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Q9 Networks Reports Second Quarter 2007 Results
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Revenue of $13.4 million, a 21% increase over the same quarter, 2006 and a 5% increase over the previous quarter |
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Adjusted EBITDA of $3.0 million, a 3% increase from the same quarter 2006 and a 9% decrease from the previous quarter |
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Income before taxes of nil, compared to $0.7 million for the same quarter 2006 and $0.9 million in the previous quarter |
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Revenue under contract increases 8% to $12.1 million over the previous quarter |
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At the end of the quarter, 86 cabinets were billing in the new Calgary data centre |
Toronto, ON - June 12, 2007 - 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 results for the period ended April 30, 2007.
Revenue for the second quarter 2007 was $13.4 million, a 21% increase over second quarter 2006 revenue of $11.1 million and an increase of 5% from first quarter 2007 revenue of $12.8 million (all figures expressed in Canadian dollars).
Revenue under contract entering the third quarter 2007 increased to $12.1 million, up 8% over revenue under contract of $11.2 million at the beginning of the second quarter 2007. Revenue under contract does not include contracts signed but not yet installed.
Co-location revenue for the second quarter 2007 was $6.5 million, managed services revenue was $4.8 million and managed bandwidth revenue was $1.9 million.
Adjusted EBITDA for the second quarter 2007 was $3.0 million, up 3% from the second quarter 2006 and down 9% or $0.3 million compared to the previous quarter as a result of continued investment in the Company's growth strategy. Please see the attached schedules for the Company's Adjusted EBITDA definition and reconciliation.
Net loss for the second quarter 2007 was $0.3 million, compared to net income of $0.7 million for the second quarter 2006 and net income of $0.4 million for the first quarter 2007. Net loss for the second quarter 2007 included a non-cash tax expense of $0.4 million. Basic and diluted loss per share for the second quarter 2007 was $0.02, compared to basic and diluted earnings per share of $0.04 and $0.03 respectively in the same quarter 2006 and basic and diluted earnings per share of $0.02 in the first quarter 2007.
Cash flow generated from operations for the second quarter, 2007 was $3.7 million. The Company ended the quarter with cash, cash equivalents and short-term investments of $53.1 million, a decrease of $2.6 million from last quarter. The decrease was substantially due to continued investment in the Company's data centre expansions. Other than $0.8 million in notes payable to an equipment supplier, the Company had no debt outstanding.
In October 2006, Q9 renewed its Normal Course Issuer Bid 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. During the quarter, Q9 repurchased and cancelled 109,000 shares at an average cost of $13.85 per share.
During the quarter, the Company opened its second data centre in Calgary and began installing customers. The Company anticipates that the expansion of its Brampton data centre will be completed in the fourth quarter of fiscal 2007.
"I am pleased with the growth in the quarter, particularly in contracted revenue," said Osama Arafat, CEO, Q9 Networks. "With the opening of our new Calgary facility, we are now two-thirds of the way through our $60 million expansion and have sufficient capacity to meet the immediate needs of new and existing customers in both Ontario and Alberta. Longer term, demand fundamentals remain strong and with our Brampton expansion also coming online this year, we are well positioned to continue our growth momentum."
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 1-800-733-7571. A replay will be available until
June 19, 2007 following the conference call and can be accessed by dialing 416-640-1917,
pass code 21231965#.
Non-GAAP Measures
The Company reports Adjusted EBITDA because it is a key measure used by management to evaluate the Company's performance.
The Company believes that Adjusted 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. Adjusted EBITDA is
not a recognized measure under Canadian GAAP, and accordingly investors are cautioned that Adjusted 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 Adjusted EBITDA differs from other issuers and, accordingly, Adjusted EBITDA may not be comparable to similar
measures presented by other issuers. Please see the attached schedule for the Company's Adjusted EBITDA definition and
reconciliation.
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.
Forward Looking Statements
This media release includes certain forward-looking statements that are based upon current expectations, which involve risks and
uncertainties associated with our business and the economic environment in which the business operates. Any statements contained
herein that are not statements of historical facts may be deemed to be forward-looking statements. For example, the words anticipate,
believe, plan, estimate, expect, intend, should and similar expressions are intended to identify forward-looking statements. Should
one or more of the risks and uncertainties materialize or should the underlying assumptions prove incorrect, actual results or events
may differ materially from current expectations. Please refer to the Risks section at the end of Q9's second quarter 2007 MD&A, dated
June 12, 2007, which can be found on the Company's website at www.Q9.com or through SEDAR. The Company does not intend, and disclaims any
obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Q9 NETWORKS INC.
