Redline Communications Reports 2020 Third Quarter Results

November 11, 2020

By Redline Communications Group Inc.

Caption FF

Description FF

TORONTO, Nov. 11, 2020 /CNW/ – Redline Communications (www.rdlcom.com) Group Inc. (TSX: RDL), the creator of powerful wide-area wireless networks for mission-critical applications in challenging locations, today announced operating results (in US dollars unless otherwise noted) for the third quarter ended September 30, 2020.

Revenue for the third quarter ended September 30, 2020 (“Q3 2020”) was $5.2 million, up 27% over Q2 2020 and down 26% over Q3 2019, primarily as a result of various business impacts associated with COVID-19 such as, but not limited to, access to customer sites, delays in customer purchasing decisions and longer supplier lead times.

“We are pleased to report quarter over quarter improvements in cash, revenues, bookings, backlog, EBITDA and net profit,” stated Stephen Sorocky, Redline CEO. “While the COVID-19 pandemic continues to be a significant concern, we have adjusted to the ongoing uncertainty and we continue to closely monitor the ongoing impacts of the COVID-19 pandemic and will continue to adapt as necessary.”

Order Bookings for Q3 2020 were $6.6 million, up 44% over Q2 2020 and up 15% over Q3 2019. The quarter over quarter increase was mainly due to growth in order bookings from customers in the oil & gas sector.

Key financial highlights for the three months ended September 30, 2020 (“Q3 2020”) include:

	Q3 2020	Q3 2019	Increase (decrease)	% Change
Revenue	$5.2 M	$7.1 M	($1.9 M)	(26%)
Gross profit margin %	52%	54%	(2%)
Operating expenses	$3.5 M	$4.1 M	($0.6 M)	(16%)
Net loss	$0.3 M	$0.2 M	($0.1 M)	(41%)
Adjusted EBITDA loss¹	$0.4 M	$0.0 M	($0.4 M)	(1139%)
CEWS benefit	$0.3 M	Nil	$0.3 M
Bookings¹	$6.6 M	$5.8 M	$0.8 M	15%

	September 30, 2020	June 30, 2020	Increase (decrease)	% Change
Cash	$5.1 M	$5.1 M	$0.0 M	1%
Inventory	$6.5 M	$7.2 M	($0.7 M)	(9%)
Order Backlog¹	$11.1 M	$10.3 M	$0.8 M	8%

Key financial highlights for the nine months ended September 30, 2020 include:

	2020-09 YTD	2019-09 YTD	Increase (decrease)	% Change
Revenue	$13.8 M	$18.6 M	($4.8 M)	(26%)
Gross profit margin %	57%	54%	3%
Operating expenses	$11.3 M	$12.5 M	($1.2 M)	(9%)
Net loss	$2.2 M	$2.4 M	$0.2 M	7%
Adjusted EBITDA loss	$2.4 M	$1.4 M	($1.0 M)	(72%)
CEWS benefit	$1.0 M	Nil	$1.0 M
Bookings	$17.1 M	$17.6 M	($0.5 M)	(3%)

	September 30, 2020	December 31, 2019	Increase (decrease)	% Change
Cash	$5.1 M	$6.5 M	($1.4 M)	(21%)
Inventory	$6.5 M	$7.7 M	($1.2 M)	(15%)
Order Backlog	$11.1 M	$8.5 M	$2.6 M	30%

Financial and Business Review

Gross profit margin for Q3 2020 was 52%, down by 6 percentage points over Q2 2020 and down 2 percentage points over Q3 2019. The decrease over both periods was a result of a number of factors, primarily the change in revenue mix year over year, combined with some transactions in 2020 Q3 that had non-recurring lower margins. This was partially offset by continued quarter-over-quarter growth in revenue from maintenance and support contracts, which, in addition to being recurring revenue, also have higher margins.

Overall operating expenses for Q3 2020 were $3.5 million, down 9% quarter over quarter and down 16% over Q3 2019. Both decreases were primarily the result of decreased costs associated in sales ,marketing and travel, as COVID-19 has prompted the suspension of nearly all business travel and the cancelation of in-person marketing events from March 2020 onward.

In the quarter, the Company continued to participate in the Canada Emergency Wage Subsidy (“CEWS”) program, where the Company has recognized $1.0 million of CEWS benefit as part of other income, covering periods up to the end of September.

Net loss for Q3 2020 was $0.3 million, or ($0.02) per share, an improvement of 60% over Q2 2020 and down 41% from the net loss of $0.2 million, or ($0.01) per share, for Q3 2019.

Adjusted EBITDA loss for Q3 2020 was $0.4 million, an improvement of 63% over Q2 2020 and as compared to an essentially break-even Adjusted EBITDA for Q3 2019.

