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Q9 Networks Reports Fourth Quarter and Full Year 2006 Results
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FY 2006 revenue of $46.5 million, a 23% increase over FY 2005 |
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Fourth quarter revenue of $12.5 million, a 13% increase over the same quarter, 2005 and a 4% increase over the previous quarter |
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Fourth quarter EBITDA of $3.4 million, a 3% decrease from the same quarter 2005 and a 9% increase over the previous quarter |
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Fourth quarter net income of $8.5 million, including a non-cash tax benefit of $7.1 million due to the reversal of a valuation allowance |
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FY 2006 EPS of $0.53 basic and $0.52 diluted; excluding the non-cash tax benefit of $7.1 million, basic and diluted EPS of $0.18 |
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Announced plans to build a second Calgary data centre and expand its Brampton data centre |
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Subsequent to year end, announced a $20 million contract with an existing customer who will be an anchor tenant in the new Calgary data centre |
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Subsequent to year end, announced a reseller agreement with IBM Canada Ltd. where IBM has the right to resell Q9 services |
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Toronto expansion substantially complete |
TORONTO, Dec. 12 /CNW/ - Q9 Networks Inc. (TSX:Q), a leading Canadian
provider of outsourced data centre infrastructure for organizations with
mission-critical IT operations, today announced its quarterly and fiscal
year-end results for the period ending October 31, 2006.
Revenue for the fourth quarter 2006 was $12.5 million, a 13% increase
over fourth quarter 2005 revenue of $11.0 million and an increase of 4% from
third quarter 2006 revenue of $12.0 million (all figures expressed in Canadian
dollars).
Co-location revenue for the fourth quarter 2006 was $6.3 million, managed
services revenue was $4.2 million and managed bandwidth revenue was
$1.7 million.
EBITDA for the fourth quarter 2006 was $3.4 million, down 3% from the
fourth quarter 2005 and up 9% or $0.3 million over the previous quarter.
Please see the attached schedules for the Company's EBITDA definition and
reconciliation.
Net income for the fourth quarter 2006 was $8.5 million, compared to net
income of $1.4 million for the fourth quarter 2005 and net income of
$0.9 million for the third quarter 2006. Net income for the fourth quarter
2006 was positively affected by a non-cash tax benefit of $7.1 million due to
the reversal of a valuation allowance. Basic and diluted earnings per share
for the fourth quarter 2006 were $0.42 and $0.41, respectively, compared to
basic and diluted earnings per share of $0.07 in the same quarter 2005 and
basic and diluted earnings per share of $0.05 and $0.04, respectively in the
third quarter 2006.
Cash flow generated from operations for the fourth quarter, 2006 was
$4.7 million. The Company ended the quarter with cash, cash equivalents and
short-term investments of $67.6 million, a decrease of $8.3 million over the
year. The decrease is a result of Q9's investment in data centre expansions.
Other than $0.4 million in notes payable to an equipment supplier, the Company
had no debt outstanding.
Revenue for the 12 months ended October 31, 2006 was $46.5 million, a 23%
increase over the previous year. Co-location, managed services and managed
bandwidth revenue increased by 40%, 14% and 1% respectively. EBITDA was
$12.2 million, compared to $10.8 million in the previous year. Net income for
the 12 months ended October 31, 2006 was $10.8 million, or $0.53 per basic
share and $0.52 per diluted share. Excluding the tax benefit of $7.1 million,
net income was $3.7 million or $0.18 per basic and diluted share, compared to
$2.0 million or $0.10 per basic and diluted share for 2005.
In September 2005, Q9 announced a Normal Course Issuer Bid (NCIB) for up
to 1,015,000 of its common shares, representing five per cent of the
approximately 20.3 million shares outstanding as of September 20, 2005. During
the quarter, Q9 repurchased and cancelled 29,500 shares at an average cost of
$10.40 per share. For the year, Q9 repurchased and cancelled 255,200 shares at
a total cost of $2,550,892. In October 2006, Q9 renewed its NCIB to enable it
to purchase up to 1,012,870 of its common shares, representing approximately
five per cent of the 20,257,416 common shares outstanding as of October 27,
2006.
"It's been another strong year for Q9, with growth across all service
offerings coming from both new and existing customers," said Osama Arafat,
CEO, Q9 Networks. "Over the quarter and year, we focused on execution while at
the same time, investing for the future. With our large customer base, our
breadth of services and our expansions nearing completion or well underway, Q9
has the momentum to extend even further, its leadership position in the
outsourced data centre infrastructure market."
