Redknee Solutions Inc. (RKN-TSX)
July 23, 2010 Issue
The Most Powerful Name In Corporate News and Information
Redknee Solutions Inc. Brings The Best Of Telecoms And IT To Help Telecom Operators Drive Profitability
Redknee is a leading global provider of
innovative communication software products, solutions and services.
Redknee's award-winning solutions enable wireless and wireline operators to
monetize the value of each subscriber transaction while personalizing the
subscriber experience to meet mainstream, niche and individual market
segment requirements. Redknee's revenue generating solutions provide
advanced converged billing, rating, charging and policy for voice, messaging
and new generation data services to over 70 network operators in over 50
countries. Established in 1999, Redknee Solutions Inc. (TSX: RKN) is the
parent of the wholly-owned operating subsidiary Redknee Inc. and its various
subsidiaries. References to Redknee refer to the combined operations of
Chief Executive Officer
Lucas Skoczkowski is the CEO of Redknee, a communications software company created in 1999 providing products for services delivery to wireless network operators around the world. Lucas is responsible for strategic planning and execution during which Redknee has consistently met and exceeded its goals including financial performance, profitability, business and customer growth. Lucas has driven the development of Redknee's product portfolio, sales, and overall organizational performance.
Chief Financial Officer
David Charron is the Chief Financial Officer of Redknee. David is responsible for all financial matters of the company, including financial and management reporting, financial planning and analysis and investor relations. Prior to joining Redknee in July 2007 as VP, Financial Planning & Analysis, David held senior finance positions with Nortel Networks Corporation and The Descartes Systems Group.
Interview conducted by: Lynn Fosse, Senior Editor, CEOCFOinterviews.com, Published – July 23, 2010
Mr. Skoczkowski: The vision for us was to really bring technology from the telecom area and the IT area and combine it with analytics, as referred to in the broader industry, to help telecom operators be more profitable. Before starting with Redknee, I worked for Canadian operator, Clearnet, and also worked for multinational corporation, Nortel, which has given me experience on both the vendor and customer side of the equation. What I saw was that sales and technology were not being used to their full potential. We wanted to change that and so the dream and the vision for Redknee began. Today, eleven years into it, we are a good portion into realizing the vision, although there is a lot more to do over the next five to ten years.
CEOCFO: What are the services you are providing today, and who is using your services?
We have two target markets. We have what we refer to as converged billing
target customers. Converged billing is prepaid and postpaid billing
solutions that covers everything from point-of-sale, to customer care to
support telecom subscribers, as well as all the software necessary to run
the back-office services and analytics to ensure that the operator can
actually make money. The targets for those are both group operators, so
companies that own licenses to operate in multiple-countries across the
globe, as well as mobile virtual network operators (aka MVNOs), which are
subbrands that operate in existing tier-one networks. An example of a MVNO
here in Canada is Virgin Mobile, which is owned by Bell Canada, or Virgin in
the USA, which operates on Sprint Networks. Another example is Virgin that
operates on T-Mobile Networks in the UK. Converged Billing is a very
successful product line and accounts for about half of our business today.
We see tremendous opportunity going forward, as industry statistics project
that at least one billion subscribers or mobile devices with subscribers
will be added to the network within the next three years.
The other great opportunity that we have invested our resources to patent, focuses on mobile data, customer care and settlement. Redknee provides a full suite of next generation rating charging and policy for mobile broadband data services. This has been a rapid area of growth lately, as pricing and charging for data usage based on, for example, the amount of usage, time of day, bandwidth utilization and quality of service is becoming widely required by wireless networks around the world. We also provide the enhanced customer care solution, which helps make the customer care facility 50% more responsive to the users of the mobile network. This is also becoming an increased requirement as more smartphones are introduced into the network. Finally, Redknee provides all the software necessary to deal with the complex settlement process required in this new brave world. That is our other half of the business and we have multiple customers in this area, such as T-Mobile, AT&T, members of Telefonica-O2 Group, and other examples include FarEastone in Taiwan.
CEOCFO: Why are your clients choosing Redknee over the others?
Mr. Skoczkowski: What differentiates us is our technology, our strong patents in innovation, which is part of our DNA, but also what I would like to mention is something that is more of a human dimension. The feedback from every CEO who has interacted with us, both on a presale as well as the post sale basis, speaks of our strong and unwavering commitment to our customers’ success. I think our customers are surprised by the degree of commitment that every employee at Redknee continues to strive for to contribute to our customers’ success. This has been sustained since day one, for the past 11 years, and it is something that continues to be fundamental to our company culture and our business model today. It is very sincere. We see our success through the success of our customers and is reflected by the business from our existing customer base accounting for 90 per cent of our revenue on an annual basis. Of the 10 per cent that comes from new customers, we see these new customers quickly follow suit and want to do a lot more business in the following years because they see the more business they do with us, the more they can grow.
CEOCFO: Would you give us a concrete example of what you do that is over and above standard customer service?
