Redline Communications Reports 2021 First Quarter Results Achieved Record Gross Margins

·13 min read

TORONTO, May 12, 2021 /CNW/ - Redline Communications (www.rdlcom.com) Group Inc. (TSX: RDL), the creator of powerful wireless data infrastructure for mission-critical applications in challenging locations, today announced operating results (in US dollars unless otherwise noted) for the first quarter ended March 31, 2021.

Redline Communications, Q1 2021 Interim Earnings, LTE Virtual Fiber (CNW Group/Redline Communications Group Inc.)
Redline Communications, Q1 2021 Interim Earnings, LTE Virtual Fiber (CNW Group/Redline Communications Group Inc.)

Revenue for the first quarter ended March 31, 2021 ("Q1 2021") was $3.7 million, down 17% from Q1 2020. The decline was primarily the result of business impacts associated with COVID-19 including, but not limited to, access to customer sites, delays in customer purchasing decisions and longer supplier lead times. However, the sales pipeline indicates that there is pent-up demand from customers to expand and upgrade current installations to support mission-critical applications, including industrial LTE mobile network infrastructure.

Order Bookings1 for Q1 2021 were $3.3 million, down 44% compared to same quarter in the previous period. Order Backlog for the quarter ended March 31, 2021 was $11.3 million, down 4% from Q4 2020.

"In the quarter, we were pleased to announce the $14M CDN investment by the Canadian Government's Strategic Innovation Fund (SIF) which will help finance accelerated development of our innovative industrial 5G network solutions. While Bookings and revenue were impacted by COVID, including a delayed shipment of a $1.6M order, our pipeline continues to grow, especially for industrial LTE solutions" stated Stephen Sorocky, Redline's CEO. "We are building on Bookings received for our industrial LTE products in Q4 2020, accelerating development, and expanding channel partnerships to meet the demand coming from current and prospective customers in our pipeline. We were pleased to receive our first order for a limited release of our next generation virtual fiber product, the RDL 3200 , scheduled for shipment in June and which will serve as a reference for this exciting evolution of our product line".

Key financial highlights for the three months ended March 31, 2021 ("Q1 2021") include:


Q1 2021

Q1 2020

Increase (decrease)

% Change

Revenue

$3.7 M

$4.5 M

($0.8 M)

(17%)

Gross profit margin %

69%

63%

6%


Operating expenses

$3.9 M

$4.1 M

($0.2 M)

(5%)

Net loss

$1.2 M

$1.0 M

($0.2 M)

(13%)

Adjusted EBITDA loss1

$1.1 M

$1.0 M

($0.1 M)

(11%)

CEWS benefit

$0.3 M

Nil

$0.3 M


Bookings1

$3.3 M

$5.9 M

($2.6 M)

(44%)







March 31, 2021

December 31, 2020

Increase (decrease)

% Change

Cash

$4.3 M

$5.3 M

($1.0 M)

(19%)

Inventory

$6.0 M

$5.5 M

$0.5 M

9%

Order Backlog1

$11.3 M

$11.8 M

($0.5 M)

(4%)


1 See Definitions of non-GAAP measures below

Financial and Business Review

Due to consistent sequential strength in building recurring revenue streams over the previous eight quarters, the company achieved record gross margins of 69% in the quarter, resulting in an increase of 6 percentage points compared to Q1 2020.

Operating expenses for Q1 2021 were $3.9 million, down 5% over Q1 2020. The decline year-over-year was mainly driven by decreases in Administrative and General expenses along with decreased costs related to sales, marketing and travel, as COVID-19 has prompted the suspension of nearly all business travel. These decreases are partially offset by increases in the Research and Development and Operations functions as the company moves forward with new product development and new product launches.

In the quarter, the Company continued to participate in the Canada Emergency Wage Subsidy ("CEWS") program recognizing a benefit of $0.3 million which is recorded within other income.

