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Q9 Networks Reports Third Quarter 2006 Results; Announces $20 Million Expansion of Brampton Data Centre
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Revenue of $12.0 million, a 20% increase over the same quarter in 2005 and an 8% increase from the previous quarter |
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EBITDA of $3.1 million, a 6% increase over the same quarter in 2005 and a 9% increase from the previous quarter |
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Net income of $0.9 million, compared to net income of $0.7 million for the same quarter in 2005 and net income of $0.7 million in the previous quarter |
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Cash flow from operations of $3.2 million |
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Toronto expansion nears completion, capital costs significantly below preliminary estimate |
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Announces plans to add 1,200 cabinet equivalents in Brampton data centre |
Toronto, ON - September 12, 2006 - 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 ending July 31, 2006.
Revenue for the third quarter 2006 was $12.0 million, an increase of 20% over third quarter 2005 revenue of $10.0 million and an increase of 8% over the previous quarter. Revenue for the nine months ended July 31, 2006 was $34.0 million, a 27% increase over the same period last year.
Revenue under contract entering the fourth quarter 2006 increased to $10.3 million, up 3% over revenue under contract of $10.0 million at the beginning of the third quarter, 2006.
Co-location revenue for the third quarter 2006 was $6.0 million, managed bandwidth revenue was $1.7 million and managed services revenue was $4.0 million.
EBITDA for the third quarter 2006 was $3.1 million, up 6% or $0.2 million over the same period last year and an increase of 9% compared to the second quarter 2006. Please see the attached schedules for the Company's EBITDA definition and reconciliation.
Net income for the third quarter 2006 was $0.9 million, compared to net income of $0.7 million for the third quarter 2005 and net income of $0.7 million for the second quarter 2006. Basic and diluted earnings per share for the third quarter 2006 were $0.05 and $0.04 respectively, compared to basic and diluted earnings per share of $0.03 in the same quarter 2005 and basic and diluted earnings per share of $0.04 and $0.03 respectively in the second quarter 2006.
Cash flow generated from operations for the third quarter 2006 was $3.2 million. The Company ended the quarter with cash, cash equivalents and short-term investments of $74.9 million. Other than $0.4 million in notes payable to an equipment supplier, the Company had no debt outstanding.
The Company is now nearing completion of the expansion of its existing Toronto data centre at a total capital cost of approximately $20 million. This is $10 million less than management's preliminary estimate and is primarily related to the Company's decision to focus the Toronto expansion on new space rather than increasing density in existing space.
The Company today announced a $20 million expansion of its Brampton data centre to meet increasing demand for its services in Ontario. The Company expects to add approximately 1,200 cabinet equivalents to Brampton's current capacity of 3,200 cabinet equivalents.
In September 2005, Q9 announced a Normal Course Issuer Bid (NCIB) for up to 1,015,000 of its common shares, representing 5% of the approximately 20.3 million shares outstanding as of September 20, 2005. During the quarter ended July 31, 2006, Q9 repurchased and cancelled 101,400 shares at an average market price of $10.11 per share. On a cumulative basis, the Company has repurchased 298,700 shares pursuant to this NCIB at a total cost of $3.0 million.
"Q9 delivered a solid quarter with growth across all service offerings," said Osama Arafat, CEO, Q9 Networks. "The outlook for our business continues to be excellent. We are investing heavily to meet ongoing demand, including today's announcement concerning our Brampton facility, already the largest facility of its kind in Canada. This announcement marks our third expansion over the last 12 months and will ensure Q9 is able to maintain and extend its leadership position well into the future."
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 416-644-3414 and 1-800-796-7558. A replay will be available until September 20, 2006, following the conference call and can be accessed by dialing 416-640-1917, pass code 21198696#.
