TDW on Marketing Meetings with CEO part 1 Redknee Solutions Inc.
(RKN-T) C$3.25
Takeaways from Marketing Meetings
Event
We hosted Redknee CEO Lucas Skoczkowski and CFO David Charron for a
full day of marketing yesterday in Montreal.
IMPACT: SLIGHTLY POSITIVE
? Integration so far has had some positive surprises. Integration of the
R&D teams is proceeding ahead of schedule and management said it was
positively surprised with the technology acquired as part of the NSN
deal. Management reiterated its targets for EBITDA margins of “mid-tohigh
single-digits” in year one and “low-to-mid teens” in year two.
? Management’s longer-term goals show potential for significant
additional upside. Within 3-5 years, the objective (organically) is
$500mm in revenue and 20-25% EBITDA margins. Applying even
conservative valuation multiples, we believe this could translate to the
stock at $5-$6 per share.
? Near-term margin potential lies in resetting maintenance rates and
filling the demand for upgrades. Management’s immediate goal is to
start moving the maintenance rates from the 5-7% (hardware rates) to the
normal 15-20% range (software rates), which we believe is achievable
given how mission critical billing software is for carriers. Redknee also
has the opportunity to upgrade the 1/3 of NSN’s customer base that is
currently two software releases out of date (potentially $200mm of
license revenue).
? Our estimates are unchanged. Our model reflects 10% EBITDA
margins in FY14 vs. the 2-yr target of low to mid-teens.
? The long-term potential in different verticals was discussed. Given
the challenges of real-time and connectivity, the telecom market has
arguably the most complex charging systems of any vertical - we think
this is readily transferable to other markets. Redknee has two ongoing