News Column

Redline Communications Reports Q1 2014 Results

May 12, 2014

TORONTO, May 12, 2014 /CNW/ - Redline Communications (www.rdlcom.com) Group Inc. (TSX: RDL), a leading provider of mission-critical networks, today announced unaudited operating results¹ for the three months ended March 31, 2014 (Q1 2014).

Financial summary for the three months ended March 31, 2014:

• Revenue of $7.1 million• Gross Margin of 61% • Adjusted EBITDA² of $0.2 million• Net Profit of $0.6 million• Increased Cash by $1.1 million• Order Bookings² of $8.9 million• Order Backlog² of $18.5 million



Overall Revenue for Q1 2014 was $7.1 million, down 12% over the same period in 2013. The difference can largely be attributed to a large oil and gas deployment that occurred in the same period in 2013.

Adjusted EBITDA for Q1 2014 was $0.2 million, an increase of $2.3 million over the EBITDA loss of $2.1 million reported in the same period in 2013. The difference can be attributed to strong gross margins and lower operating costs in the quarter resulting from the restructuring program initiated in December 2013.

"We are very pleased with the results of the restructuring plan we put in place in December 2013," said George Kypreos, Redline CFO.  "Our reduced expenses coupled with our strong gross margins have contributed to a positive EBITDA despite lower revenues. Our goal was to become EBITDA positive in 2014 and we have realized this goal in the first quarter of the year."

Overall gross margin for Q1 2014 was 61%, up ten percentage points over the 51% reported in the same period in 2013. The difference can largely be attributed to an improvement in gross margin from professional services revenue as Q1 2013 included a large percentage of lower margin third-party equipment.

Overall operating expenses were $4.3 million for Q1 2014, down 33% over the $6.4 million for the same period last year, with the decrease attributed to the restructuring plan put in place during December 2013.

Net profit for Q1 2014 was $0.6 million or $0.04 per share, a $3.1 million improvement over the net loss of $2.5 million, or ($0.18) per share reported in the same period in 2013.

As of March 31, 2014 the Company added cash from operating activities, ending the quarter with $14.6 million of cash, an increase of $1.1 million over the $13.5 million as at December 31, 2013.

Order Bookings for the three months ended March 31, 2014 were $8.9 million, up 40% over Q4 2013 but down 31% over the same period in 2013 which included a significant order from a single large customer. The Order Backlog at March 21, 2014 was a healthy $18.5 million.

Order Bookings were realized in all markets and included a $1.7 million dollar order for a large public security network in Mexico announced after the end of the quarter.  The Company continues to see strong interest from oil and gas companies worldwide, fueled by increasing adoption of digital technology in the oilfield and by Redline's growing reputation as a quality provider of oilfield solutions. Subsequent to the end of Q1 2014, Redline received a large contract from a new oil and gas customer. The contract is to provide five end-to-end oilfield networks that Management expects will be deployed before the end of 2014.

Redline tracks pilot projects in the Energy sector as a leading indicator of future Order Bookings. The Company added 6 new pilot projects in Q1 2014 bringing the total of ongoing oil and gas pilot programs to 15, up from one at the same time in 2013. These projects vary in size and scope and give prospective customers the opportunity to evaluate Redline's solutions in a real field setting.

"We are starting to see the results of our shift to a sales model that uses pilot projects to demonstrate the capabilities of our networks," said Robert Williams, Redline CEO, "Our latest customer win in the Bakken field demonstrates that pilot projects can lead to significant orders. We have entered Q2 with strong oil and gas pilot activity, several large contracts that are expected to be fully delivered this calendar year, and we are seeing a strong high margin revenue start to the quarter."

Conference Call and Webcast - May 13th, 2013 at 10:00 a.m. ET

A conference call and webcast to discuss the Company's financial results have been scheduled for May 13, 2014 at 10:00 a.m. Eastern Time. To participate in the call, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call, and provide passcode 35047884. A recording of the call will be available through July 31, 2014. To listen to the rebroadcast please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 35047884. A webcast of the call will also be available on Redline's website at http://www.rdlcom.com/en/about/investors/webcasts.

About Redline Communications

Redline Communications (www.rdlcom.com) is the creator of powerful wide-area wireless networks for the most challenging applications and locations.  They are used by oil and gas companies to manage their assets, militaries for secure battlefield communications, municipalities to remotely monitor highways, utilities and other infrastructures, and telecom service providers to deliver premium services. Redline's powerful and versatile networks reliably and securely deliver voice, data, M2M and video communications for mission-critical applications. For more information visit www.rdlcom.com.


