Redline Communications Reports Q3 2015 Results

TORONTO, Nov. 9, 2015 /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 September 30, 2015 (Q3 2015).

Q3 2015 Financial Highlights:

$6.4M Total Revenue
47% Gross Margin
$1.3M Adjusted EBITDA² loss
$1.7M Net Loss
$12.9M Cash
$9.5M new Order Bookings²
$16.1M Order Backlog²

Total revenue for Q3 2015 was $6.4 million, down 30% over the same period in 2014. Order bookings for Q3 2015 were $9.5 million, up 12% over the same period in 2014 and up 7% sequentially over Q2 2015. The order backlog at September 30, 2015 was $16.1 million, an increase of $3.2 million sequentially from Q2 2015.

"Ongoing low oil prices and subsequent delays in purchasing have negatively impacted overall sales to the energy sector and therefore overall company revenues in Q3 2015," said Robert Williams, Redline CEO. "While the oil and gas market continues to be an area of focus for the company, we have increased our emphasis on sales to non-energy sector customers. This has resulted in a quarter-over-quarter increase in total order bookings, driven largely by orders from non-energy sector customers and this sector diversity is expected to continue."

Overall gross margin for Q3 2015 was 47%, down 3 percentage points from 50% reported in the same period in 2014. Lower gross margins in Q3 2015 are attributed largely to a one-time inventory write-down charge of $0.4 million that reduced gross margins by 6 percentage points. Overall operating expenses were $4.6 million for Q3 2015, up 2% over $4.5 million for the same period last year. At the end of September 2015, the Company undertook a minor restructuring, reducing the number of employees and contractors. This restructuring is expected to reduce annual costs by $2.0 million, or $0.5 million per quarter starting in the fourth quarter of 2015.

Adjusted EBITDA loss for Q3 2015 was $1.3 million, compared to Adjusted EBITDA of $0.4 million reported in the same period in 2014. Net loss for Q3 2015 was $1.7 million, or ($0.10) per share, compared to a net loss of $0.1 million, or ($0.01) per share reported in the same period in 2014. As of September 30, 2015 the Company had $12.9 million of cash, or $0.75 per common share, a decrease of $3.5 million from $16.4 million at December 31, 2014.

The Company had 17,046,241 common shares outstanding as of September 30, 2015.

A conference call and webcast to discuss the Company's Q3 2015 financial results have been scheduled for November 10, 2015 at 10:00 a.m. Eastern Time. To participate in the call, please dial 1.647.427.7450 approximately 10 minutes before the conference call, and provide passcode 69310639. A recorded webcast of the call will be available on Redline's website.

About Redline Communications

Redline Communications (www.rdlcom.com) is the creator of powerful wide-area wireless networks for the most challenging applications and locations. 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 Redline's business, the Company reports on several key metrics and non-IFRS measures, including "Orders or Bookings", "Backlog", "EBITDA" and "Adjusted EBITDA". Further information including definitions of these categories and a reconciliation to their closest IFRS measures, when applicable, can be found in the Company's Management Discussion and Analysis for the three and nine months ended September 30, 2015 ("Q3 2015 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three month results ended September 30, 2015 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 September 30, 2015 and the Q3 2015 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.rdlcom.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)

		September 30, 2015		December 31, 2014
ASSETS
Current assets:
	Cash	$	12,866,883	$	16,364,077
	Trade receivables	11,833,730		12,163,006
	Other receivables	962,250		780,313
	Inventories	6,603,819		5,479,981
	Prepaid expenses and other deposits	490,243		595,174
		32,756,925		35,382,551
Non-current assets:
	Property, plant and equipment	1,461,353		1,590,011
	Intangible assets	1,830,430		1,943,678
	Other assets	67,157		77,250
		3,358,940		3,610,939
Total Assets		$	36,115,865	$	38,993,490

LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
	Trade and other payables	4,366,890		6,307,092
	Income tax payable	155,063		155,063
	Deferred revenue	1,323,333		1,467,123
	Convertible debenture (principal and interest)	232,415		-
	Fair market value adjustment on convertible debenture	41,509		-
	Borrowings	3,751,241		4,311,077
		9,870,451		12,240,355
Non-current liabilities
	Other payables	354,772		478,311
	Other financial liability	-		159
	Convertible debenture (principal and interest)	-		265,614
	Fair market value adjustment on convertible debenture	-		91,040
		354,772		835,124
Total Liabilities		10,225,223		13,075,479

SHAREHOLDERS' EQUITY
Share capital		172,662,177		172,617,023
Warrant		310,000		310,000
Contributed surplus		8,417,067		8,167,450
Deficit		(155,498,602)		(155,176,462)
		25,890,642		25,918,011
Total liabilities and equity		$	36,115,865	$	38,993,490

REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Comprehensive Income (Loss)
(Unaudited, expressed in U.S. dollars)

		Three months ended September 30,				Nine months ended September 30,
		2015		2014		2015		2014
Revenue		$	6,368,540	$	9,126,636	$	24,994,234	$	24,896,705
Cost of revenue		3,378,249		4,565,806		10,915,898		10,540,933
Gross profit		2,990,291		4,560,830		14,078,336		14,355,772