Corporate Developments
In 2006, Q9 announced that it would build a new Calgary, Alberta data
centre and expand its existing Brampton, Ontario facility. Including the
expansion of its Toronto facilities, announced in 2005, Q9 is investing
$65 million to add 3,200 cabinet equivalents to its existing capacity of 4,530
cabinet equivalents. The Toronto data centre is now substantially complete
with customers expected to begin installing in January.
Subsequent to year end, Q9 announced a $20 million outsourcing contract
with an existing customer. In addition to extending the term of its current
installation at Q9's downtown Calgary facility, the customer will outsource
additional infrastructure currently hosted in-house and become an anchor
tenant of Q9's new Calgary facility.
Subsequent to year end, the Company announced a reseller agreement with
IBM Canada Ltd. where IBM will have the right to sell under its own brand, all
of Q9's data centre services.
Conference Call Information
The Company will host a conference call to discuss its results at 5:00 PM
today. The conference call will be available over the Internet through the
Investor Relations section of the Company's Web site at www.Q9.com or by
telephone at 416-644-3415 and 1-800-796-7558. A replay will be available until
December 19, 2006, following the conference call and can be accessed by
dialing 416-640-1917, pass code 21209117 followed by the number sign.
Non-GAAP Measures
The Company reports EBITDA because it is a key measure used by management
to evaluate the Company's performance. The Company believes that EBITDA is
useful supplemental information as it provides an indication of the results
generated by the Company's main business activities prior to taking into
consideration how those activities are financed and taxed and also prior to
taking into consideration asset depreciation and other non-cash expenses.
EBITDA is not a recognized measure under Canadian GAAP, and accordingly
investors are cautioned that EBITDA should not be construed as an alternative
to net earnings or loss determined in accordance with Canadian GAAP as an
indicator of the financial performance of the Company or as a measure of the
Company's liquidity and cash flows. The Company's method of calculating EBITDA
differs from other issuers and, accordingly, EBITDA may not be comparable to
similar measures presented by other issuers. Please see the schedule below
that sets out the Company's EBITDA calculations.
About Q9 Networks
Q9 Networks is a leading Canadian provider of outsourced data centre
infrastructure for organizations with mission-critical IT operations. Q9's
data centres and network are backed by an industry leading SLA which
guarantees 100 per cent network and power availability. Q9 managed services,
including: bandwidth, dedicated servers, firewalls, load balancing, virtual
private networking (VPN) and back-up/restore, enable the rapid provisioning
and scalability of client infrastructure.
Q9 NETWORKS INC.
Balance Sheets
(In thousands)
(Unaudited)
October 31, 2006 and 2005
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2006 2005
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Assets
Current assets:
Cash and cash equivalents $ 5,961 $ 7,843
Short-term investments 61,448 67,610
Accounts receivable 4,330 3,208
Unbilled revenue 345 752
Future tax asset 667 -
Prepaid expenses 866 676
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73,617 80,089
Restricted cash 230 410
Other assets 766 801
Future tax asset 6,393 -
Property and equipment 58,592 36,757
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$139,598 $118,057
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 11,830 $ 3,041
Deferred revenue 4,731 3,912
Notes payable 434 542
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16,995 7,495
Deferred revenue 755 646
Deferred gain on sale of property 1,128 1,207
Leasehold inducements 1,378 1,099
Asset retirement obligation 930 631
Other long-term liabilities 1,158 701
Shareholders' equity:
Common shares 139,427 139,276
Contributed surplus 3,949 3,092
Deficit (26,122) (36,090)
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117,254 106,278
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$139,598 $118,057
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Q9 NETWORKS INC.
