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Q9 Networks Reports First Quarter 2008 Results
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Revenue of $15.8 million, a 23% increase over the same quarter, 2007 and a 1% increase over the previous quarter |
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Adjusted EBITDA of $4.2 million, a 27% increase from the same quarter 2007 and a 13% decrease from the previous quarter |
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Income before taxes of $0.8 million, compared to $0.9 million for the same quarter 2007 and $1.6 million in the previous quarter |
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Revenue under contract entering the second quarter 2008 was $13.6 million, an increase of 5% over the previous quarter |
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Added 700 cabinet equivalents of capacity in Brampton |
Toronto, ON - March 5, 2008 - Q9 Networks Inc. (TSX:Q) today announced its quarterly results for the period ended January 31, 2008.
Revenue for the first quarter 2008 was $15.8 million, a 23% increase over first quarter 2007 revenue of $12.8 million and an increase of 1% or $0.2 million from fourth quarter 2007 revenue of $15.6 million. Revenue was positively impacted by a one-time cancellation fee of $0.5 million from a particular customer (all figures expressed in Canadian dollars).
Revenue under contract entering the second quarter 2008 increased to $13.6 million, up 5% over revenue under contract of $12.9 million at the beginning of the first quarter 2008. Revenue under contract does not include contracts signed but not yet installed.
Co-location revenue for the first quarter 2008 was $7.5 million, managed services revenue was $5.2 million and managed bandwidth revenue was $2.2 million. Set-up and other fees were $0.9 million, which included the one-time cancellation fee of $0.5 million.
Adjusted EBITDA for the first quarter 2008 was $4.2 million, a 27% increase from the first quarter 2007 and a decrease of $0.6 million or 13% compared to the previous quarter. Please see the attached schedules for the Company's Adjusted EBITDA definition and reconciliation.
Net income for the first quarter 2008 was $0.3 million, compared to net income of $0.4 million for the first quarter 2007 and $0.3 million for the fourth quarter 2007. Basic and diluted earnings per share for the first quarter 2008 was $0.01, compared to basic and diluted earnings per share of $0.02 in the first quarter 2007 and in the fourth quarter 2007.
Cash flow generated from operations for the first quarter 2008 was $5.0 million. Q9 ended the quarter with cash, cash equivalents and short-term investments of $33.2 million, a decrease of $9.7 million from the previous quarter. The decrease is primarily related to Q9's investment in its Brampton data centre expansion. Other than $0.5 million in notes payable to an equipment supplier, Q9 had no debt outstanding.
During the quarter, Q9 commissioned 700 normalized cabinet equivalents at its Brampton data centre. The remaining 400 cabinet equivalents will be made available in the second quarter 2008. Upon completion, the total capital cost for the Brampton expansion will be approximately $25 million, $5 million more than originally estimated.
Also during the quarter, Q9 repurchased and cancelled 95,200 shares under its Normal Course Issuer Bid program, at an average cost of $13.14 per share.
"We had a strong first quarter," said Osama Arafat, CEO, Q9 Networks. "Despite the non-renewal of the customer reported last quarter, representing approximately $0.8 million in quarterly revenue, we were able to replace the majority of that revenue with contracts from new and existing customers. We added approximately $0.7 million in contracted revenue and entered the second quarter well-positioned for the remainder of the year, with $13.6 million in revenue under contract, increased capacity at our Brampton facility and continued strong demand fundamentals."
Conference Call Information
Q9 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 1-800-733-7560. A replay will be available until March 12, 2008 following the conference call and can be accessed by dialing 416-640-1917 or 1-877-289-8525, pass code 21261364#.