Conference Call and Webcast – November 12, 2020 at 10:00 a.m. ET

A conference call and webcast to discuss the results has been scheduled for Thursday November 12, 2020 at 10:00 a.m. Eastern Time. To participate, please dial 1-647-427-7450 approximately 10 minutes before the conference call and provide passcode 9339278. A recording of the call will be available through November 19, 2020 on Redline’s website or by dialing 1-416-849-0833 and entering the same passcode.

About Redline Communications
Redline Communications (TSX:RDL) designs and manufactures powerful wide-area wireless networks for mission-critical applications in challenging locations. Redline networks are used by oil & gas companies onshore and offshore, mining companies on surface and underground operations, by municipalities to remotely monitor infrastructure, and by specialized telecom service providers to deliver premium services. Hundreds of businesses worldwide rely on Redline to engineer, plan and deliver ruggedized, secure and reliable networks for their IoT, voice, data, and video communications needs in locations that include the deserts of the Middle East, the rainforests of South America, and the frozen Alaskan slopes. For more information visit www.rdlcom.com.

NOTES:

To better assess the health and growth of the Redline’s business, the Company reports certain non-IFRS metrics, including “Bookings”, “Order Backlog”,”Adjusted EBITDA” and “Adjusted EBITDA Margin”. Further information including definitions of these measures and a reconciliation to their closest IFRS measure, if applicable, can be found in the Company’s Management Discussion and Analysis for the three and nine months ended September 30, 2020 (“Q3 2020 MD&A”), copies of which are available on SEDAR at www.sedar.com. Further details on the three and nine months ended September 30, 2020 can be found in the condensed consolidated interim statement of financial position, statement of comprehensive loss, statement of changes in equity and 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 and nine months ended September 30, 2020 and the Q3 2020 MD&A.

Adjusted EBITDA (Loss)
(Unaudited, Expressed in thousands of U.S. dollars)
The table below reconciles Adjusted EBITDA (loss) to net profit (loss):

		Three months ended September 30,				Nine months ended September 30,
		(unaudited)				(unaudited)
(in thousands)		2020		2019		2020		2019
Revenue		$	5,235	$	7,089	$	13,833	$	18,645
Net profit (loss)		(350)		(248)		(2,251)		(2,420)
Add back:
	Share based payments	51		44		142		280
	Depreciation and amortization	263		210		800		647
	Covid-19 related Canada
	Emergency Wage Subsidy	(335)		–		(1,041)		–
	Finance (income) expense	7		(11)		16		(43)
	(Gain) loss on fair market value
	of financial instruments	(77)		(27)		(150)		(10)
	Foreign exchange (gain) loss	18		(6)		(51)		94
	Income tax expense	14		5		58		12
	Total	(59)		215		(226)		980

Adjusted EBITDA (loss)		$	(409)	$	(33)	$	(2,477)	$	(1,440)

Adjusted EBITDA margin		-8%		0%		-18%		-8%

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 effects 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)

		Note	September 30, 2020		December 31, 2019
ASSETS
Current assets:
	Cash		$	5,134,358	$	6,507,606
	Trade receivables	3	4,160,467		7,089,043
	Other receivables		442,290		260,216
	Inventories	4	6,513,001		7,707,578
	Deferred cost of revenue	11	1,054		6,910
	Prepaid expenses and other deposits		311,876		285,519
			16,563,046		21,856,872
Non-current assets:
	Property, plant and equipment	5	955,815		999,435
	Intangible assets	6	1,271,374		1,373,526
	Right of use assets	7	616,958		798,080
	Other assets		62,437		76,284
			2,906,584		3,247,325
Total Assets			$	19,469,630	$	25,104,197

LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
	Trade and other payables	10	$	3,812,267	$	6,035,496
	Income tax payable		12,398		12,398
	Deferred revenue	11	1,765,428		1,966,282
	Lease liabilities	12	239,774		277,945
	Borrowings	13	–		716,832
			5,829,867		9,008,953
Non-current liabilities:
	Deferred revenue	11	298,194		429,414
	Lease liabilities	12	577,784		788,572
			875,978		1,217,986
Total Liabilities			6,705,845		10,226,939

SHAREHOLDERS’ EQUITY
Share capital		8	172,929,341		172,929,341
Contributed surplus			9,663,320		9,525,694
Deficit			(169,828,876)		(167,577,777)
			12,763,785		14,877,258
Total Liabilities and Equity			$	19,469,630	$	25,104,197

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

		Note	Three months ended September 30,				Nine months ended September 30,
			2020		2019		2020		2019
Revenue		15	$	5,234,885	$	7,089,235	$	13,832,804	$	18,644,734
Cost of revenue			2,506,794		3,291,151		5,909,158		8,543,973
Gross profit			2,728,091		3,798,084		7,923,646		10,100,761

