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Q9 Networks Reports Record Third Quarter 2005 Results as Revenue Tops
$10 Million
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Increased revenue to $10.00 million, a 52% increase over the same quarter 2004 and a 13% increase over the previous quarter |
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Increased EBITDA to $2.92 million, a 278% increase over the same quarter 2004 and a 19% increase over the previous quarter |
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Eighth consecutive quarter of positive cash flow from operations |
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Net income of $0.69 million, compared to net loss of $1.30 million in the same quarter 2004 and positive net income of $0.17 million in the second quarter 2005 |
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Plans to add approximately 1,100 cabinets in downtown Toronto |
Toronto, ON - September 8, 2005 - Q9 Networks Inc. (TSX:Q), a leading Canadian provider of outsourced Internet infrastructure and related managed services, today announced its financial results for the third quarter ended July 31, 2005.
Revenue for the third quarter 2005 was $10.00 million, an increase of 52% from third quarter 2004 revenue of $6.59 million and a 13% increase over second quarter 2005 revenue of $8.83 million (all figures expressed in Canadian dollars).
Co-location revenue for the third quarter 2005 was $4.53 million, managed bandwidth revenue was $1.62 million and managed services revenue was $3.59 million.
EBITDA for the third quarter 2005 was $2.92 million, up 278% or $2.15 million over the same period last year and a $0.47 million or 19% improvement over the second quarter 2005. Please see the attached EBITDA definition and reconciliation to net income (loss) for the period.
Net income for the third quarter 2005 was $0.69 million compared to a net loss of $1.30 million for the third quarter 2004 and net income of $0.17 million for the second quarter 2005. Basic and diluted earnings per share for the third quarter 2005 were $0.03 compared to a loss per share of $0.06 in the same quarter 2004.
Cash flow generated from operations for the third quarter, 2005 was $2.86 million, marking the Company's eighth consecutive quarter of positive cash flow. The Company ended the quarter with cash, cash equivalents and short-term investments of $74.11 million and no long-term debt outstanding.
Based on preliminary plans, the Company expects that it will commission an additional 1,100 normalized cabinet equivalents over the next 12 months through the expansion of its existing Toronto data centre and the construction of a new downtown facility.
"I am delighted to report yet another record-breaking quarter," says Osama Arafat, CEO, Q9 Networks. "Demand across all service offerings increased during the period. Existing customers accounted for a significant portion of our incremental revenue growth, once again demonstrating their high regard for our services and their willingness to outsource ever-larger components of critical infrastructure to a trusted provider. With strong momentum entering the fourth quarter, 2005 is shaping up to be an excellent year for Q9."
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 416-640-4127 and 1-800-796-7558. A replay will be available until Thursday, September 15, 2005 following the conference call and can be accessed by dialing 416-640-1917, pass code 21134420#.
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. 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 Internet infrastructure and related managed services. Q9's data centres and network are backed by an industry leading Service Level Agreement (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)
-------------------------------------------------------------------------
July 31, October 31,
2005 2004
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Assets
Current assets:
Cash and cash equivalents $ 6,288 $ 6,135
Short-term investments 67,414 64,023
Accounts receivable 3,403 1,846
Unbilled revenue 434 154
Prepaid expenses 700 646
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78,239 72,804
Restricted cash 410 1,140
Other assets 738 -
Capital assets 37,526 38,533
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$ 116,913 $ 112,477
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,507 $ 3,075
Deferred revenue 3,797 3,212
Current portion of leasehold inducements 195 195
Notes payable 485 789
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7,984 7,271
Deferred revenue 673 427
Deferred gain on sale of property 1,227 1,286
Leasehold inducements 842 818
Other long-term liabilities 1,223 879
Shareholders' equity:
Capital stock:
Common shares 139,572 177,750
Contributed surplus 2,618 1,149
Deficit (37,226) (77,103)
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104,964 101,796
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$ 116,913 $ 112,477
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Q9 NETWORKS INC.
