Canadian wireless equipment maker turning around

It isn’t very often that a company goes from the black to the red yet its chief executive officer is pleased.

But Eric Melka of Redline Communications Group is delighted with the progress the Toronto maker of licenced and unlicensed base stations and radios made in 2012.

In an interview Melka (pictured above) said he is “extremely satisfied” although the company reported a net loss for the year of $9.5 million, as compared to a net profit of $4.1 million in 2011.

The loss was largely attributed to a $12.3 million non-cash expense related to the fair market value adjustment on a debenture from shareholders which helped turn the company around.

Excluding that adjustment Redline would have had a $2.8 million profit, the company says.

It doesn’t sound like much, but Melka says the company is on much stronger footing than when Telemedia Inc. essentially took it over at the end of 2009 when it was a struggling maker of WiMax backhaul radios for telecommunications companies.

Today it has turned its back on WiMax for a range of wireless broadband systems using other technologies and focusing on the oil and natural gas sectors – where its radios transmit data from drilling rigs to data centers – as well as government related organizations (public safety and the military).
The line-up now includes the lineup includes the RDL-3000 system, operations in the 5 GHz unlicend band for extreme range point to point/multipoint wireless needs and 3.5 Ghz licenced band for telcos; the eLTE-MT system, for high speed data in remote locations; and the new RAS Nomadic for vehicles, which can reconfigure itself after being moved.
(An RDL-3000 radio)

In 2012 Redline had revenue of $49 million. At the end of the year it had a backlog of orders of $14.6 million.

By contrast in 2011 the company had $58 million in revenue. However, in that year Redline booked more amoritized revenue from an older product line than it did in 2012.

But it does have $8.3 million in cash, almost twice as much as it did at the end of 2011.

All of which led Melka to say 2012 was a “phenomenal” year for the company. It introduced the RAS Nomadic platform, a wireless system for vehicles or portable oil/gas drills that can reconfigure itself as it moves. It expanded its wireless network covering a huge oil field in Oman, which now totals 5,000 radios; inked a contract for about $5 million for another wireless network in Oman; and was chosen to be part of a integrated digital oil field system being integrated by Alcatel-Lucent.

Redline has come a long way from a company that in 2009 “had lost its way,” as Melka put it, after suffering 42 quarters of losses, losing $150 million in losses and using “dying” WiMax technology to build radios for service providers.

Enter Telemedia, which had been a radio and publishing company but has become somewhat of a turnaround specialist. Melka headed its venture investment arm.

After Telemedia bought a 20 per cent share of the publicly-traded Redline, the company had to restate revenues back to 2006 which – as Nortel Networks found – doesn’t increase investor or customer confidence.

“So we’re building the wrong product in the wrong space for the wrong customer,” Melka recalled. “We have no money, we’re being sued left right and centre and we have to restate our revenues for the past four years.” On top of that the company was spending around $38 million a year. “Many of those things kept me up at night, and more.”

This from a man who admits to getting only three hours of sleep at night at the best of times.

What happened was a change in direction away from telecom companies and WiMax and towards other markets and wireless technologies that Redline had already developed. Spending was cut to $26 million, in part due to layoffs – when Melka arrived worldwide staff totalled about 265, including 186 in Toronto. Now the total is 140, including 85 in Toronto. There are three research and development labs: one in Toronto and two in Romania. Over time staff in Romania will grow faster than in Toronto, Melka said.

Redline [TSX: RDL] gets about 95 per cent of its revenue from outside Canada; 50 per cent comes from the energy sector, about 20 per cent from service providers and 20 per cent from government-related customers.

But the company is on much stronger now than it was several years ago, Melka said. Investors think so: Shares are now trading around $6.45, compared to $2 in the summer of 2008.

“The great thing we’ve done at Redline is rebuilt a brand that has a great reputation worldwide. We have an incredible foothold in the oil and gas, and we will grow organically because our technology is really good in that area.”

He credits the company’s staff for the turnaround, but there’s little doubt Melka’s impatience – he describes himself as a very driven man who believes “there’s no such thing as ‘no’” – has a lot to do with it.

He wishes that by now, three years after he took over, Redline had $150 million in revenue – or about three times as much as it had in 2012. However he admits that’s a lofty goal. Everything always takes longer and costs more than planned, he acknowledges.

Meanwhile, for the immediate future “if we deliver properly, if we continue to execute the way we’ve executed, if the team continues as it is that will result in a much bigger Redline.”

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