NOTES:
1      All amounts reported in this press release are in US dollars unless otherwise stated.
2      To better assess the health and growth of the Redline's business, the Company reports on several key metrics, including "Orders or Bookings", "Backlog", "EBITDA", "Adjusted EBITDA", "EPS excluding the non-cash expense relating to the fair market adjustment on financial instruments", and "Amortized Deferred Revenue".  Further information including definitions of these categories can be found in the Company's Management Discussion and Analysis for the three months ended March 31, 2014 ("Q1 2014 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three month results ended March 31, 2014 can be found in the condensed consolidated interim statement of financial position, condensed consolidated interim statement of comprehensive loss, condensed consolidated interim statement of changes in equity and condensed consolidated interim statement of cash flows reproduced at the end of this press release. The selected financial information included in this release is qualified in its entirety by, and should be read together with the Condensed Consolidated Interim Financial Statements of the Company for the three months ended March 31, 2014 and the Q1 2014 MD&A.



Forward Looking Statements

Certain statements in this release may constitute forward-looking statements or forward-looking information within the meaning of applicable securities laws.  In some cases, forward-looking statements can be identified by terms such as "could", "expect", "may", "will", "anticipate", "believe", "intend", "estimate", "plan", "potential", "project" or other expressions concerning matters that are not historical facts.  Readers are cautioned not to place undue reliance upon any such forward-looking statements. Such forward-looking statements are not promises or guarantees of future performance and involve both known and unknown risks and uncertainties that may cause the actual results, performance, achievements or developments of Redline to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. Forward-looking statements, by their nature, are based on certain assumptions regarding expected growth, management's current plans, estimates, projections, beliefs, opinions and business prospects and opportunities (collectively, the "Assumptions").  While the Company considers these Assumptions to be reasonable, based on the information currently available, they may prove to be incorrect.

Many risks, uncertainties and other factors could cause the actual results of Redline to differ materially from the results, performance, achievements or developments expressed or implied by such forward-looking statements. These risks, uncertainties and other factors include but are not limited to the following: significant competition, competitive pricing practices, cautious capital spending by customers, industry consolidations, rapidly changing technologies, evolving industry standards, frequent new product introductions, 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 the Company's 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; and Redline's potential inability to attract or retain the personnel necessary to achieve its business objectives or to maintain an effective risk management strategy (collectively, the "Risks").

For additional information on these Risks, see Redline's most recently filed Annual Information Form ("AIF") and Annual MD&A, which are available on SEDAR at www.sedar.com and on the Company's website at www.redlinecommunications.com. Redline assumes no obligation to update or revise any forward-looking statements or forward-looking information, whether as a result of new information, future events or otherwise, except as expressly required by law. All forward looking statements contained in this release are expressly qualified in their entirety by this cautionary statement.


REDLINE COMMUNICATIONS GROUP INC.              
Condensed Consolidated Interim Statements of Financial Position              
(Unaudited, expressed in U.S. dollars)              
                 
        March 31,

2014
      December 31,

2013
ASSETS             
Current assets:              
  Cash    $14,646,733     $ 13,473,246
  Trade receivables     8,301,263       10,340,537
  Other receivables     676,018       1,155,514
  Inventories      5,851,633       6,138,547
  Deferred cost of revenue     -       40,059
  Prepaid expenses and other deposits     821,467       928,350
        30,297,114      32,076,253
Non-current assets:              
  Property, plant and equipment     1,682,494      1,768,479
  Intangible assets     49,347      59,809
  Other assets      95,923      99,753
        1,827,764       1,928,041
Total Assets   $32,124,878     $ 34,004,294
                 
LIABILITIES AND SHAREHOLDERS' EQUITY               
Current liabilities              
  Trade and other payables     3,807,505      5,553,916
  Income tax payable     155,063      153,403
  Deferred revenue     1,123,236      1,105,333
  Borrowings     4,838,557      4,981,078
        9,924,361      11,793,730
Non-current liabilities             
  Other payables     681,358      788,592
  Other financial liability     47,876      111,548
  Convertible debenture (principal and interest)     276,893      287,175
  Fair market value adjustment on convertible debenture     360,945      920,739
        1,367,072      2,108,054
Total Liabilities     11,291,433      13,901,784
                 
SHAREHOLDERS' EQUITY              
Share capital      169,448,298      168,903,267
Share purchase loan      (365,780)      (365,780)
Warrant      310,000      310,000
Contributed surplus     8,522,299      8,911,025
Deficit     (157,081,372)      (157,656,002)
        20,833,445       20,102,510
Total liabilities and equity   $32,124,878     $ 34,004,294
              



REDLINE COMMUNICATIONS GROUP INC.                        
Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
(Unaudited, expressed in U.S. dollars)                        
                           
            Three months ended March 31,
                2014       2013
Revenue           $   7,087,941     $ 8,022,741
Cost of revenue               2,798,948       3,969,053
Gross profit               4,288,993       4,053,688
                           