Expenses:
	Research and development	938,985		795,351		2,329,310		2,239,205
	Administration and finance	1,249,466		1,264,466		4,384,587		4,343,789
	Sales and marketing	2,028,462		2,112,682		6,655,008		5,995,789
	Operations and customer support	344,978		308,404		975,035		902,729
		4,561,891		4,480,903		14,343,940		13,481,512
Profit (loss) before undernoted items		(1,571,600)		79,927		(265,604)		874,260

Other expenses (gains)
	Finance expense	28,652		26,398		83,583		100,854
	Restructuring costs	235,155		-		235,155		-
	Gain on fair market value of financial instruments	(40,008)		(61,283)		(37,532)		(451,130)
	Foreign exchange (gain) loss	(162,549)		203,860		(272,032)		114,899
		61,250		168,975		9,174		(235,377)
Profit (loss) before income taxes		(1,632,850)		(89,048)		(274,778)		1,109,637
Income tax expense		43,834		5,649		47,362		43,068
Net profit (loss) and total comprehensive income (loss)		$	(1,676,684)	$	(94,697)	$	(322,140)	$	1,066,569


Earnings (loss) per share
	Basic	$	(0.10)	$	(0.01)	$	(0.02)	$	0.07
	Diluted	$	(0.10)	$	(0.01)	$	(0.02)	$	0.06

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 January 1, 2014		$	168,903,267	$	(365,780)	$	310,000	$	8,911,025	$	(157,656,002)	$	20,102,510
	Net profit	-		-		-		-		1,066,569		1,066,569
	Exercise of options	1,764,500		-		-		(827,460)		-		937,040
	Conversion of warrants	2,253,156		-		-		-		-		2,253,156
	Share purchase loan settlement	(329,572)		365,780		-		-		-		36,208
	Repurchase and cancellation of options	-		-		-		(201,793)		-		(201,793)
	Share-based payments	-		-		-		238,646		-		238,646
Balance at September 30, 2014		$	172,591,351	$	-	$	310,000	$	8,120,418	$	(156,589,433)	$	24,432,336
Balance at January 1, 2015		$	172,617,023	$	-	$	310,000	$	8,167,450	$	(155,176,462)	$	25,918,011
	Net loss	-		-		-		-		(322,140)		(322,140)
	Exercise of options	45,154		-		-		(24,791)		-		20,363
	Share-based payments	-		-		-		274,408		-		274,408
Balance at September 30, 2015		$	172,662,177	$	-	$	310,000	$	8,417,067	$	(155,498,602)	$	25,890,642

REDLINE COMMUNICATIONS GROUP INC.
Condensed Consolidated Interim Statements of Cash Flows
(Unaudited, expressed in U.S. dollars)

			Three months ended September 30,				Nine months ended September 30,
			2015		2014		2015		2014

Cash flows from operating activities:
	Net profit (loss)		$	(1,676,684)	$	(94,697)	$	(322,140)	$	1,066,569
	Adjustments to reconcile net profit to net cash from operating activities
		Finance expense	28,652		26,398		83,583		100,854
		Depreciation and amortization of non-current assets	215,475		169,049		640,150		378,255
		(Gain) loss on disposal of assets	-		-		(9,950)		15,652
		Recognition of share based payments	63,081		85,227		274,408		274,854
		Foreign exchange loss on cash held in foreign currency	151,560		415,412		510,594		381,756
		Foreign exchange gain on borrowings	(280,871)		(267,174)		(613,274)		(312,206)
		Gain on fair market value of Debenture	(40,008)		(61,283)		(37,532)		(451,130)
			(1,538,795)		272,932		525,839		1,454,604
	Change in non-cash operating assets and liabilities
		Decrease in deferred cost of revenue	-		-		-		40,059
		(Decrease) increase in deferred revenue	210,928		(1,059,839)		(143,790)		410,199

		Change in other non-cash operating assets and liabilities	(1,574,261)		(1,181,801)		(2,925,216)		893,199
Cash from (used in) operating activities			(2,902,128)		(1,968,708)		(2,543,167)		2,798,061

Cash flows used in investing activities:
	Acquisition of property, plant and equipment		(69,773)		(340,879)		(168,889)		(396,498)
	Proceeds on sale of property, plant and equipment		-		-		9,950		14,424
	Acquisition of intangible assets		(28,011)		(1,733,534)		(229,355)		(1,874,034)
Cash used in investing activities			(97,784)		(2,074,413)		(388,294)		(2,256,108)

Cash flows from financing activities:
	Finance income		7,476		21,794		27,810		42,482
	Proceeds from exercise of options		20,363		33,981		20,363		937,040
	Proceeds from conversion of debenture and warrants		-		-		-		1,919,290
	Repayment of borrowings		(103,312)		-		(103,312)		-
Cash from (used in) financing activities			(75,473)		55,775		(55,139)		2,898,812
Foreign exchange loss on cash held in foreign currency			(151,560)		(415,412)		(510,594)		(381,756)
Increase (decrease) in cash			(3,226,945)		(4,402,758)		(3,497,194)		3,059,009
Cash, beginning of the period			16,093,828		20,935,013		16,364,077		13,473,246
Cash, end of the period			$	12,866,883	$	16,532,255	$	12,866,883	$	16,532,255