Today, Redknee announced that it has won a triple-play converged billing contract in the EMEA (Europe Middle East & Africa) region. More specifically and according to the company, the contract is an upsell to a current client with major operations throughout the Middle East.
Although the client and specific terms of the contract are not disclosed, the company has offered a little more insight. First, it is an enterprise software transaction leveraging its billing platform with a three year service term. The size of the contract has been described at a "multi-million dollar" level with approximately 60% recognized during the remaining two quarters of FY 2009. There is no customization required, so gross margins should be near the impressive 79% gross margin reported for Q2, 2009. As a result, this announced contract should represent a meaningful positive impact on performance for the year.
To review, Redknee reported financial results for Q2 2009 on May 12th where revenue for the quarter increased by 9% to $13.8 million versus $12.6 million for Q2 2008. The company reported EBITDA of $1.1 million for the quarter versus a loss of $0.6 million for Q2 2008, an increase of $1.7 million. Cash and equivalents increased to $20.3 million from $15.3 million for Q2 2008. The contract announced today should help to accelerate growth in sales and cashflow. Investors should also see improvement in EBITDA and earnings margins for the remaining two quarters of the year, as it gains operating leverage from the upsell.
Redknee has a growing worldwide presence in regions such as Latin America and the Middle East where the mobile infrastructure has been struggling to keep up with 40% annual growth in subscribers. Right now in the Middle East and North Africa, there are approximately 176 million mobile subscribers, representing 54% total penetration. Even as the worldwide recession takes its toll, the Middle East remains one of the most robust areas of growth in the world with 15% growth projected for 2009. The company has a handful of operator clients in the region, and this contract could become a reference for further penetration into the market as operators begin to think more about service bundling.
Service bundling is becoming an emerging priority because there are approximately 33 million landline subsribers and another 39 million internet users in the region. Although landline subscriber growth may be flat, internet subscriber growth continues to take off as more fixed wireless broadband networks are deployed.
It is undetermined whether analysts that are aware of this company were expecting a contract of this magnitude at this time. The stock has garnered very little analyst attention to this point, although there may be new impetus for some that have been on the sidelines to initiate coverage. The Company is closing in on a market cap of $100 million, is generating cash, and has a healthly balance sheet with over $20 million in cash and no significant debt. This profile should be attractive to analysts and, in turn, institutional investors.
The share price has had a healthy run since the middle of April, more than doubling since then on significantly higher volumes. Even as investors fret about whether the U.S. economy has bottomed, this particular Company is making inroads into the fastest growing region of one of the only sectors that has shown growth during the recession. The contract announced today could be considered validation that Redknee is positioned continue its growth trajectory while potentially increasing cash flow. Fundamentalists should take note.
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