Statements of Operations and Deficit
(In thousands, except for per share amounts)
(Unaudited)
-------------------------------------------------------------------------
Three months ended Nine months ended
July 31, July 31,
2005 2004 2005 2004
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Revenue:
Co-location $ 4,529 $ 2,443 $ 11,121 $ 6,632
Managed bandwidth 1,624 1,512 4,894 4,691
Managed services 3,585 2,451 10,099 7,097
Set-up fees 264 187 725 506
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10,002 6,593 26,839 18,926
Cost of revenue 6,619 5,234 18,631 15,368
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Gross margin 3,383 1,359 8,208 3,558
Expenses:
Sales and marketing 1,142 1,144 3,020 3,162
General and administrative 1,826 1,713 5,361 4,322
Lease termination costs - - - 1,571
Amortization 133 141 409 408
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3,101 2,998 8,790 9,463
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Earnings (loss) from operations 282 (1,639) (582) (5,905)
Interest income, net 420 356 1,225 892
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Income (loss) before
income taxes 702 (1,283) 643 (5,013)
Income taxes 14 17 41 50
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Net income (loss) 688 (1,300) 602 (5,063)
Deficit, beginning of period
as previously reported (37,914) (74,725) (76,861) (70,999)
New accounting pronouncement
adopted - (198) (242) (161)
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As restated (37,914) (74,923) (77,103) (71,160)
Reduction of deficit - - 39,275 -
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Deficit, end of period $(37,226) $(76,223) $(37,226) $(76,223)
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Earnings (loss) per share:
Basic $ 0.03 $ (0.06) $ 0.03 $ (0.71)
Diluted 0.03 (0.06) 0.03 (0.71)
Weighted average number of
common shares outstanding:
Basic 20,249 20,135 20,175 7,170
Diluted 20,658 20,135 20,415 7,170
Pro forma earnings (loss)
per share:
Basic $ 0.03 $ (0.06) $ 0.03 $ (0.29)
Diluted 0.03 (0.06) 0.03 (0.29)
Pro forma weighted average
number of common shares
outstanding:
Basic 20,249 20,135 20,175 17,630
Diluted 20,658 20,135 20,415 17,630
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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,
2005 2004 2005 2004
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income (loss) $ 688 $ (1,300) $ 602 $ (5,063)
Items not involving cash:
Amortization of capital
assets 2,098 1,850 6,232 5,418
Amortization of other
assets 10 - 23 -
Deferred gain on sale
of property (19) (20) (59) (59)
Accretion expense 17 12 50 35
Non-cash rent expense 189 71 318 109
Stock-based compensation
expense 555 571 1,672 590
Change in non-cash operating
working capital (676) (545) (549) 1,397
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2,862 639 8,289 2,427
Financing activities:
Issuance of notes payable 190 570 671 675
Repayment of notes payable (302) (173) (975) (536)
Increase in leasehold
inducements - - - 194
Issuance of shares,
net of issue costs 572 - 894 28,858
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460 397 590 29,191
Investing activities:
Purchase of capital assets (1,542) (3,158) (5,304) (4,673)
Increase in short-term
investments (1,068) (10,278) (3,391) (27,052)
Increase in other assets - - (761) -
Decrease in restricted cash,
net 730 - 730 950
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(1,880) (13,436) (8,726) (28,263)
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Increase (decrease) in cash
and cash equivalents 1,442 (12,400) 153 3,355
Cash and cash equivalents,
beginning of period 4,846 17,950 6,135 2,195
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Cash and cash equivalents,
end of period $ 6,288 $ 5,550 $ 6,288 $ 5,550
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Supplemental cash flow
information:
Interest received, net $ 328 $ 343 $ 1,394 $ 1,038
Income taxes paid - 19 - 58
Supplemental disclosure of
non-cash financing and
investing activities:
Acquisition of capital assets
in accounts payable 528 1,283 528 1,283
Reduction of share capital - - 39,275 -
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Q9 NETWORKS INC.
EBITDA Reconciliation
(In thousands)
(Unaudited)
-------------------------------------------------------------------------
Three months ended Nine months ended
July 31, July 31,
2005 2004 2005 2004
-------------------------------------------------------------------------
Net Income (loss) for
the period 688 (1,300) 602 (5,063)
Income taxes 14 17 41 50
Accretion expense 17 12 50 35
Interest income, net (420) (356) (1,225) (892)
Amortization 2,089 1,830 6,196 5,359
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EBITDA before the under-noted 2,388 203 5,664 (511)
Stock-based compensation(x) 534 571 1,642 590
Lease termination costs - - - 1,571
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EBITDA 2,922 774 7,306 1,650
(x) Note: Stock-based compensation expense included here is related
solely to 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 (loss) for the period in calculating
EBITDA.
(x) Note: Comparative figures have been restated due to the adoption of a
new accounting pronouncement related to asset retirement obligations.
For further information, please contact:
Media Relations:
Kevin Spikes
Director of Corporate & Investor Relations
Toronto: 416-365-7211
Toll Free: 1-888-696-2266
media.relations@Q9.com
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