Q9 Networks Reports First Quarter 2007 Results



    
    -   Revenue of $12.8 million, a 17% increase over the same quarter, 2006
        and a 3% increase over the previous quarter
    -   EBITDA of $3.2 million, a 10% increase from the same quarter 2006 and
        a 6% decrease from the previous quarter
    -   Income before taxes of $0.9 million, an increase of 54% from the same
        quarter 2006 and a decrease of 35% from the previous quarter
    -   Revenue under contract increases 4% to $11.2 million
    -   Opened new data centre in Toronto
    -   New Calgary data centre substantially complete; expected to be
        approximately $5 million under budget with total capacity of 1,200
        cabinet equivalents
    

    TORONTO, March 13 /CNW/ - 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 ended January 31, 2007.
    Revenue for the first quarter 2007 was $12.8 million, a 17% increase over
first quarter 2006 revenue of $11.0 million and an increase of 3% from fourth
quarter 2006 revenue of $12.5 million (all figures expressed in Canadian
dollars).
    Revenue under contract entering the second quarter 2007 increased to
$11.2 million, up 4% over revenue under contract of $10.8 million at the
beginning of the first quarter 2007. Revenue under contract does not include
contracts signed but not yet installed.
    Co-location revenue for the first quarter 2007 was $6.1 million, managed
services revenue was $4.7 million and managed bandwidth revenue was $1.8
million.
    EBITDA for the first quarter 2007 was $3.2 million, up 10% from the first
quarter 2006 and down 6% or $0.2 million compared to the previous quarter 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 2007 was $0.4 million, compared to net
income of $0.6 million for the first quarter 2006 and net income of $8.5
million for the fourth quarter 2006. Net income for the first quarter 2007
included a non-cash tax expense of $0.6 million. Net income for the fourth
quarter 2006 was positively affected by a non-cash tax benefit of $7.1 million
due to the recognition of a future tax asset. Basic and diluted earnings per
share for the first quarter 2007 were $0.02, compared to basic and diluted
earnings per share of $0.03 in the same quarter 2006 and basic and diluted
earnings per share of $0.42 and $0.41, respectively in the fourth quarter
2006.
    Cash flow generated from operations for the first quarter, 2007 was $4.1
million. The Company ended the quarter with cash, cash equivalents and
short-term investments of $55.7 million, a decrease of $11.9 million from last
quarter. The decrease was substantially due to continued investment in the
Company's data centre expansions. Other than $0.7 million in notes payable to
an equipment supplier, the Company had no debt outstanding.
    In October 2006, Q9 renewed its Normal Course Issuer Bid to enable it to
purchase up to 1,012,870 of its common shares, representing approximately five
per cent of the 20,257,416 common shares outstanding as of October 27, 2006.
During the quarter, Q9 repurchased and cancelled 2,000 shares at an average
cost of $13.25 per share.
    The Company is now nearing completion of its new Calgary data centre. The
facility will have a capacity of 1,200 cabinet equivalents, 200 more than
originally planned. The total capital cost is approximately $20 million, $5
million less than management's preliminary estimate. Customer installations
are expected to begin in April 2007.
    The Company anticipates that the expansion of its Brampton data centre
will be completed in the fourth quarter of fiscal 2007.
    "I am pleased with our growth and momentum in the quarter," said Osama
Arafat, CEO, Q9 Networks. "With our new Toronto data centre now open and the
Calgary data centre opening in a few weeks, also under budget and with greater
capacity than originally estimated, Q9 is again demonstrating its ability to
execute on its expansion strategy. We will be able to significantly grow our
customer base and begin realizing the leverage inherent in our business. We
are very excited about the opportunities represented by these two new
facilities."

    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 416-644-3415 and 1-800-733-7571. A replay will be available until
March 20, 2007 following the conference call and can be accessed by dialing
416-640-1917, pass code 21217441 followed by the number sign.

    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 attached schedule
for the Company's EBITDA definition and reconciliation.

    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)

    -------------------------------------------------------------------------
                                                      January 31, October 31,
                                                            2007        2006
    -------------------------------------------------------------------------

    Assets

    Current assets:
      Cash and cash equivalents                        $   8,539   $   5,961
      Short-term investments                              46,978      61,448
      Accounts receivable                                  4,878       4,330
      Unbilled revenue                                       325         345
      Future tax asset                                       983         667
      Prepaid expenses                                     1,031         866
      -----------------------------------------------------------------------
                                                          62,734      73,617

    Restricted cash                                          230         230

    Other assets                                             756         766

    Future tax asset                                       5,503       6,393

    Property and equipment                                68,744      58,592
    -------------------------------------------------------------------------
                                                       $ 137,967   $ 139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities         $   8,073   $  11,830
      Deferred revenue                                     4,907       4,731
      Notes payable                                          693         434
      -----------------------------------------------------------------------
                                                          13,673      16,995

