Q9 Networks Reports Fourth Quarter and Full Year 2007 Results



    
    -   FY 2007 revenue of $56.5 million, a 22% increase over FY 2006
    -   Fourth quarter revenue of $15.6 million, a 25% increase over the same
        quarter 2006 and a 7% increase over the previous quarter
    -   Fourth quarter Adjusted EBITDA of $4.8 million, a 38% increase from
        the same quarter 2006 and a 17% increase over the previous quarter
    -   Fourth quarter income before taxes of $1.6 million, compared to
        $1.5 million for the same quarter 2006 and $1.0 million in the
        previous quarter
    -   FY 2007 basic and diluted earnings per share of $0.04 compared to
        basic and diluted earnings per share of $0.53 and $0.52 respectively
        in 2006
    -   Revenue under contract entering Q1 2008 was $12.9 million, down
        slightly from the previous quarter
    -   Brampton data centre expansion opens
    -   Announces plan to proceed with third data centre in the Calgary
        market
    

    TORONTO, Dec. 11 /CNW/ - Q9 Networks Inc. (TSX:Q) today announced its
quarterly and fiscal year-end results for the period ending October 31, 2007.
    Revenue for the fourth quarter 2007 was $15.6 million, a 25% increase
over fourth quarter 2006 revenue of $12.5 million and an increase of 7% or
$1.0 million from last quarter's revenue of $14.6 million (all figures
expressed in Canadian dollars).
    Revenue under contract entering the first quarter 2008 was approximately
$12.9 million, down slightly from the previous quarter due to the non-renewal
of a particular customer for approximately $0.8 million per quarter, offset by
an increase of $0.7 million from other customers. Revenue under contract does
not include contracts signed but not yet installed.
    Co-location revenue for the fourth quarter 2007 was $8.0 million, managed
services revenue was $5.2 million and managed bandwidth revenue was $2.1
million.
    Adjusted EBITDA for the fourth quarter 2007 was $4.8 million, up 38% from
the fourth quarter 2006 and up 17% or $0.7 million over the previous quarter.
Please see the attached schedules for the Company's Adjusted EBITDA definition
and reconciliation.
    Net income for the fourth quarter 2007 was $0.3 million, compared to net
income of $8.5 million for the fourth quarter 2006 and net income of
$0.5 million for the third quarter 2007. Basic and diluted earnings per share
for the fourth quarter 2007 was $0.02, compared to basic and diluted earnings
per share of $0.42 and $0.41 respectively in the same quarter 2006 and basic
and diluted earnings per share of $0.02 in the third quarter 2007. Net income
in the fourth quarter 2006 was positively affected by a non-cash tax benefit
of $7.1 million or $0.35 per share due to the reversal of a valuation
allowance.
    Cash flow generated from operations for the fourth quarter 2007 was
$5.7 million. The Company ended the quarter with cash, cash equivalents and
short-term investments of $42.9 million, a decrease of $8.5 million from the
previous quarter. The decrease is primarily related to Q9's investment in its
data centre expansions. The Company has no investments in asset-backed
commercial paper. Other than $0.4 million in notes payable to an equipment
supplier, Q9 had no debt outstanding.
    Revenue for the 12 months ended October 31, 2007 was $56.5 million, a 22%
increase over the previous year. Co-location, managed services and managed
bandwidth revenue increased by 22%, 24% and 17% respectively. Adjusted EBITDA
was $15.1 million, compared to $12.5 million in the previous year. Net income
for the 12 months ended October 31, 2007 was $0.9 million, or $0.04 per basic
and diluted share, compared to $10.8 million or $0.53 and $0.52 per basic and
diluted share respectively in 2006. As previously noted, net income for fiscal
2006 included a non-cash tax benefit of $7.1 million due to the reversal of a
valuation allowance.
    During the quarter, Q9 repurchased and cancelled 290,700 shares under its
Normal Course Issuer Bid (NCIB) program, at an average cost of $15.90 per
share. For the year, Q9 repurchased and cancelled 495,300 shares at a total
cost of $7.6 million. In October 2007, Q9 renewed its NCIB to enable it to
purchase up to 1,393,722 of its common shares, representing 10% of the public
float outstanding as of October 29, 2007.
    Also in October, Q9 opened its Brampton data centre expansion. The first
phase consists of 100 cabinet equivalents with the remaining 1,100 cabinet
equivalents to be substantially complete by the end of the first quarter 2008.
    Based on continued strong demand from new customers and its commitment to
supporting the growth of existing customers, Q9 has decided to proceed with a
third data centre in the Calgary market. Details about the new facility will
be announced at a later date.
    "Q9 had another great year, marked by double digit growth across all
service offerings," said Osama Arafat, Chief Executive Officer, Q9 Networks.
"We also completed our Calgary and Toronto expansions and opened the first
phase of our Brampton expansion. With capacity in each of our markets and the
decision to expand further in Calgary, we are well positioned to significantly
grow our customer base and extend our leadership position by continuing to
provide an unmatched suite of co-location and managed infrastructure
services."

