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Redknee Reports Third Quarter Fiscal 2010 Financial Results

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^{Published in Science and Technology on Wednesday, August 11th 2010 at 14:10 GMT by Market Wire}  

 Q3 Highlights: -------------- - Third quarter 2010 revenue at $10.6M (on constant dollar basis $12.1M, Q3 2009: $14.5M) - Gross margin at 71% (Q3 2009: 79%) - EBITDA(1) loss of $0.4M (Q3 2009: profit of $2.3M) - Operating loss of $0.2M (Q3 2009: profit of $0.8M) - Order backlog of $27.5M - Announced intent to acquire Nimbus Systems, a Tier 1 billing and customer care specialist - Following quarter end, Redknee has finalized two multi-year, multi- million dollar service contracts - Patents: 19 issued, over 58 pending - Redknee's real-time data rating, charging and policy solution was awarded the Best Service Enablement Tool at the Billing & OSS World Excellence Awards 

 OVERVIEW -------- 

 1. Continued expansion and evolution of our business-critical solutions to our global customer base; 2. Market share growth and leadership in our served addressable market; and 3. An increasing proportion of sustainable recurring revenues. 

 Financial Review ---------------- 

 Local dial-in number 647-427-7450 Toll-free North America 1-888-231-8191 

 (1) Earnings Before Interest Expense, Income Taxes, Depreciation, and Amortization (EBITDA) is a non-GAAP measure. While useful in understanding Company operational results, EBITDA is not standardized and may not be comparable to similar results reported by other companies. EBITDA described above is calculated as Income (loss) from operations, net of foreign exchange gain/loss, amortization and stock-based compensation. Redknee Solutions Inc. Interim Consolidated Balance Sheet (Unaudited) ------------------------------------------------------------------------- (expressed in Canadian dollars) June September 30, 30, 2010 2009 $ $ Assets Current assets Cash and cash equivalents 19,812,246 25,663,047 Short-term investments - 107,049 Trade accounts and other receivables 10,672,901 8,160,277 Unbilled revenue 4,706,969 2,670,431 Investment tax credits and income taxes receivable 200,000 600,000 Prepaid expenses 1,001,083 1,027,056 Goods in transit 85,116 242,099 ------------------------- 36,478,315 38,469,959 Restricted cash (note 7) 127,272 322,722 Property and equipment 432,309 623,567 Intangible assets 905,016 1,139,444 Future income taxes 337,529 334,513 Other assets 466,630 464,303 ------------------------- 38,747,071 41,354,508 ------------------------- ------------------------- Liabilities Current liabilities Accounts payable 1,034,435 907,694 Accrued liabilities 3,249,623 5,899,843 Income taxes payable 2,260,920 2,529,923 Deferred revenue 5,471,520 6,988,512 ------------------------- 12,016,498 16,325,972 ------------------------- Long-term deferred revenue - 1,005,164 ------------------------- 12,016,498 17,331,136 ------------------------- Shareholders' equity Share capital, net of employee share purchase loans 43,094,235 40,744,480 ------------------------- Contributed surplus 4,175,711 4,572,737 ------------------------- Deficit (20,409,087) (21,144,555) Accumulated other comprehensive loss, net of income taxes (130,286) (149,290) ------------------------- Total deficit and accumulated other comprehensive loss (20,539,373) (21,293,845) ------------------------- 26,730,573 24,023,372 ------------------------- 38,747,071 41,354,508 ------------------------- ------------------------- Guarantees and contingencies (note 7) Approved by the Board of Directors (signed) "Alan Michels" Director (signed) "Lucas Skoczkowski" Director ------------------------ ----------------------------- Redknee Solutions Inc. Interim Consolidated Statement of Operations (Unaudited) ------------------------------------------------------------------------- (expressed in Canadian dollars) Three months ended Nine months ended June 30, June 30, ------------------------- ------------------------- 2010 2009 2010 2009 $ $ $ $ Revenue Software, services and other 5,738,695 8,861,397 21,897,466 26,195,166 Support and Subscription 4,892,963 5,618,489 13,980,505 16,251,870 --------------------------------------------------- 10,631,658 14,479,886 35,877,971 42,447,036 Cost of revenue 3,112,879 3,008,663 9,566,056 9,300,867 --------------------------------------------------- Gross profit 7,518,779 11,471,223 26,311,915 33,146,169 --------------------------------------------------- Operating expenses Selling and marketing 2,804,084 3,765,183 9,483,020 12,040,384 