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)
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July 31, October 31,
2006 2005
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Assets
Current assets:
Cash and cash equivalents $ 4,524 $ 7,843
Short-term investments 70,123 67,610
Accounts receivable 4,658 3,208
Unbilled revenue 296 752
Prepaid expenses 814 676
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80,415 80,089
Restricted cash 230 410
Other assets 777 801
Property and equipment 45,270 36,757
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$ 126,692 $ 118,057
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued
liabilities $ 8,404 $ 3,041
Deferred revenue 4,538 3,912
Notes payable 400 542
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13,342 7,495
Deferred revenue 763 646
Deferred gain on sale of property 1,148 1,207
Leasehold inducements 1,419 1,099
Asset retirement obligation 687 631
Other long-term liabilities 938 701
Shareholders' equity:
Common shares 139,533 139,276
Contributed surplus 3,398 3,092
Deficit (34,536) (36,090)
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108,395 106,278
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$ 126,692 $ 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 Nine months ended
July 31, July 31,
2006 2005 2006 2005
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Revenue:
Co-location $ 5,999 $ 4,529 $ 16,451 $ 11,121
Managed bandwidth 1,682 1,624 4,951 4,894
Managed services 4,010 3,585 11,717 10,099
Set-up fees 285 264 895 725
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11,976 10,002 34,014 26,839
Cost of revenue 8,264 6,619 23,189 18,631
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Gross margin 3,712 3,383 10,825 8,208
Expenses:
Sales and marketing 1,178 1,142 3,451 3,020
General and
administrative 2,114 1,826 6,180 5,361
Amortization of
property and equipment 213 133 762 409
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3,505 3,101 10,393 8,790
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Income (loss) from
operations 207 282 432 (582)
Interest income, net 710 420 1,822 1,225
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Income before income taxes 917 702 2,254 643
Income taxes, current 1 14 9 41
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Net income 916 688 2,245 602
Deficit, beginning of
period as previously
reported (35,122) (37,914) (36,090) (76,861)
New accounting
pronouncement
adopted - - - (242)
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As restated (35,122) (37,914) (36,090) (77,103)
Reduction of deficit - - - 39,275
Repurchase of shares (330) - (691) -
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Deficit, end of period $ (34,536) $ (37,226) $ (34,536) $ (37,226)
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Earnings per share:
Basic $ 0.05 $ 0.03 $ 0.11 $ 0.03
Diluted 0.04 0.03 0.11 0.03
Weighted average
number of shares
outstanding:
Basic 20,313 20,249 20,312 20,175
Diluted 20,892 20,658 20,886 20,417
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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,
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income $ 916 $ 688 $ 2,245 $ 602
Items not involving
cash:
Amortization of
property and equipment 2,380 2,098 6,963 6,232
Amortization of other
assets 10 10 35 23
Gain on sale of
property (20) (19) (59) (59)
Accretion expense 19 17 56 50
Net non-cash rent
expense 72 189 557 318
Stock-based
compensation expense 559 555 1,585 1,672
Change in non-cash
operating working capital (748) (767) 929 (379)
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3,188 2,771 12,311 8,459
Financing activities:
Issuance of notes payable 197 190 573 671
Repayment of notes payable (231) (302) (715) (975)
Repurchase of shares (1,030) - (2,373) -
Issuance of shares 16 572 530 894
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(1,048) 460 (1,985) 590
Investing activities:
Purchase of property and
equipment (4,931) (1,542) (11,079) (5,304)
Purchase of short-term
investments (72,871) (51,177) (173,967) (100,629)
Sale of short-term
investments 71,036 50,200 171,232 97,068
Increase in other assets - - (11) (761)
Decrease in restricted
cash, net 180 730 180 730
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(6,586) (1,789) (13,645) (8,896)
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Increase (decrease) in
cash and cash equivalents (4,446) 1,442 (3,319) 153
Cash and cash equivalents,
beginning of period 8,970 4,846 7,843 6,135
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Cash and cash equivalents,
end of period $ 4,524 $ 6,288 $ 4,524 $ 6,288
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Supplemental cash flow
information:
Interest received $ 760 $ 328 $ 2,046 $ 1,394
Interest paid 1 - 1 -
Income taxes paid 1 - 9 -
Supplemental disclosure
of non-cash financing
and investing activities:
Effect of acquisition of
property and equipment
in accounts payable and
accrued liabilities (4,367) (35) (4,397) 79
Effect of repurchase of
shares in accounts
payable and accrued
liabilities 2 - 130 -
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 Nine months ended
July 31, July 31,
2006 2005 2006 2005
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Net Income for the period 916 688 2,245 602
Income taxes 1 14 9 41
Accretion expense 19 17 56 50
Interest income, net (710) (420) (1,822) (1,225)
Amortization 2,370 2,089 6,939 6,196
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EBITDA before the
under-noted 2,596 2,388 7,427 5,664
Stock-based compensation(2) 492 534 1,403 1,642
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EBITDA 3,088 2,922 8,830 7,306
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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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