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 amortization 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 first quarter 2008 MD&A, dated March 5, 2008, which can be found on the Company's website at www.Q9.com or through SEDAR. Q9 does not intend, and disclaims any obligation, except as required by law, 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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January 31, October 31,
2008 2007
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Assets
Current assets:
Cash and cash equivalents $ 5,959 $ 5,956
Short-term investments 27,211 36,922
Accounts receivable 5,256 4,552
Unbilled revenue 835 593
Future tax asset 2,346 2,554
Prepaid expenses 1,099 686
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42,706 51,263
Restricted cash - 50
Other assets 1,130 1,101
Future tax asset 1,483 1,795
Property and equipment 93,617 87,226
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$ 138,936 $ 141,435
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 9,634 $ 12,003
Deferred revenue 5,966 5,923
Notes payable 528 403
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16,128 18,329
Deferred revenue 1,214 1,032
Deferred gain on sale of property 1,030 1,049
Leasehold inducements 1,147 1,209
Asset retirement obligations 1,143 1,111
Other long-term liabilities 1,699 1,605
Shareholders' equity:
Capital stock:
Common shares 144,856 145,452
Contributed surplus 1,462 1,072
Deficit (29,743) (29,424)
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116,575 117,100
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$ 138,936 $ 141,435
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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
January 31,
2008 2007
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Revenue:
Co-location $ 7,508 $ 6,057
Managed services 5,210 4,657
Managed bandwidth 2,231 1,836
Set-up and other fees 853 262
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15,802 12,812
Cost of revenue 10,917 8,406
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Gross profit 4,885 4,406
Expenses:
Sales and marketing 1,619 1,509
General and administrative 2,667 2,307
Amortization of property and equipment 193 234
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4,479 4,050
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Income from operations 406 356
Investment income, net 386 592
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Income before income taxes 792 948
Future income tax expense 520 574
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Net income and comprehensive income 272 374
Deficit, beginning of period (29,424) (26,122)
Repurchase of shares (591) (13)
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Deficit, end of period $ (29,743) $ (25,761)
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Earnings per share:
Basic $ 0.01 $ 0.02
Diluted 0.01 0.02
Weighted average number of shares outstanding:
Basic 20,960 20,264
Diluted 21,030 21,040
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended
January 31,
2008 2007
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Cash provided by (used in):
Operating activities:
Net income $ 272 $ 374
Items not involving cash:
Amortization of property and equipment 3,308 2,323
Amortization of other assets 10 10
Gain on sale of property (19) (19)
Accretion expense 32 27
Unrealized gain on short-term investments (15) (8)
Net non-cash rent expense 32 137
Stock-based compensation expense 426 576
Future income taxes 520 574
Change in non-cash operating working capital 455 119
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5,021 4,113
Financing activities:
Issuance of notes payable 375 490
Repayment of notes payable (251) (231)
Repurchase of shares (1,596) (27)
Proceeds upon exercise of options 28 27
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(1,444) 259
Investing activities:
Purchase of property and equipment (13,117) (16,009)
Purchase of short-term investments (28,911) (106,049)
Sale of short-term investments 38,443 120,262
Decrease (increase) in other assets (39) 2
Decrease in restricted cash 50 -
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(3,574) (1,794)
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Increase in cash and cash equivalents 3 2,578
Cash and cash equivalents, beginning of period 5,956 5,961
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Cash and cash equivalents, end of period $ 5,959 $ 8,539
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Supplemental cash flow information:
Interest received $ 572 $ 848
Interest paid 7 -
Income taxes paid - -
Supplemental disclosure of non-cash financing
and investing activities:
Effect of acquisition of property and equipment
in accounts payable and accrued liabilities 3,418 3,534
Effect of repurchase of shares in accounts
payable and accrued liabilities 345 -
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Q9 NETWORKS INC.
Adjusted EBITDA(1) Reconciliation
(In thousands)
(Unaudited)
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Three months ended
January 31,
2008 2007
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Net income for the period $ 272 $ 374
Interest income, net (371) (628)
Future income tax expense 520 574
Amortization 3,299 2,314
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EBITDA 3,720 2,634
Stock-based compensation expense 426 576
Accretion expense 32 27
Realized loss on short-term investments - 25
Unrealized (gain) loss on short-term investments (15) 11
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Adjusted EBITDA $ 4,163 $ 3,273
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Note 1: Adjusted EBITDA means earnings before interest income and
expense, future income tax expense, amortization, stock-based
compensation expense, accretion expense, and realized and
unrealized gains and losses on short-term investments.
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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