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Q9 Networks Reports Strong Revenue, EBITDA and Cash Flow Growth For Fourth Quarter and Full Year 2005
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FY 2005 revenue of $37.8 million, a 44% increase over FY 2004 |
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Fourth quarter revenue of $11.0 million, a 10% increase over the previous quarter and a 50% increase over the same quarter, 2004 |
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Fourth quarter EBITDA of $3.5 million, a 20% increase over the previous quarter and a 167% improvement over the same quarter 2004 |
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FY 2005 EPS of $0.10 |
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Ninth consecutive quarter of positive cash flow from operations |
Toronto, ON - December 14, 2005 - Q9 Networks Inc. (TSX:Q), a leading Canadian provider of outsourced Internet infrastructure and related managed services, today announced its quarterly and fiscal year-end results for the period ending October 31, 2005.
Revenue for the fourth quarter 2005 was $11.0 million, an increase of 50% from fourth quarter 2004 revenue of $7.3 million and a 10% increase over third quarter 2005 revenue of $10.0 million (all figures expressed in Canadian dollars).
Co-location revenue for the fourth quarter 2005 was $5.2 million, managed bandwidth revenue was $1.7 million and managed services revenue was $3.8 million.
EBITDA for the fourth quarter 2005 was $3.5 million, up 167% or $2.2 million over the same period last year and a 20% improvement over the third quarter 2005. Please see the attached schedules for the Company's EBITDA definition and reconciliation.
Net income for the fourth quarter 2005 was $1.4 million, compared to a net loss of $0.9 million for the fourth quarter 2004 and net income of $0.7 million for the third quarter 2005. Basic and diluted earnings per share for the fourth quarter 2005 were $0.07 compared to a loss per share of $0.04 in the same quarter 2004 and earnings per share of $0.04 in the third quarter 2005.
Cash flow generated from operations for the fourth quarter, 2005 was $3.3 million, marking the Company's ninth consecutive quarter of positive cash flow from operations. The Company ended the quarter with cash, cash equivalents and short-term investments of $75.9 million, an increase of $4.6 million over the year. Other than $0.5 million in notes payable to an equipment supplier, the Company had no debt outstanding.
Revenue for the 12 months ended October 31, 2005 was $37.8 million, a 44% increase over the previous year. Co-location, managed bandwidth and managed services revenue increased by 75%, 5% and 39% respectively. EBITDA was $10.8 million, compared to $2.9 million in the previous year. Net income for the 12 months ended October 31, 2005 was $2.0 million, or $0.10 per basic and diluted share, compared to a loss of $5.9 million or $0.57 per basic and diluted share for 2004.
In September 2005, Q9 announced a Normal Course Issuer Bid for up to 1,015,000 of its common shares, representing five per cent of the approximately 20.3 million shares outstanding as of September 20, 2005. During the quarter, Q9 purchased and cancelled 73,000 shares at an average cost of $9.89 per share.
"I am very pleased with the excellent results we reported today," said Osama Arafat, CEO, Q9 Networks. "Over the quarter and the year, we advanced our business and delivered strong results for our shareholders. With growing demand for our services and the necessary capital to continue expanding our capacity, we are well positioned to maintain our track record of success in 2006."
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 December 21, 2005, following the conference call and can be accessed by dialing 416-640-1917, pass code 21163494#.
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 Internet infrastructure and related managed services. 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)
October 31, 2005 and 2004
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2005 2004
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Assets
Current assets:
Cash and cash equivalents $ 7,843 $ 6,135
Short-term investments 67,610 64,023
Accounts receivable 3,242 1,846
Unbilled revenue 718 154
Prepaid expenses 676 646
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80,089 72,804
Restricted cash 410 1,140
Other assets 801 -
Property and equipment 36,757 38,533
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$ 118,057 $ 112,477
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,041 $ 3,075
Deferred revenue 3,912 3,212
Current portion of leasehold inducements 193 195
Notes payable 542 789
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7,688 7,271
Deferred revenue 646 427
Deferred gain on sale of property 1,207 1,286
Leasehold inducements 906 818
Other long-term liabilities 1,332 879
Shareholders' equity:
Common shares 139,276 177,750
Contributed surplus 3,092 1,149
Deficit (36,090) (77,103)
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106,278 101,796
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$ 118,057 $ 112,477
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Q9 NETWORKS INC.