    Deferred revenue                                         710         755

    Deferred gain on sale of property                      1,109       1,128

    Leasehold inducements                                  1,395       1,378

    Asset retirement obligation                              957         930

    Other long-term liabilities                            1,278       1,158

    Shareholders' equity:
      Capital stock:
        Common shares                                    140,276     139,427
      Contributed surplus                                  4,330       3,949
      Deficit                                            (25,761)    (26,122)
      -----------------------------------------------------------------------
                                                         118,845     117,254

    -------------------------------------------------------------------------
                                                       $ 137,967   $ 139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Q9 NETWORKS INC.
    Statements of Operations and Deficit
    (In thousands, except per share amounts)
    (Unaudited)

    -------------------------------------------------------------------------
                                                          Three months ended
                                                              January 31,
                                                            2007        2006
    -------------------------------------------------------------------------

    Revenue:
      Co-location                                      $   6,064   $   5,147
      Managed services                                     4,660       3,823
      Managed bandwidth                                    1,839       1,646
      Set-up fees                                            249         331
      -----------------------------------------------------------------------
                                                          12,812      10,947

    Cost of revenue                                        8,406       7,471
    -------------------------------------------------------------------------

    Gross margin                                           4,406       3,476

    Expenses:
      Sales and marketing                                  1,509       1,091
      General and administrative                           2,307       1,928
      Amortization of property and equipment                 234         359
      -----------------------------------------------------------------------
                                                           4,050       3,378
    -------------------------------------------------------------------------

    Income from operations                                   356          98

    Investment income, net                                   592         519
    -------------------------------------------------------------------------

    Income before income taxes                               948         617

    Income tax expense:
      Current                                                  -           7
      Future                                                 574           -

    -------------------------------------------------------------------------
    Net income                                               374         610

    Deficit, beginning of period                         (26,122)    (36,090)

    Repurchase of shares                                     (13)       (139)

    -------------------------------------------------------------------------
    Deficit, end of period                               (25,761)  $ (35,619)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                                            $    0.02   $    0.03
      Diluted                                               0.02        0.03

    Weighted average number of shares outstanding:
      Basic                                               20,264      20,274
      Diluted                                             21,040      20,876
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Q9 NETWORKS INC.
    Statements of Cash Flows
    (In thousands)
    (Unaudited)

    -------------------------------------------------------------------------
                                                          Three months ended
                                                              January 31,
                                                            2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net income                                       $     374   $     610
      Items not involving cash:
        Amortization of property and equipment             2,323       2,368
        Amortization of other assets                          10          14
        Gain on sale of property                             (19)        (20)
        Accretion expense                                     27          18
        Unrealized gain on short-term investments             (8)          -
        Net non-cash rent expense                            137         247
        Stock-based compensation expense                     576         468
        Future income taxes                                  574           -
      Change in non-cash operating working capital           121         980
      -----------------------------------------------------------------------
                                                           4,115       4,685

    Financing activities:
      Issuance of notes payable                              490         241
      Repayment of notes payable                            (231)       (250)
      Repurchase of shares                                   (27)       (630)
      Issuance of shares                                      27          93
      -----------------------------------------------------------------------
                                                             259        (546)

    Investing activities:
      Purchase of property and equipment                 (16,009)     (1,959)
      Purchase of short-term investments                (106,049)    (58,134)
      Sale of short-term investments                     120,262      57,651
      Increase in other assets                                 -         (11)
      -----------------------------------------------------------------------
                                                          (1,796)     (2,453)
    -------------------------------------------------------------------------

    Increase in cash and cash equivalents                  2,578       1,686

    Cash and cash equivalents, beginning of period         5,961       7,843

    -------------------------------------------------------------------------
    Cash and cash equivalents, end of period           $   8,539   $   9,529
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow information:
      Interest received                                $     848   $     769
      Income taxes paid                                        -           -

    Supplemental disclosure of non-cash financing
     and investing activities:
      Effect of acquisition of property and equipment
       in accounts payable and accrued liabilities         3,534        (650)
      Effect of repurchase of shares in accounts
       payable and accrued liabilities                         -         140

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



    Q9 NETWORKS INC.
    EBITDA(1) Reconciliation
    (In thousands)
    (Unaudited)

    -------------------------------------------------------------------------
                                                          Three months ended
                                                              January 31,
                                                            2007        2006
    -------------------------------------------------------------------------
    Net income for the period                          $     374   $     610
    Income taxes                                             574           7
    Accretion expense                                         27          18
    Investment income, net                                  (592)       (519)
    Amortization                                           2,314       2,362
    -------------------------------------------------------------------------

    EBITDA before the under-noted                          2,697       2,478
    Stock-based compensation(2)                              495         418
    -------------------------------------------------------------------------

    EBITDA                                             $   3,192   $   2,896
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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:

For further information: Kevin Spikes, Director of Corporate & Investor
Relations, Q9 Networks, Toronto: (416) 848-3311, Toll Free: 1-888-696-2266,
kevin.spikes@Q9.com, www.Q9.com

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