily from sales to the
energy sector, including several large oil and gas projects in the
Middle East and North America. The company's flagship BWI product line
accounted for 81 per cent of new product bookings in the quarter as the
company continued to de-emphasize its lower margin legacy RedMAXA WiMAX
business.
The company also recorded $2.2-million in new booked maintenance and
support contracts, an important contributor to the company's goal of
growing its recurring revenue. The company finished the quarter with a
backlog of orders totalling $5-million.
Shipments in the quarter were $8.7-million. BWI product accounted for 77
per cent of total product shipments, and management estimates, based on
their knowledge of their channel partners' business, that over 40
per cent of shipments in the quarter went to customers in the energy
sector.
Total revenue for the first quarter of 2012 was $12.5-million, a
decrease of 7.1 per cent from $13.5-million in the first quarter of
2011. Included in total revenue for the reporting quarter was $4.7-million of amortized deferred revenue and current product revenue of
$7.8-million, as compared with $4.7-million of amortized deferred revenue
and $8.8-million of current product revenue in the first quarter of
2011. Lower current product revenue in the first quarter of 2012 was
primarily a result of revenue recognition timing. Approximately $1.8-million of revenue projected for the first quarter of 2012 was shipped
and recognized in the fourth quarter of 2011, and, in the first quarter
of 2012, $2.1-million of products were shipped in the first quarter but
not recognized as they are pending final customer project acceptance.
Gross margin on shipments of the company's core BWI product line were 65
per cent while RedMAX gross margins were 48 per cent. Gross margins for
professional service and other revenues were 35 per cent, in line with
the industry average. This high percentage of lower margin revenue
contributed to a lower overall margin of 52 per cent on total revenue,
which was down from 62 per cent in the first quarter of 2011. Management
anticipates that, based on current bookings and backlog, gross margins
will increase in 2012.
The company successfully delivered on its plan to reduce operating
expenses, reporting a reduction of 10.2 per cent from the same period
last year to $6.1-million. The decrease reflects management's
commitment to cost containment and improved operating efficiencies
including the implementation of new information technology for its
accounting and CRM systems.
First quarter 2012 adjusted EBITDA, was $700,000, a decrease from
adjusted EBITDA of $2-million for the first quarter of 2011. The
decrease was a direct result of less recognizable revenue in the
quarter, as well as the reduced overall gross margin due to revenue
mix.
"I am excited about our business and the strength of our bookings in first quarter 2012. Our high-margin BWI product represented over 80 per cent of total
product bookings, thanks to the ongoing execution of our plan to deliver
machine-to-machine solutions to the energy sector," said Eric Melka,
Redline's chief executive officer. "Looking forward, with our strong product margins, a
continued shift in product mix to higher BWI product contribution, and
our ongoing tight control of operating expenses, we expect cash flow
and EBITDA to improve throughout 2012."
In June, 2011, the company completed a private placement of $8.3-million (Canadian) debentures. The debentures have multiple derivatives including:
the remaining unconverted principal, interest payable in shares and
warrants all of which were in the money on March 31, 2011. The fair market value of the debenture, including its
multiple derivatives, was significantly higher at the end of the first
quarter, largely due to the company's share price increasing from 65 Canadian cents at Dec. 31, 2011, to $1.20 (Canadian) at March 31, 2012. This
increase in FMV triggered a non-cash expense against earnings of $6.61-million.
At March 31, 2012, Redline held cash and short-term investments of
approximately $3.4-million compared with $4.7-million for the same period
last year. $12.3-million of total deferred revenue remained on the
balance sheet at March 31, 2012, a decrease from $16.5-million at Dec. 31, 2011.
Conference call and webcast -- May 16, 11 a.m. Eastern
A conference call and webcast to discuss the results will be held
tomorrow, May 16, 2012, at 11 a.m. EDT. To participate in the
conference call, please dial 1-647-427-7450 or 1-888-231-8191
approximately 10 minutes before the conference call, and provide
passcode 75786798.
A recording of the call will be available through May 23, 2012. Please
dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 75786798 to
listen to the rebroadcast. A webcast of the call will also be
available on Redline's website.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF COMPREHENSIVE INCOME
(expressed in U.S. dollars)
Three months ended March 31,
2012 2011
Revenue $ 12,506,460 $ 13,460,517
Cost of revenue 6,018,426 5,145,478
Gross profit 6,488,034 8,315,039
Expenses
Research and development 1,541,854 1,482,695
Finance and administration 1,627,056 2,420,126
Sales and marketing 2,473,935 2,164,954
Operations and customer support 458,263 728,077
Gain on disposal of assets - (1,519)
6,101,108 6,794,333
Income before non-operating items 386,926 1,520,706
Other expenses
Finance expense 96,244 105,400
(Loss) on fair market value of debenture 6,611,157 -
Foreign exchange (loss) 236,123 287,419
6,943,524 392,819
(Loss) profit before income taxes (6,556,598) 1,127,887
Income tax expense - -
Net (loss) profit and total comprehensive (loss) income $ (6,556,598) $ 1,127,887
Earnings (loss) per share
Basic $ (0.18) $ 0.05
Diluted $ (0.18) $ 0.05
We seek Safe Harbor.