Redline Communications CEO Eric Melka at the Four Seasons Vancouver, June 14th, 2012. Fifty-seven different governments. Nineteen royal families. Every single Humvee in the US Army. Markham’s Redline Communcations (TSX:RDL), to paraphrase the marketing material of another prominent Ontario tech, makes tools, not toys.
Redline CEO Eric Melka was in Vancouver on Thursday to speak at the Pender Small Cap Investment Conference. Drill down on the impressive returns Pender fund manager Dave Barr has posted in his Pender Small Cap Opportunities Fund, and you’ll find that Redline, which bottomed at $.46 cents last summer before a strong recovery in 2012, is part of the reason.
Recovery was the theme of Melka’s address to to attendees. The Redline CEO has presided over a near clean sweep of the company’s business and is part of an entirely new management team and board. Shares of Redline plummeted in 2007 after a disastrous foray into the WiMAX space. 2008 saw the company lose nearly $30-million as its stock fell to pennies. Melka’s plan returned Redline to its roots in providing broadband wireless equipment to niche markets. By developing what he calls a “software driven hardware platform” and stopping all WiMAX development, Redline instantly reversed its fortunes, turning a loss of $10-million in 2009 to a profit of $4-million the next year.
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Melka said his biggest goal in bringing Redline out of the red was to focus on reliable products with high gross margins. Today, the company serves four different verticals. The first vertical is the the military, where its off-the-shelf broadband radios are now the most deployed in the history of the US Department of Defense.
The second, the public safety space, is where Redline deploys its the no wire video surveillance that allows face recognition cameras to be placed anywhere. The third vertical, selling to telecom service providers, says Melka, is one that everyone sells to, but Redline has managed to squeeze out better margins with services such as selling wireline to hospitals and schools.
The last vertical is what Melka consider the “gem” of the four, the oil and gas space. Redline is helping oilfields become connected by creating a communications “canopy”, particularly in places where oil and gas is hard to get at.
The Redline CEO believes that Redline is now growing the right way. Not only has revenue more than tripled since 2006, from $18.5-milion to $58-million in fiscal 2011, gross margins are now on off-the-charts 58.2% and rising. Along the way, the size of the average sale for the company ballooned from just $50,000 to $750,000, and Melka believes it will soon top a million.
Share of Redline closed today even at $.94 cents.