Mr. Skoczkowski: A personal example, for all of our converged billing customers, is before I meet with the CEO, I make a point of getting there earlier, maybe even a day earlier and actually go and see how their operations work. I go and see how the purchase experience works as a first-time customer in their business. I look at how their customer care system works, how their operations work, what feedback they get, and how we can help. This is from the perspective that involves our part of the business as well as something we might know that relates to other customers that we work with. We know this is something prospects do to all of our customers but the feedback that I get is that, other than us, this is not the case for any of their previous vendors in the area.
A second example is we work and connect our customers together to exchange best practices and approaches, which goes way beyond just the technology. It is what some refer to as information sharing but we like to think of as knowledge sharing on steroids.
The third one is our employees. I have found in every instance that our employees go beyond the scope of the contract to ensure that the customers are successful. They will do things that customers request on site, a lot of the time without necessarily being in scope of our delivery, which overall I think is very much in line with our culture. We just need to ensure that as we do our projects, we manage to oversee the scope and processes within it. Our customers recognize the caliber of our employees, so every time an employee of ours goes on-site, we run the risk of our customers making them an offer of employment. This is a great compliment but also concerns me, which is why I am very grateful that the majority of our employees decide to continue to work for us long-term.
CEOCFO: You just announced two new patents; what about those and tell us about the continuing R&D in general?
Mr. Skoczkowski: The patents are very exciting. The first focuses on charging for data usage in real time based on different information that is collected in the network. Until recently, this area had not been seen as relevant to the industry but since 2003, when we first both patented and started deploying our systems in that area, we saw that this would be crucial to the success of the operators and to the satisfaction of the subscribers in the wide adoption of mobile broadband.
The second patent addresses the strategic technology underlying our products. This patent empowers operators to succeed in a real-time world, where a lot of information is being analyzed and processed, by enabling operators to store and retrieve information in a way that is faster and more reliable. We spent three years developing a storage approach that allows us to be at least a hundred-fold faster to receive information from real-time databases. This is a very important development for Redknee, as it becomes a prerequisite for any company that will try to compete with us in years to come.
CEOCFO: What is the financial picture like at Redknee today?
Mr. Charron: Thinking about the historical performance, I would characterize Redknee’s financial picture today as being in position of strength. Over the past year and a half, Redknee has returned to a position of profitability that is measured by our EBITDA. When Redknee first went public in 2007 there was a period of investment where the funds from the initial public offering were invested to put people and staff close to our customers globally. We are now leveraging the investment that we made and we are growing profitably, which you can see from our very strong balance sheet. At the end of the last quarter recorded, we had almost $20 million in cash, no debt and we were profitable. On an annual basis, you can see that we are growing the top lines and we are also growing profitably. We know there is more work to do and we will continue along that path, but we are in a strong position today.
CEOCFO: Tell me a bit more about your international landscape.
I think the opportunity is quite vast. We see 3G as a catalyst for our
business. The roll out of 3G networks across the globe has seen a tidal wave
of new and exciting services launched. From this, we see a great opportunity
for Redknee as operators want to adopt the real-time charging and
differential rating to improve customer service, increase their subscriber
retention and grow their business profitability. We look to continue to
announce both the expansion of our customer footprint and replacement of our
competitors in this space.
Number two, we do see a great catalyst in a wider adoption of our converged billing systems by larger players in the US, Western Europe, and Australia. This is something that we will likely announce before Christmas 2010. This announcement will create a catalyst for us to become more visible on the scene and attract the attention of group operators across the globe. We have already won two industry awards in this area, but now we look to expand our footprint to areas where our competitors did not think feasible.
Number three, we do see a great opportunity to acquire. The economic turbulence that commenced in 2008 and we still feel the tremors of in 2010, has accelerated the environment of consolidation. Our view is to be a consolidator in our fragmented domain. We are small and many people would say that we would be consolidation targets, but we see a very healthy pipeline of opportunity to acquire. We will start small, $10 million and $20 million chunks in revenue that will culminate to create a much bigger presence and market share. Today, it is important to note that we are truly a global company. We have presence in more than 50 countries with close to 80 operators that are leveraging our software. I would say one -third of our employees are based at our headquarters in Canada, with the remaining spread across US, Europe, the Middle East, and Asia. So we are well positioned to execute on acquisitions as well as serve new customers around the world. Obviously, wireless is one of the areas that will continue and has continued to grow and advance, despite some of the headwind that we have seen.
CEOCFO: Final thoughts, what should investors remember most about Redknee and what might they miss that they should understand?
If investors are interested in a longer-term story to participate in both
the growth of wireless data, and overall growth of the so-called emerging
markets or high-growth markets of Africa, Middle East and Asia, Redknee
creates a high leverage opportunity because Redknee is still not well known.
We have been on the Toronto Stock Exchange for only about a year and a half
but despite that we are already covered by eight analysts. We see Redknee as
being a very exciting story with long-term potential. Redknee creates good
exposure and is a good diversification from the commodities centric world
and something that we believe will create a great benchmark stock in our
investors’ long-term portfolios.
The vision for us
was to really bring technology from the telecom area and the IT area and
combine it with analytics, as referred to in the broader industry, to help
telecom operators be more profitable. - Lucas Skoczkowski
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