    Conference Call Information

    Q9 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 1-800-733-7571. A replay will be available until December 18,
2007, following the conference call and can be accessed by dialing
416-640-1917 or 1-877-289-8525, pass code 21252199 followed by the number
sign.

    Non-GAAP Measures

    The Company reports Adjusted EBITDA because it is a key measure used by
management to evaluate the Company's performance. The Company believes that
Adjusted 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. Adjusted EBITDA is not a recognized measure under Canadian
GAAP, and accordingly investors are cautioned that Adjusted 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 Adjusted EBITDA differs from other issuers
and, accordingly, Adjusted EBITDA may not be comparable to similar measures
presented by other issuers. Please see the attached schedule that sets out the
Company's Adjusted 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.

    Forward Looking Statements

    This media release includes certain forward-looking statements that are
based upon current expectations, which involve risks and uncertainties
associated with our business and the economic environment in which the
business operates. Any statements contained herein that are not statements of
historical facts may be deemed to be forward-looking statements. For example,
the words anticipate, believe, plan, estimate, expect, intend, should and
similar expressions are intended to identify forward-looking statements.
Should one or more of the risks and uncertainties materialize or should the
underlying assumptions prove incorrect, actual results or events may differ
materially from current expectations. Please refer to the Risks section at the
end of Q9's fiscal 2007 MD&A, dated December 11, 2007, which can be found on
the Company's website at www.Q9.com or through SEDAR. The Company does not
intend, and disclaims any obligation to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.


    
    Q9 NETWORKS INC.
    Balance Sheets
    (In thousands)
    (Unaudited)

    -------------------------------------------------------------------------
                                                     October 31,  October 31,
                                                           2007         2006
    -------------------------------------------------------------------------
    Assets

    Current assets:
      Cash and cash equivalents                       $   5,956    $   5,961
      Short-term investments                             36,922       61,448
      Accounts receivable                                 4,552        4,330
      Unbilled revenue                                      593          345
      Future tax asset                                    2,554          667
      Prepaid expenses                                      686          684
      -----------------------------------------------------------------------
                                                         51,263       73,435

    Restricted cash                                          50          230

    Other assets                                          1,101          948

    Future tax asset                                      1,795        6,393

    Property and equipment                               87,226       58,592
    -------------------------------------------------------------------------
                                                      $ 141,435    $ 139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities        $  12,003    $  11,830
      Deferred revenue                                    5,923        4,731
      Notes payable                                         403          434
      -----------------------------------------------------------------------
                                                         18,329       16,995

    Deferred revenue                                      1,032          755

    Deferred gain on sale of property                     1,049        1,128

    Leasehold inducements                                 1,209        1,378

    Asset retirement obligation                           1,111          930

    Other long-term liabilities                           1,605        1,158

    Shareholders' equity:
      Capital stock:
        Common shares                                   145,452      139,427
      Contributed surplus                                 1,072        3,949
      Deficit                                           (29,424)     (26,122)
      -----------------------------------------------------------------------
                                                        117,100      117,254

    -------------------------------------------------------------------------
                                                      $ 141,435    $ 139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended         Years ended
                                     October 31,             October 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenue:
      Co-location              $   7,974   $   6,328   $  27,864   $  22,779
      Managed services             5,191       4,151      19,672      15,868
      Managed bandwidth            2,094       1,700       7,765       6,651
      Set-up fees                    350         274       1,185       1,169
      -----------------------------------------------------------------------
                                  15,609      12,453      56,486      46,467

    Cost of revenue               10,614       8,010      38,727      31,199
    -------------------------------------------------------------------------

    Gross profit                   4,995       4,443      17,759      15,268

    Expenses:
      Sales and marketing          1,522       1,315       6,367       4,766
      General and
       administrative              2,142       2,142       9,050       8,322
      Amortization of property
       and equipment                 193         246         863       1,008
      -----------------------------------------------------------------------
                                   3,857       3,703      16,280      14,096
    -------------------------------------------------------------------------