Expenses:
	Research and development		946,317		1,063,385		3,116,847		2,376,048
	General and administrative		1,179,184		1,156,924		3,599,198		3,766,480
	Sales and marketing		1,103,574		1,588,275		3,959,091		5,563,229
	Operations and customer support		221,574		276,808		667,848		763,042
			3,450,649		4,085,392		11,342,984		12,468,799
Loss before undernoted items			(722,558)		(287,308)		(3,419,338)		(2,368,038)

Other (income) expenses:
	Covid-19 related Canada Emergency Wage Subsidy	18	(334,763)		–		(1,040,717)		–
	Finance (income) expense	16	7,422		(10,966)		16,179		(43,195)
	(Gain) loss on fair market value of financial instruments		(77,476)		(27,073)		(151,169)		(9,913)
	Foreign exchange (gain) loss		17,680		(6,237)		(51,170)		93,528
			(387,137)		(44,276)		(1,226,877)		40,420
Loss before income taxes			(335,421)		(243,032)		(2,192,461)		(2,408,458)
Income tax expense			14,498		4,967		58,644		12,024
Net loss and total comprehensive loss			$	(349,919)	$	(247,999)	$	(2,251,105)	$	(2,420,482)


Loss per share
	Basic	8	$	(0.02)	$	(0.01)	$	(0.13)	$	(0.14)
	Basic and diluted	9	$	(0.02)	$	(0.01)	$	(0.13)	$	(0.14)

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

		Share capital		Contributed surplus		Deficit		Total
Balance at January 1, 2019		$	172,929,341	$	9,292,321	$	(163,832,939)	$	18,388,723
	Net loss	–		–		(2,420,482)		(2,420,482)
	Stock option expense	–		188,772		–		188,772
Balance at September 30, 2019		$	172,929,341	$	9,481,093	$	(166,253,421)	$	16,157,013
Balance at January 1, 2020		$	172,929,341	$	9,525,694	$	(167,577,777)	$	14,877,258
	Net loss	–		–		(2,251,105)		(2,251,105)
	Stock option expense	–		137,626		–		137,626
Balance at September 30, 2020		$	172,929,341	$	9,663,320	$	(169,828,882)	$	12,763,779

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,
			Note	2020		2019		2020		2019
Cash flows from ( used in) operating activities:
	Net loss			$	(349,919)	$	(247,999)	$	(2,251,105)	$	(2,420,482)
	Adjustments to reconcile net loss to net cash from operating activities:
		Finance (income) expense		7,422		(10,966)		16,179		(43,195)
		Depreciation and amortization of non-current assets		263,423		210,422		800,695		647,741
		Stock option expense		50,618		38,009		137,626		188,772
		Foreign exchange (gain) loss on cash held in foreign currency		(5,483)		17,385		39,285		(29,800)
		Foreign exchange (gain) loss on borrowings and lease liabilities		17,774		(21,561)		(50,456)		75,413
		(Gain) Loss on disposal of assets				(1,801)		5,668		(1,801)

				(16,165)		(16,511)		(1,302,108)		(1,583,352)
	Change in non-cash operating assets and liabilities:
		Decrease (increase) in deferred cost of revenue		1,141		(3,155)		5,856		(8,349)
		(Decrease) increase in deferred revenue		(172,612)		341,324		(332,074)		124,663
		Change in other non-cash operating assets and liabilities	17	489,891		113,864		1,705,346		999,514
Cash flows generated by (used in) operating activities				302,255		435,522		77,020		(467,524)

Cash flows generated by (used in) investing activities:
	Acquisition of property, plant and equipment		5	(90,048)		(15,739)		(239,296)		(112,752)
	Proceeds on sale of property, plant and equipment			–		25,812		–		25,812
	Acquisition of intangible assets		6	(109,750)		–		(240,173)		(14,100)
Cash flows (used in) generated by investing activities				(199,798)		10,073		(479,469)		(101,040)

Cash flows generated by (used in) financing activities:
	Interest income			2,704		31,331		22,255		109,876
	Interest expense			(10,126)		(13,250)		(33,748)		(41,041)
	Repayment of borrowings			–		–		(701,491)		(735,505)
	Repayment of lease liabilities			(48,781)		(64,136)		(218,530)		(234,803)
Cash used in financing activities				(56,203)		(46,055)		(931,514)		(901,473)
Foreign exchange gain (loss) on cash held in foreign currency				5,483		(17,385)		(39,285)		29,800
Increase (decrease) in cash				51,737		382,155		(1,373,248)		(1,440,237)
Cash, beginning of the period				5,082,621		7,803,453		6,507,606		9,625,845
Cash, end of the period				$	5,134,358	$	8,185,608	$	5,134,358	$	8,185,608