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Q9 Networks Reports Third Quarter 2007 Results
Records Largest-Ever Increase in Revenue and EBITDA
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Revenue of $14.6 million, a 22% increase over the same quarter, 2006 and a 9% increase over the previous quarter |
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Adjusted EBITDA of $4.1 million, a 29% increase from the same quarter 2006 and a 36% increase from the previous quarter |
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Income before taxes of $1.0 million, compared to $0.9 million for the same quarter 2006 and nil in the previous quarter |
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Revenue under contract increases 7% to $13.0 million over the previous quarter |
Toronto, ON - September 13, 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 July 31, 2007.
Revenue for the third quarter 2007 was $14.6 million, a 22% increase over third quarter 2006 revenue of $12.0 million and an increase of 9% or $1.2 million from second quarter 2007 revenue of $13.4 million. This represents the Company's largest-ever increase in quarter-over-quarter revenue growth (all figures expressed in Canadian dollars).
Revenue under contract entering the fourth quarter 2007 increased to $13.0 million, up 7% over revenue under contract of $12.1 million at the beginning of the third quarter 2007. Revenue under contract does not include contracts signed but not yet installed.
Co-location revenue for the third quarter 2007 was $7.4 million, managed services revenue was $5.0 million and managed bandwidth revenue was $1.9 million.
Adjusted EBITDA for the third quarter 2007 was $4.1 million, up 29% from the third quarter 2006 and up 36% or $1.1 million compared to the previous quarter. Please see the attached schedules for the Company's Adjusted EBITDA definition and reconciliation.
Net income for the third quarter 2007 was $0.5 million, compared to net income of $0.9 million for the third quarter 2006 and a net loss of $0.3 million for the second quarter 2007. Basic and diluted earnings per share for the third quarter 2007 was $0.02, compared to basic and diluted earnings per share of $0.05 and $0.04 respectively in the same quarter 2006 and a basic and diluted loss per share of $0.02 in the second quarter 2007.
Cash flow generated from operations for the third quarter, 2007 was $5.2 million. The Company ended the quarter with cash, cash equivalents and short-term investments of $51.5 million, a decrease of $1.6 million from last quarter. The decrease was substantially due to continued investment in the Company's data centre expansions. Other than $0.7 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 93,600 shares at an average cost of $15.18 per share.
"Q9 had an outstanding quarter," said Osama Arafat, CEO, Q9 Networks. "We experienced strong growth across all key metrics, including record increases in revenue and EBITDA. At the same time, we remained focused on our Brampton expansion. We expect new capacity to be available there in the fourth quarter and the expansion to be substantially complete by the end of the calendar year. We are well positioned to further increase our momentum and extend our leadership position over the coming quarters."
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
416-644-3416 and 1-800-733-7571. A replay will be available until September 20, 2007 following the conference call
and can be accessed by dialing 416-640-1917, pass code 21242921#.
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 third quarter 2007 MD&A, dated September 13, 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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July 31, October 31,
2007 2006
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Assets
Current assets:
Cash and cash equivalents $ 8,396 $ 5,961
Short-term investments 43,030 61,448
Accounts receivable 4,690 4,330
Unbilled revenue 424 345
Future tax asset 1,936 667
Prepaid expenses 903 684
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59,379 73,435
Restricted cash 50 230
Other assets 1,100 948
Future tax asset 3,714 6,393
Property and equipment 76,438 58,592
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$ 140,681 $ 139,598
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 8,272 $ 11,830
Deferred revenue 5,640 4,731
Notes payable 731 434
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14,643 16,995
Deferred revenue 1,031 755
Deferred gain on sale of property 1,069 1,128
Leasehold inducements 1,271 1,378
Asset retirement obligation 1,012 930
Other long-term liabilities 1,510 1,158
Shareholders' equity:
Common shares 146,257 139,427
Contributed surplus 1,041 3,949
Deficit (27,153) (26,122)
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120,145 117,254