General and administrative 2,400,288 2,470,037 5,771,829 7,451,500 Research and development (note 4) 2,810,904 2,931,780 8,185,452 9,591,644 Amortization of property and equipment and intangible assets 164,872 169,897 486,178 482,026 Foreign currency exchange (gain) loss (504,352) 1,311,451 1,236,071 (909,409) --------------------------------------------------- 7,675,796 10,648,348 25,162,550 28,656,145 --------------------------------------------------- Income (loss) from operations (157,017) 822,875 1,149,365 4,490,024 Interest income 22,710 4,968 29,600 45,751 Interest expense (3,827) (10,681) (21,335) (14,880) --------------------------------------------------- Income (loss) before income taxes (138,134) 817,162 1,157,630 4,520,895 Income taxes Current 91,650 309,147 422,162 945,822 --------------------------------------------------- Net income (loss) for the period (229,784) 508,015 735,468 3,575,073 --------------------------------------------------- --------------------------------------------------- Net income (loss) per common share (note 2) Basic 0.00 0.01 0.01 0.06 Diluted 0.00 0.01 0.01 0.06 Weighted average number of common shares (note 2) Basic 60,078,132 57,107,659 60,078,132 57,107,659 Diluted 60,078,132 59,122,135 61,785,769 58,226,223 Redknee Solutions Inc. Interim Consolidated Statement of Comprehensive Income (Loss) (Unaudited) ------------------------------------------------------------------------- (expressed in Canadian dollars) Three months ended Nine months ended June 30, June 30, ------------------------- ------------------------- 2010 2009 2010 2009 $ $ $ $ Net income (loss) for the period (229,784) 508,015 735,468 3,575,073 Other comprehensive income, net of income taxes Foreign currency translation adjustment 44,550 57,994 19,004 57,994 --------------------------------------------------- Comprehensive income (loss) for the period (185,234) 566,009 754,472 3,633,067 --------------------------------------------------- --------------------------------------------------- Redknee Solutions Inc. Notes to Interim Consolidated Financial Statements (Unaudited) June 30, 2010 ------------------------------------------------------------------------- Three months ended Nine months ended June 30, June 30, --------------------------------------------------- 2010 2009 2010 2009 $ $ $ $ Cash provided by (used in) Operating activities Net income (loss) for the period (229,784) 508,015 735,468 3,575,073 Items not involving cash Amortization of property and equipment 105,462 112,115 307,948 311,114 Amortization of intangible assets 59,410 57,782 178,230 170,912 Unrealized foreign currency exchange loss (gain) (377,156) 2,114,121 1,265,700 (1,333,887) Stock-based compensation (note 3) 137,442 189,935 275,689 513,058 Change in non-cash operating working capital (note 5) (19,236) (417,866) (9,237,670) 3,537,092 --------------------------------------------------- (323,862) 2,564,102 (6,474,635) 6,773,362 --------------------------------------------------- Financing activities Collection of employee loans 12,797 109,621 479,405 168,650 Proceeds from exercise of stock options 464,018 15,224 1,197,635 15,224 Repayment of obligations under capital leases - - (619) --------------------------------------------------- 476,815 124,845 1,677,040 183,255 --------------------------------------------------- Investing activities (Purchase of) proceeds from short-term investments - 4,958,910 107,049 (4,078,925) Purchase of property and equipment (39,427) (88,088) (116,690) (401,033) (Increase) decrease in other assets (28,625) 8,118 (2,327) (29,116) (Increase) decrease in restricted cash (5,400) 50,911 195,450 (195,854) --------------------------------------------------- (73,450) 4,929,851 183,482 (4,704,928) --------------------------------------------------- Effect of foreign currency exchange rate changes on cash and cash equivalents (43,662) (419,179) (1,236,688) 780,102 --------------------------------------------------- Increase (decrease) in cash and cash equivalents during the period 35,840 7,199,619 (5,850,801) 3,031,791 Cash and cash equivalents - Beginning of period 19,776,406 11,074,779 25,663,047 15,242,607 --------------------------------------------------- Cash and cash equivalents - End of period 19,812,246 18,274,398 19,812,246 18,274,398 --------------------------------------------------- --------------------------------------------------- Supplemental cash flow information Interest paid 3,827 10,681 21,335 14,880 Interest received 22,711 4,968 29,600 45,751 Net income taxes paid 99,298 130,895 269,944 328,531