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Q9 Networks Reports Third Quarter 2004 Financial Results
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Increased revenues by 29% over the same period last year and 5% over previous quarter |
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84% sequential improvement in EBITDA |
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Third consecutive quarter of positive cash flow from operations |
Toronto, ON - September 13, 2004 - Q9 Networks Inc. (TSX:Q), a leading Canadian provider of outsourced Internet infrastructure and related managed IT services, today announced its financial results for the third quarter and nine months ended July 31, 2004.
Revenue for the third quarter, 2004 increased 29% to $6.59 million from $5.12 million in the third quarter, 2003 and increased 5% over second quarter, 2004 revenue of $6.27 million (all figures expressed in Canadian dollars).
Co-location revenue for the third quarter, 2004 was $2.44 million, managed bandwidth revenue was $1.51 million and managed services revenue was $2.45 million.
EBITDA for the third quarter, 2004 was $0.77 million, a $1.58 million improvement over the same period last year and a $0.35 million improvement over the second quarter, 2004. (See attached EBITDA reconciliation).
Net loss for the third quarter, 2004 was $1.28 million, compared to a net loss of $7.44 million for the third quarter, 2003 and a net loss of $2.69 million for the second quarter, 2004. Pro forma loss per share for the third quarter, 2004 was $0.06 compared to $0.22 in the same quarter, 2003 and $0.16 for the second quarter, 2004, after taking into effect the conversion and subsequent consolidation of the then outstanding shares and the addition of accretion of interest on redeemable convertible preference shares and amortization of deferred financing costs to the loss for the period.
Cash flow generated from operations for the third quarter, 2004 was $0.64 million, marking the Company's third consecutive quarter of positive cash flow. The Company ended the quarter with cash, cash equivalents and short-term investments of $71.05 million, including $1.32 million in restricted cash. Other than $0.61 million in notes payable to an equipment supplier, Q9 had no debt outstanding.
"I am pleased to report strong results in line with our growth strategy," says Osama Arafat, CEO, Q9 Networks. "The operating leverage afforded by our business is increasingly being reflected in our EBITDA results, which improved significantly both year-over-year and sequentially. Demand for additional services from existing customers was strong this quarter, representing almost 80% of the increase in total revenue."
Nine Months Results
Revenue for the nine months ended July 31, 2004 was $18.93 million, a 37% increase over the same period last year. EBITDA for the nine months ended July 31, 2004 was $1.65 million, compared to a loss of $3.74 million for the same period in 2003. Net loss for the nine months ended July 31, 2004 was $5.00 million, or $0.28 per pro forma basic and diluted share, compared to $21.77 million or $0.64 per pro forma share for the same period, 2003.
Conference Call Information
The Company will host a conference call to discuss the 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 416-640-4127 and 1-800-814-4859. A replay will be available until Monday, September 20, 2004, following the conference call and can be accessed by dialing 416-640-1917, pass code 21091643#.
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 may differ from other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers.
About Q9 Networks
Q9 Networks is a leading Canadian provider of outsourced Internet infrastructure and related managed services. Q9's data centres and network are backed by an industry leading SLA which guarantees 100% 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)
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July 31, October 31,
2004 2003
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Assets
Current assets:
Cash and cash equivalents $ 5,550 $ 2,195
Short-term investments 64,178 39,638
Accounts receivable 1,873 1,959
Unbilled revenue 285 223
Prepaid expenses 647 378
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72,533 44,393
Restricted cash 1,320 2,270
Capital assets 38,855 38,572
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$ 112,708 $ 85,235
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 4,249 $ 2,040
Deferred revenue 3,165 2,517
Current portion of leasehold inducements 195 175
Notes payable 606 467
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8,215 5,199
Deferred gain on sale of property 1,305 1,364
Long-term portion of leasehold inducements 852 779
Shareholders' equity:
Capital stock:
Common shares 177,750 420
Preference shares - 148,472
Contributed surplus 590 -
Deficit (76,004) (70,999)
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102,336 77,893
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$ 112,708 $ 85,235
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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,
2004 2003 2004 2003
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Revenue:
Co-location $ 2,443 $ 1,626 $ 6,632 $ 4,575
Managed bandwidth 1,512 1,431 4,691 4,027