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$ 140,681 $ 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 Nine months ended
July 31, July 31,
2007 2006 2007 2006
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Revenue:
Co-location $ 7,363 $ 5,999 $ 19,890 $ 16,451
Managed services 5,035 4,010 14,481 11,717
Managed bandwidth 1,939 1,682 5,671 4,951
Set-up fees 306 285 835 895
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14,643 11,976 40,877 34,014
Cost of revenue 10,230 8,264 28,113 23,189
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Gross profit 4,413 3,712 12,764 10,825
Expenses:
Sales and marketing 1,643 1,178 4,845 3,451
General and administrative 2,084 2,114 6,908 6,180
Amortization of property and
equipment 206 213 670 762
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3,933 3,505 12,423 10,393
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Income from operations 480 207 341 432
Investment income, net 486 710 1,592 1,822
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Income before income taxes 966 917 1,933 2,254
Income tax expense:
Current - 1 1 9
Future 482 - 1,410 -
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Net income and comprehensive
income 484 916 522 2,245
Deficit, beginning of period (26,860) (35,122) (26,122) (36,090)
Repurchase of shares (777) (330) (1,553) (691)
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Deficit, end of period $ (27,153) $ (34,536) $ (27,153) $ (34,536)
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Earnings per share:
Basic $ 0.02 $ 0.05 $ 0.03 $ 0.11
Diluted 0.02 0.04 0.02 0.11
Weighted average number of
shares outstanding:
Basic 21,216 20,313 20,669 20,312
Diluted 21,363 20,892 21,263 20,886
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended Nine months ended
July 31, July 31,
2007 2006 2007 2006
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Cash provided by (used in):
Operating activities:
Net income $ 484 $ 916 $ 522 $ 2,245
Items not involving cash:
Amortization of property
and equipment 3,231 2,380 8,451 6,963
Amortization of other assets 11 10 32 35
Gain on sale of property (20) (20) (59) (59)
Accretion expense 28 19 82 56
Unrealized loss on short-
term investments 26 - 16 -
Net non-cash rent expense 50 72 245 557
Stock-based compensation
expense 344 559 1,491 1,585
Future income taxes 482 - 1,410 -
Change in non-cash operating
working capital 525 (752) 947 996
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5,161 3,184 13,137 12,378
Financing activities:
Issuance of notes payable 225 197 1,103 573
Repayment of notes payable (326) (231) (810) (715)
Repurchase of shares (176) (1,030) (1,692) (2,373)
Issuance of shares 35 16 3,831 530
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(242) (1,048) 2,432 (1,985)
Investing activities:
Purchase of property and
equipment (6,274) (4,931) (31,072) (11,079)
Purchase of short-term
investments (110,431) (72,871) (255,413) (173,967)
Sale of short-term
investments 114,594 71,036 273,355 171,232
Decrease (increase) in
other assets (12) 4 (184) (78)
Decrease in restricted cash 180 180 180 180
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(1,943) (6,582) (13,134) (13,712)
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Increase (decrease) in cash
and cash equivalents 2,976 (4,446) 2,435 (3,319)
Cash and cash equivalents,
beginning of period 5,420 8,970 5,961 7,843
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Cash and cash equivalents,
end of period $ 8,396 $ 4,524 $ 8,396 $ 4,524
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Supplemental cash flow
information:
Interest received $ 752 $ 760 $ 2,102 $ 2,046
Interest paid 12 1 31 1
Income taxes paid - 1 1 9
Supplemental disclosure of
non-cash financing and
investing activities:
Effect of acquisition of
property and equipment in
accounts payable and
accrued liabilities 1,129 (4,367) 4,775 (4,397)
Effect of repurchase of
shares in accounts payable
and accrued liabilities (1,247) 2 (1,271) 130
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Q9 NETWORKS INC.
Adjusted EBITDA(1) Reconciliation
(In thousands)
(Unaudited)
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Three months ended Nine months ended
July 31, July 31,
2007 2006 2007 2006
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Net income for the period $ 484 $ 916 $ 522 $ 2,245
Income taxes 482 1 1,411 9
Accretion expense 28 19 82 56
Investment income, net (486) (710) (1,592) (1,822)
Amortization 3,222 2,370 8,424 6,939
Stock-based compensation(2) 344 559 1,491 1,585
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Adjusted EBITDA $ 4,074 $ 3,155 $ 10,338 $ 9,012
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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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