Expenses:                        
  Research and development               836,394      1,778,934
  Finance and administration               1,347,254      1,656,350
  Sales and marketing               1,786,321      2,601,828
  Operations and customer support               294,228       370,450
                  4,264,197      6,407,562
Profit (loss) before undernoted items               24,796       (2,353,874)
                           
Other expenses (gains)                        
  Finance expense               37,267       81,879
  Gain on fair market value of financial instruments               (584,340)       (54,393)
  Foreign exchange gain               (28,682)       (85,435)
                  (575,755)       (57,949)
Profit (loss) before income taxes               600,551       (2,295,925)
Income tax expense               25,921       172,323
Net profit (loss) and total comprehensive income (loss)           $   574,630     $ (2,468,248)
                           
                          
Earnings (loss) per share                        
  Basic           $   0.04    $ (0.18)
  Diluted           $   0.04     $ (0.18)
                           



REDLINE COMMUNICATIONS GROUP INC.                                    
Condensed Consolidated Interim Statements of Changes in Equity                    
(Unaudited, expressed in U.S. dollars)                                    
                                               
          Share

capital
    Share purchase

loan
  Warrant       Contributed

surplus
    Deficit     Total
Balance at December 31, 2012     $ 152,123,803   $ (365,780)   $     310,000   $   8,361,465   $ (153,538,978)   $ 6,890,510
  Net loss       -     -         -       -     (2,468,248)     (2,468,248)
  Shares issued on conversion

of debenture
      2,132,243     -         -       -     -     2,132,243
  Shares issued on conversion

of warrants
      5,334,306     -         -       -     -     5,334,306
  Exercise of options       314,663     -         -       (139,467)     -     175,196
  Share-based payments       -     -         -       185,465     -     185,465
Balance at March 31, 2013     $ 159,905,015   $ (365,780)   $     310,000   $   8,407,463   $ (156,007,226)   $ 12,249,472
Balance at December 31, 2013     $ 168,903,267   $ (365,780)   $     310,000   $   8,911,025   $ (157,656,002)   $ 20,102,510
  Net profit       -     -         -       -     574,630     574,630
  Exercise of options       545,031     -         -       (218,567)     -     326,464
  Repurchase and cancellation

of options
      -     -         -       (201,793)     -     (201,793)
  Share-based payments       -     -         -       31,634     -     31,634
Balance at March 31, 2014     $ 169,448,298   $ (365,780)   $     310,000   $   8,522,299   $ (157,081,372)   $ 20,833,445
                                             



REDLINE COMMUNICATIONS GROUP INC.                
Condensed Consolidated Interim Statements of Cash Flows                
(Unaudited, expressed in U.S. dollars)                
                     
      Three months ended March 31,
        2014       2013
Cash flows from operating activities:                
  Net profit (loss)     $574,630     $ (2,468,248)
  Adjustments to reconcile net profit (loss) to net cash from operating activities                
    Finance expense       37,267       81,879
    Depreciation and amortization of non-current assets       109,788       82,047
    Loss on disposal of asset       10,692       -
    Recognition of share based payments       31,634       185,465
    Foreign exchange loss on cash held in foreign currency       182,768       121,761
    Foreign exchange gain on borrowings       (238,656)       (228,662)
    Gain on fair market value of Debenture       (584,340)       (54,393)
    Income tax       -       172,323
            123,783       (2,107,828)
  Change in non-cash operating assets and liabilities                 
    Decrease in deferred cost of revenue       40,059       590,922
    (Decrease) increase in deferred revenue       17,903       (1,144,798)
    Change in other non-cash operating assets and liabilities        862,619       3,264,434
Cash from operating activities       1,044,364       602,730
                 
Cash flows from investing activities:                
  Acquisition of property, plant and equipment       (17,533)       (64,167)
  Proceeds on sale of property, plant and equipment       13,500       -
  Acquisition of intangible assets       (20,000)       -
Cash used in investing activities       (24,033)       (64,167)
                 
Cash flows from financing activities:                
  Finance income (costs)       9,460       (17,919)
  Proceeds from exercise of options       326,464       175,196
  Proceeds from conversion of debenture and warrants       -       2,892,833
  Proceeds from bank indebtedness       -       937,176
Cash from financing activities       335,924       3,987,286
Foreign exchange loss on cash held in foreign currency       (182,768)       (121,761)
Increase in cash        1,173,487       4,404,088
Cash, beginning of the period       13,473,246       8,286,732
Cash, end of the period     $14,646,733     $ 12,690,820
                     
Cash     $14,646,733     $ 12,690,820
Bank indebtedness       -       (3,234,031)
Cash, net of bank indebtedness     $14,646,733     $ 9,456,789
             


SOURCE Redline Communications Group Inc.


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