Net loss for Q1 2021 was $1.2 million, a decrease of $0.2 million over Q1 2020. Adjusted EBITDA loss for Q1 2021 was $1.1 million, as compared to $1.0 million in Q1, 2020.

Cash Balance, net of borrowings, at the end of Q1 2021 was $4.3 million, a decrease of $1.0 million over Q4 2020.

On March 31, 2021 Redline announced that the Canadian Government had approved an investment into Redline via their Strategic Innovation Fund (SIF). This investment brings up to CDN $14 million into the Company, earmarked for the development of an innovative industrial 5G network solution. Under the terms of the agreement, the fund will reimburse 41.52% of eligible R&D costs (labor, equipment and materials) incurred by Redline. The first investment submission of approximately $460K for the period between August 2020 and March 31, 2021 was submitted to the fund just after the close of Q1. This first payment is expected to be received by Redline in Q2 2021 and going forward, payments to Redline from the fund will be made quarterly.

"Although bookings declined in the quarter due to deployment delays caused by COVID-19 lockdowns and restrictions globally, growing recurring revenues helped to reduce the financial impact to operations and we are pleased with the growing proportion of our pipeline associated with our mobility solutions," stated CFO Philip Jones. "The SIF funding program provides low-cost capital for us to accelerate product development with capital efficiency so that we can capture growing customer demand for industrial data infrastructure to support mission critical IoT applications. "

Conference Call and Webcast – May 13, 2021 at 10:00 a.m. ET

A conference call and webcast to discuss the results has been scheduled for Thursday, May 13, 2021 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 8884985. A recording of the call will be available through May 20, 2021 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:

1

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 months ended March 31, 2021 ("Q1 2021 MD&A"), copies of which are available on SEDAR at www.sedar.com. Further details on the three months ended March 31, 2021 can be found in the condensed consolidated 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 financial statements of the Company for the three months ended March 31, 2021 and the Q1 2021 MD&A.

Adjusted EBITDA (Loss)

(Unaudited, Expressed in thousands of U.S. dollars)X


The table below reconciles Adjusted EBITDA (loss) to net profit (loss):


Three months ended March 31,


2021

2020

Revenue

$

3,729

$

4,475

Net profit (loss)

(1,178)

(1,044)

Add back:



Share based payments

37

51

Depreciation and amortization

255

269

Canada Emergency Wage Subsidy

(294)

-

Finance (income) expense

4

1

(Gain) loss on fair market value of financial instruments

74

(118)

Foreign exchange (gain) loss

32

(133)

Income tax expense

5

18

Total

113

88




Adjusted EBITDA (loss)

$

(1,065)

$

(956)




Adjusted EBITDA margin

-29%

-21%

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)












March 31,
2021


December 31,
2020

ASSETS






Current assets:







Cash



$

4,299,308


$

5,334,486


Trade receivables



3,264,792


4,237,183


Other receivables



427,103


180,881


Inventories



5,963,798


5,492,931


Deferred cost of revenue



156


498


Prepaid expenses and other deposits



605,254


431,559





14,560,411


15,677,538

Non-current assets:







Property, plant and equipment



843,217


901,234


Intangible assets



1,076,111


1,148,050


Right of use assets



514,852


565,213


Other assets



66,227


65,223





2,500,407


2,679,720

Total Assets



$

17,060,818


$

18,357,258








LIABILITIES AND SHAREHOLDERS' EQUITY






Current liabilities:







Trade and other payables



$

4,201,297


$

3,944,374


Income tax payable



29,459


29,459


Deferred revenue



1,716,935


2,057,944


Lease liabilities



252,372


250,068





6,200,063


6,281,845

Non-current liabilities:







Deferred revenue



359,654


364,391


Lease liabilities



485,586


554,396





845,240


918,787

Total Liabilities



7,045,303


7,200,632








SHAREHOLDERS' EQUITY






Share capital



172,929,341


172,929,341

Contributed surplus



9,741,659


9,704,769

Deficit



(172,655,485)


(171,477,484)





10,015,515


11,156,626

Total Liabilities and Equity



$

17,060,818


$

18,357,258


REDLINE COMMUNICATIONS GROUP INC.