Managed services 2,451 1,905 7,097 4,755
Set-up fees 187 162 506 446
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6,593 5,124 18,926 13,803
Cost of revenue 5,213 5,296 15,310 15,567
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Gross margin 1,380 (172) 3,616 (1,764)
Expenses:
Sales and marketing 1,144 1,131 3,162 3,355
General and
administrative 1,713 1,375 4,322 4,326
Lease termination costs - 1,101 1,571 1,101
Amortization 141 176 408 589
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2,998 3,783 9,463 9,371
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Loss from operations (1,618) (3,955) (5,847) (11,135)
Interest expense (1) (18) (4) (53)
Accretion of interest on
redeemable convertible
preference shares - (3,672) - (11,016)
Interest income 357 348 896 857
Amortization of deferred
financing costs - (119) - (357)
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356 (3,461) 892 (10,569)
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Loss before income taxes (1,262) (7,416) (4,955) (21,704)
Income taxes 17 22 50 65
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Loss for the period (1,279) (7,438) (5,005) (21,769)
Deficit, beginning
of period (74,725) (57,995) (70,999) (43,664)
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Deficit, end of period $ (76,004) $ (65,433) $ (76,004) $ (65,433)
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Basic and diluted
loss per share $ (0.06) $ (18.70) $ (0.70) $ (54.74)
Basic and diluted
weighted average
number of common shares
outstanding 20,135 398 7,170 398
Pro forma basic and
diluted loss
per share $ (0.06) $ (0.22) $ (0.28) $ (0.64)
Pro forma basic and
diluted weighted
average number of
shares
outstanding 20,135 16,320 17,630 16,320
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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,
2004 2003 2004 2003
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Cash provided by (used in):
Operating activities:
Loss for the period $ (1,279) $ (7,438) $ (5,005) $ (21,769)
Items not involving
cash:
Amortization 1,841 2,067 5,395 6,328
Deferred gain (20) (20) (59) (33)
Amortization of
leasehold
inducements (34) (26) (101) (78)
Accretion of interest
on redeemable
convertible
preference shares - 3,671 - 11,015
Amortization of
deferred
financing costs - 119 - 357
Stock-based
compensation
expense 571 - 590 -
Change in non-cash
operating working
capital (440) 509 1,607 162
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639 (1,118) 2,427 (4,018)
Financing activities:
Issuance of notes
payable 570 107 675 381
Repayment of notes
payable (173) (119) (536) (119)
Repayments of
long-term debt - (359) - (582)
Increase in leasehold
inducements - - 194 -
Issuance of shares,
net of issue costs - - 28,858 -
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397 (371) 29,191 (320)
Investing activities:
Proceeds on sale of
property and building - - - 12,500
Purchase of capital
assets (3,158) (92) (4,673) (2,522)
Increase in short-term
investments and
restricted cash, net (10,278) 1,959 (23,590) (6,660)
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(13,436) 1,867 (28,263) 3,318
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Increase (decrease)
in cash and cash
equivalents (12,400) 378 3,355 (1,020)
Cash and cash
equivalents,
beginning of period 17,950 1,883 2,195 3,281
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Cash and cash
equivalents,
end of period $ 5,550 $ 2,261 $ 5,550 $ 2,261
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Supplemental cash flow
information:
Interest received $ 344 $ 497 $ 1,042 $ 1,037
Interest paid 1 18 4 53
Income taxes paid 19 38 58 186
Supplemental disclosure
of non-cash financing
and investing
activities:
Acquisition of
capital assets in
accounts payable 1,283 402 1,283 402
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Q9 NETWORKS INC.
EBITDA Reconciliation
(In thousands)
(Unaudited)
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Three months ended Nine months ended
July 31, July 31,
2004 2003 2004 2003
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Loss for the period $ (1,279) $ (7,438) $ (5,005) $ (21,769)
Income taxes 17 22 50 65
Accretion of interest
on redeemable
convertible
preference shares - 3,672 - 11,015
Interest expense 1 18 4 53
Interest income (357) (348) (896) (857)
Stock-based
compensation(x) 571 - 590 -
Amortization 1,821 2,047 5,336 6,295
Amortization of
deferred
financing costs 119 357
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EBITDA $ 774 $ (1,908) $ 79 $ (4,841)
Lease termination costs - 1,101 1,571 1,101
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EBITDA adjusted for
lease termination
costs $ 774 $ (807) $ 1,650 $ (3,740)
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(x) Note: Stock-based compensation expense included here is related 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 will not be
added back to loss for the period in calculating EBITDA.
For further information, please contact:
Media Relations:
Kevin Spikes
Director of Corporate Communications
Toronto: 416-365-7211
Toll Free: 1-888-696-2266
media.relations@Q9.com
Investor Relations:
Monica Zaied
Manager, Investor Relations
Toronto: 416-365-7104
Toll Free: 1-888-696-2266
investor.relations@Q9.com
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