Statements of Operations and Deficit
(In thousands, except per share amounts)
(Unaudited)
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Three months ended Fiscal Year ended
October 31, October 31,
2006 2005 2006 2005
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Revenue:
Co-location $ 6,328 $ 5,175 $ 22,779 $ 16,296
Managed services 4,151 3,818 15,868 13,917
Managed bandwidth 1,700 1,697 6,651 6,591
Set-up fees 274 300 1,169 1,025
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12,453 10,990 46,467 37,829
Cost of revenue 8,010 7,209 31,199 25,840
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Gross margin 4,443 3,781 15,268 11,989
Expenses:
Sales and marketing 1,315 987 4,766 4,007
General and administrative 2,142 1,795 8,322 7,156
Amortization of property
and equipment 246 126 1,008 535
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3,703 2,908 14,096 11,698
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Income from operations 740 873 1,172 291
Interest income, net 721 445 2,543 1,670
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Income before income taxes 1,461 1,318 3,715 1,961
Income tax expense (benefit):
Current 2 (41) 11 -
Future (7,060) - (7,060) -
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Net income 8,519 1,359 10,764 1,961
Deficit, beginning of period (34,536) (37,226) (36,090) (77,103)
Reduction of deficit - - - 39,275
Repurchase of shares (105) (223) (796) (223)
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Deficit, end of period $(26,122) $(36,090) $(26,122) $(36,090)
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Earnings per share:
Basic $ 0.42 $ 0.07 $ 0.53 $ 0.10
Diluted 0.41 0.07 0.52 0.10
Weighted average number of
shares outstanding:
Basic 20,260 20,293 20,299 20,204
Diluted 20,887 20,892 20,887 20,556
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended Fiscal Year ended
October 31, October 31,
2006 2005 2006 2005
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Cash provided by (used in):
Operating activities:
Net income $ 8,519 $ 1,359 $ 10,764 $ 1,961
Items not involving cash:
Amortization of property
and equipment 2,149 2,062 9,112 8,294
Amortization of other
assets 11 9 46 32
Gain on sale of property (20) (20) (79) (79)
Accretion expense 9 18 65 68
Net non-cash rent expense 179 153 736 471
Stock-based compensation
expense 568 572 2,153 2,244
Future income taxes (7,060) - (7,060) -
Change in non-cash operating
working capital 389 (871) 1,318 (1,250)
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4,744 3,282 17,055 11,741
Financing activities:
Issuance of notes payable 257 280 830 951
Repayment of notes payable (223) (223) (938) (1,198)
Repurchase of shares (318) (585) (2,691) (585)
Issuance of shares 80 108 610 1,002
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(204) (420) (2,189) 170
Investing activities:
Purchase of property
and equipment (12,066) (1,335) (23,145) (6,639)
Purchase of short-term
investments (69,809) (7,216) (243,776) (107,845)
Sale of short-term
investments 78,772 7,316 250,004 104,384
Increase in other assets - (72) (11) (833)
Decrease in restricted cash - - 180 730
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(3,103) (1,307) (16,748) (10,203)
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Increase (decrease) in cash
and cash equivalents 1,437 1,555 (1,882) 1,708
Cash and cash equivalents,
beginning of period 4,524 6,288 7,843 6,135
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Cash and cash equivalents,
end of period $ 5,961 $ 7,843 $ 5,961 $ 7,843
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Supplemental cash flow
information:
Interest received $ 461 $ 150 $ 2,506 $ 1,544
Income taxes (received) paid 1 - 10 (77)
Supplemental disclosure of
non-cash financing and
investing activities:
Effect of acquisition of
property and equipment in
accounts payable and
accrued liabilities (3,171) 42 (7,568) 121
Effect of repurchase of
shares in accounts payable
and accrued liabilities 10 (140) 140 (140)
Reduction of share capital - - - 39,275
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Q9 NETWORKS INC.
EBITDA(1) Reconciliation
(In thousands)
(Unaudited)
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Three months ended Fiscal Year ended
October 31, October 31,
2006 2005 2006 2005
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Net Income for the period $ 8,519 $ 1,359 $ 10,764 $ 1,961
Income taxes (7,058) (41) (7,049) -
Accretion expense 9 18 65 68
Interest income, net (721) (445) (2,543) (1,670)
Amortization 2,140 2,051 9,079 8,247
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EBITDA before the under-noted 2,889 2,942 10,316 8,606
Stock-based compensation(2) 494 533 1,897 2,174
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EBITDA $ 3,383 $ 3,475 $ 12,213 $ 10,780
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Note:
(1) EBITDA means earnings before interest, income taxes, amortization,
accretion expense and stock-based compensation.
(2) Stock-based compensation expense included above is related solely to
the nominal exercise price options, which were awarded to employees
immediately prior to the Company's Initial Public Offering (IPO).
Stock-based compensation expense related to all other options is not
added back to net income for the period in calculating EBITDA.
For further information, please contact:
Media Relations:
Kevin Spikes
Director of Corporate & Investor Relations
Toronto: 416-848-3311
Toll Free: 1-888-696-2266
media.relations@Q9.com
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