Redline Communications Reports 2013 Fourth Quarter and Year End Results

TORONTO, March 13, 2014 /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 results¹ for the three and twelve months ended December 31, 2013.

Financial highlights for the fiscal year ended December 31, 2013 include:

• Order Bookings² were $36.8 million, down 26% over 2012
• Approximately 43% of total Order Bookings were from customers in the Energy vertical
• Core BWI revenues were $29.3 million, down 2.3% over 2012
• Total Recognized Revenues⁴ were $31.7 million, down 35.4% over 2012
• $17.0 million Order Backlog² at December 31, 2013, up 16.8% over 2012
• 61% gross margins, up 5 percentage points over 2012
• Operating expenses were $26.0 million, up 3.0% over 2012. Other expenses include a $0.8 million restructuring charge in Q4 2013
• December 2013 reduction in overall workforce and spending expected to reduce annual costs by approximately $10.0 million in 2014
• Adjusted EBITDA² loss of $5.6 million, a decrease of $9.4 million over the Adjusted EBITDA of $3.8 million in 2012
• EPS of ($0.55) excluding the non-cash expense relating to the fair market adjustment on the Debenture⁵, compared to EPS of $0.29 in 2012
• Cash of $13.5 million as of December 31, 2013
• Completion of a Cdn. $10.6 million private placement in July 2013
• December 2013 reduction in overall workforce and spending is expected to reduce annual costs by approximately $10.0 million in 2014

Financial Review

Order Bookings for the twelve months ended December 31, 2013 were $36.8 million, down 26% from the same period in 2012. Management estimates that approximately 43% of total Bookings for the period were from customers in the Energy sector. In 2012 the Company benefited by signing a number of early adopter customers in the oil and gas sector, successfully closing several large multi-field deals that are being deployed over several years. In 2013, while the Company accepted orders from a record number of new oil and gas customers, the majority of these new customers provided orders for single field deployments that could lead to orders for more deployments over time.

Orders with associated longer delivery timeframes have resulted in an Order Backlog of $17.0 million, up $2.4 million over $14.6 million at December 31, 2012.

Revenue from Redline's core BWI product line for the three and twelve months ended December 31, 2013 was $7.4 million and $29.3 million respectively, down 29% and 2.3% over the same periods in 2012. BWI revenue growth was hindered by longer sales cycles associated with acquiring new customers and delivering large oil and gas projects. Total recognized revenue for the three months and twelve months ended December 31, 2013 was $7.7 million and $31.7 million, down 30% and 35.4% over the same periods in 2012. The year over year decrease in total revenue is almost entirely attributed to the loss of amortized deferred revenue from the discontinued RedMAX product line which contributed approximately $16 million in 2012.

"Our current revenue levels don't yet reflect the level of interest and activity we are seeing in the energy sector", said Robert Williams, Redline's CEO. "We continue to see strong interest in this sector as evidenced by the signing of a record number of new oil and gas customers, most of these late in 2013, including one of the largest oil companies in the world. Also, as of the end of 2013, Redline had 10 active pilot programs compared to 3 at the same stage in 2012. These pilot programs are small installations that give operators an opportunity to evaluate Redline's solutions in a real field setting and are a leading indicator of future new business, although the timing of any future orders is dependent on the buying cycles of these large companies which is largely out of Redline's control."

Gross margin on core (BWI) product sales during the three months ended December 31, 2013 was 66%, up 3 percentage points from the 63% for the three months ended December 31, 2012. For the twelve months ended 2013 gross margin on core BWI product sales was 64%, up 3 percentage points over the same period in 2012.

Overall operating expenses for the three months ended December 31, 2013, were $5.9 million, a decrease of 13.4% compared to $6.9 million reported for the same period last year. Overall operating expenses for the year ended December 31, 2013, were $26.0 million, an increase of 3.0% compared to $25.3 million reported for the same period last year. A reduction in overall workforce of full-time, part-time and contract employees by 39 people and cuts to marketing, travel and other spending were announced on December 10, 2013 and are expected to reduce annual costs by approximately $10 million. Other expenses include a $0.8 million restructuring charge in Q4 2013.

Adjusted EBITDA loss for the three months ended December 31, 2013 was $1.1 million, a decrease of $1.3 million over the Adjusted EBITDA of $0.3 million for the corresponding period in 2012. The Adjusted EBITDA loss for the year ended December 31, 2013 was $5.6 million, a decrease of $9.4 million over the Adjusted EBITDA of $3.8 million for the corresponding period in 2012. The Adjusted EBITDA decrease for the three months ended December 31, 2013 was a result of the decrease in revenue in the period as compared to the corresponding period in 2012. For the year ended December 31, 2013 the year over year decrease is a result of the decrease in revenue as a result of the completion of the amortization period of all RedMAX Amortized Deferred Revenue at the end of June 30, 2012 and the increase in operating costs for the year ended December 31, 2013 over the same period in 2012.

A non-cash gain of $2.3 million in the fourth quarter of 2013 relating to the fair market value adjustment on the Debenture⁵ resulted in a Net Profit for the period of $0.13 million, or $0.01 per share as compared to a loss of $5.6 million, or ($0.55) per share in the fourth quarter of 2012. For the full year, Redline reported a Net Loss of $4.1 million, or ($0.29) per share, as compared to a Net Loss of $9.5 million, ($1.00) per share in 2012. The difference is attributed to a $3.8 million non-cash gain in 2013 relating to the fair market value adjustment on the Debenture and the effects of substantial deferred amortized revenue included in 2012 and not included in 2013. Excluding the non-cash gain relating to the fair market adjustment on the Debenture, net loss for the 2013 year was $7.9 million or ($0.55) per share, and for the three months ended December 31, 2012 was ($2.2) million or ($0.14) per share.

In the first quarter of 2013 the Company received approximately Cdn. $2.9 million from the exercise of additional warrants associated with the Debenture. On July 30, 2013 the Company completed a private placement for total gross proceeds of Cdn. $10.6 million. At December 31^st, 2013, Redline held cash of $13.5 million, up $7.5 million from the cash net of bank indebtedness of approximately $6.0 million at December 31, 2012.

Conference Call and Webcast - March 14^th, 2014 at 10:00 a.m. ET
A conference call and webcast to discuss the results has been scheduled for the following day, March 14, 2014 at 10:00 a.m. Eastern Time.

To participate, please dial 1-647-427-7450 or 1-888-231-8191 approximately 10 minutes before the conference call, and provide passcode 5782869. A recording of the call will be available through May 1, 2014. To listen to the rebroadcast please dial 1-416-849-0833 or 1-855-859-2056 and enter passcode 5782869. A webcast of the call will also be available on Redline's website at http://www.rdlcom.com/en/about/investors/webcasts.

The selected financial information included in this release is qualified in its entirety by, and should be read together with the Consolidated Financial Statements of the Company for the year ended December 31, 2013 and the Company's Management Discussion and Analysis for the three and twelve month periods ended December 31, 2013 ("2013 MD&A"), copies of which are available on SEDAR at www.sedar.com.

About Redline Communications
Redline Communications (www.rdlcom.com) is the creator of powerful wide-area wireless networks for the most challenging locations and mission-critical applications. Redline networks are used by oil and gas companies to manage onshore and offshore assets, by militaries for secure battlefield communications, by municipalities to remotely monitor infrastructure, and by telecom service providers to deliver premium services. Hundreds of businesses worldwide rely on Redline to engineer, plan and deliver secure and reliable networks for their M2M, 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.

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.redlinecommunications.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.

SOURCE Redline Communications Group Inc.