    Income from operations         1,138         740       1,479       1,172

    Investment income, net           509         721       2,101       2,543
    -------------------------------------------------------------------------

    Income before income taxes     1,647       1,461       3,580       3,715

    Income tax expense (benefit):
      Current                          -           2           1          11
      Future                       1,301      (7,060)      2,711      (7,060)
    -------------------------------------------------------------------------

    Net income and
     comprehensive income            346       8,519         868      10,764

    Deficit, beginning of
     period                      (27,153)    (34,536)    (26,122)    (36,090)

    Repurchase of shares          (2,617)       (105)     (4,170)       (796)

    -------------------------------------------------------------------------
    Deficit, end of period     $ (29,424)  $ (26,122)  $ (29,424)  $ (26,122)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                    $    0.02   $    0.42   $    0.04   $    0.53
      Diluted                       0.02        0.41        0.04        0.52

    Weighted average number of
     shares outstanding:
      Basic                       21,120      20,260      20,783      20,299
      Diluted                     21,322      20,887      21,266      20,887

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



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

    -------------------------------------------------------------------------
                                 Three months ended         Years ended
                                     October 31,             October 31,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net income               $     346   $   8,519   $     868   $  10,764
      Items not involving
       cash:
        Amortization of
         property and equipment    3,238       2,149      11,689       9,112
        Amortization of other
         assets                       10          11          42          46
        Gain on sale of property     (20)        (20)        (79)        (79)
        Accretion expense             30           9         112          65
        Unrealized loss on
         short-term investments        2           -          18           -
        Net non-cash rent
         expense                      33         179         278         736
        Stock-based compensation
         expense                     371         568       1,862       2,153
        Future income taxes        1,301      (7,060)      2,711      (7,060)
      Change in non-cash
       operating working capital     368         401       1,315       1,397
      -----------------------------------------------------------------------
                                   5,679       4,756      18,816      17,134

    Financing activities:
      Issuance of notes payable        -         257       1,103         830
      Repayment of notes payable    (324)       (223)     (1,134)       (938)
      Repurchase of shares        (5,557)       (318)     (7,249)     (2,691)
      Proceeds upon exercise of
       options                       879          80       4,710         610
      -----------------------------------------------------------------------
                                  (5,002)       (204)     (2,570)     (2,189)

    Investing activities:
      Purchase of property and
       equipment                  (9,385)    (12,066)    (40,457)    (23,145)
      Purchase of short-term
       investments               (24,910)    (69,809)   (280,323)   (243,776)
      Sale of short-term
       investments                31,189      78,772     304,544     250,004
      Increase in other assets       (11)        (12)       (195)        (90)
      Decrease in restricted
       cash                            -           -         180         180
      -----------------------------------------------------------------------
                                  (3,117)     (3,115)    (16,251)    (16,827)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents         (2,440)      1,437          (5)     (1,882)

    Cash and cash equivalents,
     beginning of period           8,396       4,524       5,961       7,843

    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $   5,956   $   5,961   $   5,956   $   5,961
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:
      Interest received        $     330   $     462   $   2,432   $   2,508
      Interest paid                    9           1          40           2
      Income taxes paid                -           1           1          10

    Supplemental disclosure
     of non-cash financing
     and investing activities:
      Effect of acquisition
       of property and
       equipment in accounts
       payable and accrued
       liabilities                (4,572)     (3,171)        203      (7,568)
      Effect of repurchase of
       shares in accounts
       payable and accrued
       liabilities                   926          10        (345)        140
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended         Years ended
                                     October 31,             October 31,
                                     2007        2006        2007       2006
    -------------------------------------------------------------------------

    Net income for the period  $      346  $    8,519  $      868  $  10,764
    Income taxes                    1,301      (7,058)      2,712     (7,049)
    Accretion expense                  30           9         112         65
    Investment income, net           (509)       (721)     (2,101)    (2,543)
    Amortization                    3,228       2,140      11,652      9,079
    Stock-based compensation(2)       371         568       1,862      2,153
    -------------------------------------------------------------------------
    Adjusted EBITDA            $    4,767  $    3,457  $   15,105  $  12,469
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note:

    1.  Adjusted EBITDA means earnings before income taxes, accretion
        expense, investment income, amortization and stock-based compensation
        expense.
    2.  Stock-based compensation expense included above relates to all stock
        options awarded to directors and employees of the Company.
        Previously, the Company included only stock-based compensation
        expense relating to the nominal exercise price options.
    





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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