Statements of Operations and Deficit
(In thousands, except for per share amounts)
(Unaudited)
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Three months ended Fiscal Year ended
October 31, October 31,
2005 2004 2005 2004
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Revenue:
Co-location $ 5,175 $ 2,666 $ 16,296 $ 9,298
Managed bandwidth 1,697 1,579 6,591 6,270
Managed services 3,818 2,907 13,917 10,004
Set-up fees 300 190 1,025 696
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10,990 7,342 37,829 26,268
Cost of revenue 7,209 5,481 25,840 20,849
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Gross margin 3,781 1,861 11,989 5,419
Expenses:
Sales and marketing 987 1,367 4,007 4,529
General and administrative 1,795 1,669 7,156 5,991
Lease termination costs - - - 1,571
Amortization 126 142 535 550
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2,908 3,178 11,698 12,641
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Income (loss) from operations 873 (1,317) 291 (7,222)
Interest income, net 445 387 1,670 1,279
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Income (loss) before income
taxes 1,318 (930) 1,961 (5,943)
Income taxes (41) (50) - -
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Net income (loss) 1,359 (880) 1,961 (5,943)
Deficit, beginning of period
as previously reported (37,226) (76,004) (76,861) (70,999)
New accounting
pronouncement adopted - (219) (242) (161)
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As restated (37,226) (76,223) (77,103) (71,160)
Reduction of deficit - - 39,275 -
Repurchase of shares - - (223) -
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Deficit, end of period $ (35,867) $ (77,103) $ (36,090) $ (77,103)
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Earnings (loss) per share
Basic $ 0.07 $ (0.04) $ 0.10 $ (0.57)
Diluted 0.07 (0.04) 0.10 (0.57)
Weighted average number of
shares outstanding
Basic 20,293 20,135 20,204 10,429
Diluted 20,892 20,135 20,555 10,429
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended Fiscal year ended
October 31, October 31,
2005 2004 2005 2004
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Cash provided by (used in):
Operating activities:
Net income (loss) $ 1,359 $ (880) $ 1,961 $ (5,943)
Items not involving cash:
Amortization of
property and equipment 2,062 2,066 8,294 7,484
Amortization of other
assets 9 - 32 -
Deferred gain on sale
of property (20) (19) (79) (78)
Accretion expense 18 16 68 51
Non-cash rent expense 153 72 471 181
Stock-based compensation
expense 572 559 2,244 1,149
Change in non-cash operating
working capital (871) 118 (1,250) 1,661
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3,282 1,932 11,741 4,505
Financing activities:
Issuance of notes payable 280 437 951 1,112
Repayment of notes payable (223) (254) (1,198) (790)
Repurchase of shares (585) - (585) -
Increase in leasehold
inducements - - - 194
Issuance of shares, net
of issue costs 108 - 1,002 28,858
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(420) 183 170 29,374
Investing activities:
Purchase of property and
equipment (1,335) (2,092) (6,639) (6,765)
Purchase of short-term
investments (104,284) (180) (107,845) (124,847)
Sale of short-term
investments 104,384 562 104,384 100,543
Increase in other assets (72) - (833) -
Decrease in restricted
cash, net - 180 730 1,130
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(1,307) (1,530) (10,203) (29,939)
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Increase in cash and cash
equivalents 1,555 585 1,708 3,940
Cash and cash equivalents,
beginning of period 6,288 5,550 6,135 2,195
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Cash and cash equivalents,
end of period $ 7,843 $ 6,135 $ 7,843 $ 6,135
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Supplemental cash flow
information:
Interest received, net $ 150 $ 160 $ 1,544 $ 1,198
Income taxes (recovered)
paid - 20 (77) 77
Supplemental disclosure of
non-cash financing and
investing activities:
Acquisition of property
and equipment in
accounts payable 486 607 486 607
Repurchase of shares in
accounts payable and
accrued liabilities 140 - 140 -
Reduction of share capital - - 39,275 -
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Q9 NETWORKS INC.
EBITDA Reconciliation
(In thousands)
(Unaudited)
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Three months ended Fiscal year ended
October 31, October 31,
2005 2004 2005 2004
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Net Income (loss) for
the period(1) $ 1,359 $ (880) $ 1,961 $ (5,943)
Income taxes (41) (50) - -
Accretion expense 18 15 68 51
Interest income, net (445) (387) (1,670) (1,279)
Amortization 2,051 2,047 8,247 7,406
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EBITDA before the
under-noted 2,942 745 8,606 235
Stock-based compensation(2) 533 558 2,174 1,148
Lease termination costs - - - 1,571
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EBITDA $ 3,475 $ 1,303 $ 10,780 $ 2,954
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Notes:
(1) Comparative figures have been restated due to the adoption of a new
accounting pronouncement related to asset retirement obligations.
(2) Stock-based compensation expense included above 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 has not
been added back to net income (loss) for the period in calculating
EBITDA.
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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