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Is That a Redknee War Chest?

Ray Le Maistre
9/28/2012
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We're not talking big amounts of money here, but keep an eye on any fiscal action coming from the offices of Canadian Service Provider Information Technology (SPIT) vendor Redknee Inc. (Toronto TSX: RKN) in the coming months: This company has some serious momentum in the increasingly key area of converged billing and a smart and determined CEO, and is about to add to its cash pile, possible for some M&A action.

Redknee announced today that it is raising C$17.55 million (US$17.84 million) from the sale of 13 million shares to a group of underwriters. Not an earth-shattering amount, but that's nearly as much cash as Redknee has in the bank (about $20 million) and more than it generates in quarterly revenues: In the second quarter this year, Redknee generates sales of US$14.8 million and a net profit of US$1.7 million.

Redknee says the money is for "working capital and general corporate purposes and potential acquisitions." Keep an eye on the latter: CEO Lucas Skoczkowski has a keen eye for targeted acquisitions and passed comment to Light Reading during Mobile World Congress earlier this year about his desire to see sector consolidation. If he had the funds, Skoczkowski would be the type of character to try and cherry pick useful assets from the BSS business NSN is looking to offload. (See Is NSN Close to BSS Sale? and M&A Interest in NSN's BSS Assets Builds.)

This would be a good time for Skoczkowski to add more meat to Redknee's bones. The company has momentum: It ended the second quarter with an order backlog of $55.8 million (more than 30 percent better than a year earlier), improved its gross margins to 71 percent from 61 percent a year earlier.

Those improving results follow a lot of development work on its converged billing platform (pre- and post-paid billing, plus a host of charging and customer care features): The software runs on Microsoft Corp. (Nasdaq: MSFT) servers -- most billing systems rely on Oracle Corp. (Nasdaq: ORCL) -- and is available as a hosted service, which makes it more flexible and particularly appropriate for deployment in MVNO (mobile virtual network operator) scenarios. (See Redknee Gets Cloudy With Windows Azure.)

In fact, Redknee recently announced a multimillion-dollar deal with an unnamed Tier 1 North American operator, which is using the hosted (or cloud-based, if you must) platform to host partner services and MVNOs. Separately, the company this week announced a hosted converged billing and customer care deal with Step Up Mobile, which will launch as an MVNO on Sprint Corp. (NYSE: S)'s network. (See Sprint Builds an MVNO Factory.)

Redknee is a relatively small but focused, driven company that is almost compelling enough to be a bigger player in a market dominated by the likes of Amdocs Ltd. (NYSE: DOX), Comverse Inc. (Nasdaq: CNSI), Oracle, CSG Systems International Inc. (Nasdaq: CSGS) and NetCracker Technology Corp. (now that it has Convergys on board). Don't bet against Skoczkowski striking some deals to further its cause.

— Ray Le Maistre, International Managing Editor, Light Reading

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