Condensed Consolidated Interim Statements of Comprehensive Loss

(Unaudited, Expressed in U.S. dollars)






Thee months ended March 31,





2021


2020

Revenue




$

3,729,115


$

4,474,589

Cost of revenue




1,174,497


1,650,163

Gross profit




2,554,618


2,824,426









Expenses:








Research and development




1,159,906


1,124,986


General and administrative




1,017,702


1,279,764


Sales and marketing




1,379,092


1,457,650


Operations and customer support




353,825


238,572






3,910,525


4,100,972

Loss before undernoted items




(1,355,907)


(1,276,546)









Other (income) expenses:








Covid-19 related Canada Emergency Wage Subsidy




(293,864)


-


Finance (income) expense




4,047


1,027


Loss (Gain) on fair market value of financial instruments



74,255


(118,561)


Foreign exchange loss (gain)




32,278


(132,788)






(183,284)


(250,322)

Loss before income taxes




(1,172,623)


(1,026,224)

Income tax expense




5,378


17,900

Net loss and total comprehensive loss




$

(1,178,001)


$

(1,004,124)

















Loss per share








Basic




$

(0.07)


$

(0.06)


Basic and diluted




$

(0.07)


$

(0.06)

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, 2020


$

172,929,341

$

9,525,694

$

(167,577,777)

14,877,258


Net loss


-

-

(1,044,124)

(1,044,124)


Stock option expense


-

46,938

-

46,938

Balance at
March 31, 2020


$

172,929,341

$

9,572,632

$

(168,621,901)

$

13,880,072

Balance at
January 1, 2021


$

172,929,341

$

9,704,769

$

(171,477,484)

$

11,156,626


Net loss


-

-

(1,178,001)

(1,178,001)


Stock option expense


-

36,890

-

36,890

Balance at
March 31, 2021


$

172,929,341

$

9,741,659

$

(172,655,485)

$

10,015,515

REDLINE COMMUNICATIONS GROUP INC.

Condensed Consolidated Interim Statements of Cash Flows

(Unaudited, Expressed in U.S. dollars)



Three months ended March 31,



2021

2020

Cash flows from (used in) operating activities:





Net loss


$

(1,178,001)

$

(1,044,124)


Adjustments to reconcile net loss to net cash from operating activities:






Finance expense


4,047

1,027



Depreciation and Amortization


254,881

269,200



Stock option expense


36,890

46,938



Foreign exchange (gain) loss on cash held in foreign currency


(9,143)

55,395



Foreign exchange (gain) loss on borrowings and lease liabilities


11,409

(102,900)



Loss on disposal of assets


1,751

-





(878,166)

(774,464)


Change in non-cash operating assets and liabilities:






Decrease in deferred cost of revenue


342

3,093



(Increase) Decrease in deferred revenue


(345,746)

227,339



Change in other non-cash operating assets and liabilities


337,525

1,891,607

Cash from operating activities


(886,045)

1,347,575

Cash flows used in investing activities:





Acquisition of property, plant and equipment


(76,315)

(92,187)


Acquisition of intangible assets


-

(82,000)

Cash used in investing activities


(76,315)

(174,187)

Cash flows used in financing activities:





Interest income


2,630

16,307


Interest expense


(6,677)

(12,648)


Repayment of borrowings


-

(701,491)


Repayment of lease liabilities


(77,914)

(88,936)

Cash used in financing activities


(81,961)

(786,768)

Foreign exchange gain (loss) on cash held in foreign currency


9,143

(55,395)

Decrease in cash


(1,035,178)

331,225

Cash, beginning of the period


5,334,486

6,507,606

Cash, end of the period


$

4,299,308

$

6,838,831

SOURCE Redline Communications Group Inc.

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