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Q9 Networks Reports First Quarter 2006 Results; Announces Plans to Invest $25 Million to Build Second Calgary Data Centre
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First quarter revenue of $11.0 million, a 37% increase over the same quarter 2005 and unchanged from the previous quarter |
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EBITDA of $2.9 million, a 50% increase over the same quarter 2005 and a 17% decrease from the previous quarter |
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Net income of $0.61 million, compared to net loss of $0.26 in the same quarter 2005 and net income of $1.4 million in the previous quarter |
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Cash flow from operations reaches record $4.7 million |
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Announces plans to add 1,000 cabinet equivalents in Calgary expansion |
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Toronto expansion proceeding as planned |
Toronto, ON - March 8, 2006 - Q9 Networks Inc. (TSX:Q), a leading Canadian provider of outsourced Internet infrastructure and related managed services, today announced its quarterly results for the period ending January 31, 2006.
Revenue for the first quarter 2006 was $11.0 million, an increase of 37% from first quarter 2005 revenue of $8.0 million. Excluding usage fees, quarter-over-quarter revenue grew $0.3 million or 3%. Offsetting this increase was a decline in usage fees of $0.3 million due to colder weather and lower energy prices, resulting in total revenue that was approximately the same as fourth quarter 2005 revenue of $11.0 million (all figures expressed in Canadian dollars).
Co-location revenue for the first quarter 2006 was $5.1 million, managed bandwidth revenue was $1.6 million and managed services revenue was $3.8 million.
EBITDA for the first quarter 2006 was $2.9 million, up 50% or $1.0 million over the same period last year and a decrease of 17% compared to the fourth quarter 2005 as a result of continued investment in the Company's growth strategy. Please see the attached schedules for the Company's EBITDA definition and reconciliation.
Net income for the first quarter 2006 was $0.6 million, compared to a net loss of $0.3 million for the first quarter 2005 and net income of $1.4 million for the fourth quarter 2005. Basic and diluted earnings per share for the first quarter 2006 were $0.03 compared to a loss per share of $0.01 in the same quarter 2005 and earnings per share of $0.07 in the fourth quarter 2005.
Cash flow generated from operations for the first quarter 2006 was a record $4.7 million, marking the Company's tenth consecutive quarter of positive cash flow from operations. The Company ended the quarter with cash, cash equivalents and short-term investments of $77.8 million. Other than $0.5 million in notes payable to an equipment supplier, the Company had no debt outstanding.
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, Q9 purchased and cancelled 51,200 shares at an average cost of $9.55 per share. On a cumulative basis, the Company purchased 124,200 shares pursuant to this NCIB at a total cost of $1.2 million.
"Q9 had a solid quarter with record cash flow from operations and very strong growth in contracted revenue exiting the quarter," said Osama Arafat, CEO, Q9 Networks. "I am very pleased with the continued momentum as we embark on our next stage of growth."
Based on the success of Q9's first Calgary data centre and to meet ongoing strong demand in that market, the Company plans to build a second data centre in Calgary with a capacity of approximately 1,000 normalized cabinet equivalents. The cost of the new facility is estimated to be $25 million.
"I am delighted to be announcing the addition of a second Q9 data centre in Calgary," said Arafat. "Our rapid success in this market has exceeded our expectations. The decision to add capacity in Calgary is reflective of our commitment to organic growth and our belief that strong demand for Q9 services will continue to grow. This announcement, combined with our Toronto expansion, positions us extremely well for 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 1-800-814-4862. A replay will be available until March 15, 2006, following the conference call and can be accessed by dialing 416-640-1917, pass code 21176496#.
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)
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January 31, October 31,
2006 2005
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Assets
Current assets:
Cash and cash equivalents $ 9,529 $ 7,843
Short-term investments 67,843 67,610
Accounts receivable 3,440 3,242
Unbilled revenue 844 752
Prepaid expenses 869 676
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82,525 80,123
Restricted cash 410 410
Other assets 798 801
Property and equipment 36,998 36,757
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$ 120,731 $ 118,091
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 4,446 $ 3,041
Deferred revenue 4,161 3,946
Notes payable 533 542
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9,140 7,529
Deferred revenue 749 646
Deferred gain on sale of property 1,187 1,207
Leasehold inducements 1,267 1,099
Asset retirement obligation 649 631
Other long-term liabilities 780 701
Shareholders' equity:
Common shares 139,691 139,276
Contributed surplus 2,887 3,092
Deficit (35,619) (36,090)
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106,959 106,278
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$ 120,731 $ 118,091
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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,
2006 2005
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Revenue:
Co-location $ 5,147 $ 2,977
Managed bandwidth 1,646 1,657
Managed services 3,823 3,154
Set-up fees 331 220
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10,947 8,008
Cost of revenue 7,471 5,801
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Gross margin 3,476 2,207
Expenses:
Sales and marketing 1,091 960
General and administrative 1,928 1,764
Amortization of property and equipment 359 138
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3,378 2,862
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Income (loss) from operations 98 (655)
Interest income 519 412
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Income (loss) before income taxes 617 (243)
Income taxes, current 7 14
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Net income (loss) 610 (257)
Deficit, beginning of period as previously
reported (36,090) (76,861)
New accounting pronouncement adopted - (242)
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As restated (36,090) (77,103)
Repurchase of shares (139) -
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Deficit, end of period $ (35,619) $ (77,360)
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Earnings (loss) per share:
Basic $ 0.03 $ (0.01)
Diluted 0.03 (0.01)
Weighted average number of
shares outstanding:
Basic 20,274 20,136
Diluted 20,873 20,136
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands, except per share amounts)
(Unaudited)
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Three months ended
January 31,
2006 2005
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Cash provided by (used in):
Operating activities:
Net income (loss) $ 610 $ (257)
Items not involving cash:
Amortization of property and equipment 2,368 2,032
Amortization of other assets 14 3
Gain on sale of property (20) (20)
Accretion expense 18 16
Non-cash rent expense 247 67
Stock-based compensation expense 468 562
Change in non-cash operating working capital 980 238
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4,685 2,641
Financing activities:
Issuance of notes payable 241 186
Repayment of notes payable (250) (229)
Repurchase of shares (630) -
Issuance of shares 93 2
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(546) (41)
Investing activities:
Purchase of property and equipment (1,959) (1,725)
Purchase of short-term investments (58,134) (30,835)
Sale of short-term investments 57,651 30,507
Increase in other assets (11) (761)
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(2,453) (2,814)
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Increase (decrease) in cash and cash equivalents 1,686 (214)
Cash and cash equivalents, beginning of period 7,843 6,135
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Cash and cash equivalents,
end of period $ 9,529 $ 5,921
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Supplemental cash flow information:
Interest received $ 769 $ 652
Income taxes paid - -
Supplemental disclosure of non-cash
financing and investing activities:
Acquisition of property and equipment
in accounts payable and accrued liabilities 1,136 755
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Q9 NETWORKS Inc.
EBITDA Reconciliation
(In thousands)
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Three months ended,
Jan. 31, Oct. 31, Jan. 31,
2006 2005 2005
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Net income (loss) $ 610 $ 1,359 $ (257)
Income taxes, current 7 (41) 14
Accretion expense 18 18 16
Interest income, net (519) (445) (412)
Amortization 2,362 2,051 2,015
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EBITDA before the under-noted 2,478 2,942 1,376
Stock-based compensation(1) 418 533 558
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EBITDA $ 2,896 $ 3,475 $ 1,934
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Note:
1. 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 (loss) 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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