Balance Sheets
(In thousands)
(Unaudited)
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April 30, October 31,
2007 2006
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Assets
Current assets:
Cash and cash equivalents $ 5,420 $ 5,961
Short-term investments 47,447 61,448
Accounts receivable 4,630 4,330
Unbilled revenue 658 345
Future tax asset 578 667
Prepaid expenses 1,551 866
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60,284 73,617
Restricted cash 230 230
Other assets 745 766
Future tax asset 5,554 6,393
Property and equipment 74,524 58,592
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$ 141,337 $ 139,598
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 8,913 $ 11,830
Deferred revenue 5,147 4,731
Notes payable 833 434
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14,893 16,995
Deferred revenue 940 755
Deferred gain on sale of property 1,089 1,128
Leasehold inducements 1,333 1,378
Asset retirement obligation 984 930
Other long-term liabilities 1,398 1,158
Shareholders' equity:
Common shares 146,455 139,427
Contributed surplus 1,105 3,949
Deficit (26,860) (26,122)
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120,700 117,254
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$ 141,337 $ 139,598
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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 Six months ended
April 30, April 30,
2007 2006 2007 2006
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Revenue:
Co-location $ 6,463 $ 5,305 $ 12,527 $ 10,452
Managed services 4,786 3,884 9,446 7,707
Managed bandwidth 1,893 1,623 3,732 3,269
Set-up fees 280 279 529 610
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13,422 11,091 26,234 22,038
Cost of revenue 9,477 7,454 17,883 14,925
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Gross profit 3,945 3,637 8,351 7,113
Expenses:
Sales and marketing 1,693 1,182 3,202 2,273
General and administrative 2,517 2,138 4,824 4,066
Amortization of property
and equipment 230 190 464 549
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4,440 3,510 8,490 6,888
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Income (loss) from operations (495) 127 (139) 225
Investment income, net 514 593 1,106 1,112
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Income before income taxes 19 720 967 1,337
Income tax expense:
Current 1 1 1 8
Future 354 - 928 -
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Net income (loss) and
comprehensive income
(loss) (336) 719 38 1,329
Deficit, beginning
of period (25,761) (35,619) (26,122) (36,090)
Repurchase of shares (763) (222) (776) (361)
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Deficit, end of period $ (26,860) $ (35,122) $ (26,860) $ (35,122)
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Earnings (loss) per share:
Basic $ (0.02) $ 0.04 $ 0.00 $ 0.07
Diluted (0.02) 0.03 0.00 0.06
Weighted average number
of shares outstanding:
Basic 20,522 20,349 20,391 20,311
Diluted 20,522 20,886 21,123 20,881
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended Six months ended
April 30, April 30,
2007 2006 2007 2006
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Cash provided by (used in):
Operating activities:
Net income (loss) $ (336) $ 719 $ 38 $ 1,329
Items not involving cash:
Amortization of property
and equipment 2,897 2,215 5,220 4,583
Amortization of other
assets 11 11 21 25
Gain on sale of property (20) (19) (39) (39)
Accretion expense 27 19 54 37
Unrealized gain on
short-term investments (2) - (10) -
Net non-cash rent expense 58 238 195 485
Stock-based compensation
expense 571 558 1,147 1,026
Future income taxes 354 - 928 -
Change in non-cash
operating working capital 129 697 250 1,677
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3,689 4,438 7,804 9,123
Financing activities:
Issuance of notes payable 388 135 878 376
Repayment of notes payable (253) (234) (484) (484)
Repurchase of shares (1,489) (713) (1,516) (1,343)
Issuance of shares 3,769 421 3,796 514
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2,415 (391) 2,674 (937)
Investing activities:
Purchase of property
and equipment (8,789) (4,189) (24,798) (6,148)
Purchase of short-term
investments (38,933) (42,962) (144,982) (101,096)
Sale of short-term
investments 38,499 42,545 158,761 100,196
Increase in other assets - - - (11)
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(9,223) (4,606) (11,019) (7,059)
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Increase (decrease) in
cash and cash equivalents (3,119) (559) (541) 1,127
Cash and cash equivalents,
beginning of period 8,539 9,529 5,961 7,843
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Cash and cash equivalents,
end of period $ 5,420 $ 8,970 $ 5,420 $ 8,970
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Supplemental cash flow
information:
Interest received $ 502 $ 517 $ 1,350 $ 1,286
Interest paid 10 - 19 -
Income taxes paid 1 8 1 8
Supplemental disclosure
of non-cash financing
and investing activities:
Effect of acquisition of
property and equipment
in accounts payable and
accrued liabilities 112 620 3,646 (30)
Effect of repurchase of
shares in accounts
payable and accrued
liabilities (24) (12) (24) 128
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Q9 NETWORKS INC.
Adjusted EBITDA(1) Reconciliation
(In thousands)
(Unaudited)
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Three months ended Six months ended
April 30, April 30,
2007 2006 2007 2006
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Net income (loss) for
the period $ (336) $ 719 $ 38 $ 1,329
Income taxes 355 1 929 8
Accretion expense 27 19 54 37
Investment income, net (514) (593) (1,106) (1,112)
Amortization 2,888 2,207 5,202 4,569
Stock-based compensation(2) 571 558 1,147 1,026
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Adjusted EBITDA $ 2,991 $ 2,911 $ 6,264 $ 5,857
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Note:
(1) Adjusted EBITDA means earnings before interest, income taxes,
amortization, accretion expense and stock-based compensation.
(2) Stock-based compensation expense included above relates to all
stock options awarded to directors and employees of the Company.
Previously, the Company included only stock-based compensation
expense relating to the nominal exercise price options.
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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