Q9 Networks Reports Second Quarter 2007 Results



    
    -  Revenue of $13.4 million, a 21% increase over the same quarter, 2006
       and a 5% increase over the previous quarter
    -  Adjusted EBITDA of $3.0 million, a 3% increase from the same quarter
       2006 and a 9% decrease from the previous quarter
    -  Income before taxes of nil, compared to $0.7 million for the same
       quarter 2006 and $0.9 million in the previous quarter
    -  Revenue under contract increases 8% to $12.1 million over the previous
       quarter
    -  At the end of the quarter, 86 cabinets were billing in the new Calgary
       data centre
    

    TORONTO, June 12 /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 April 30, 2007.
    Revenue for the second quarter 2007 was $13.4 million, a 21% increase
over second quarter 2006 revenue of $11.1 million and an increase of 5% from
first quarter 2007 revenue of $12.8 million (all figures expressed in Canadian
dollars).
    Revenue under contract entering the third quarter 2007 increased to
$12.1 million, up 8% over revenue under contract of $11.2 million at the
beginning of the second quarter 2007. Revenue under contract does not include
contracts signed but not yet installed.
    Co-location revenue for the second quarter 2007 was $6.5 million, managed
services revenue was $4.8 million and managed bandwidth revenue was
$1.9 million.
    Adjusted EBITDA for the second quarter 2007 was $3.0 million, up 3% from
the second quarter 2006 and down 9% or $0.3 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 Adjusted EBITDA definition
and reconciliation.
    Net loss for the second quarter 2007 was $0.3 million, compared to net
income of $0.7 million for the second quarter 2006 and net income of
$0.4 million for the first quarter 2007. Net loss for the second quarter 2007
included a non-cash tax expense of $0.4 million. Basic and diluted loss per
share for the second quarter 2007 was $0.02, compared to basic and diluted
earnings per share of $0.04 and $0.03 respectively in the same quarter 2006
and basic and diluted earnings per share of $0.02 in the first quarter 2007.
    Cash flow generated from operations for the second quarter, 2007 was
$3.7 million. The Company ended the quarter with cash, cash equivalents and
short-term investments of $53.1 million, a decrease of $2.6 million from last
quarter. The decrease was substantially due to continued investment in the
Company's data centre expansions. Other than $0.8 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 109,000 shares at an
average cost of $13.85 per share.
    During the quarter, the Company opened its second data centre in Calgary
and began installing customers. 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 the growth in the quarter, particularly in contracted
revenue," said Osama Arafat, CEO, Q9 Networks. "With the opening of our new
Calgary facility, we are now two-thirds of the way through our $60 million
expansion and have sufficient capacity to meet the immediate needs of new and
existing customers in both Ontario and Alberta. Longer term, demand
fundamentals remain strong and with our Brampton expansion also coming online
this year, we are well positioned to continue our growth momentum."

    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
June 19, 2007 following the conference call and can be accessed by dialing
416-640-1917, pass code 21231965 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 for 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 second quarter 2007 MD&A, dated June 12, 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)

    -------------------------------------------------------------------------
                                                      April 30,   October 31,
                                                          2007          2006
    -------------------------------------------------------------------------

    Assets

    Current assets:
      Cash and cash equivalents                     $    5,420    $    5,961
      Short-term investments                            47,447        61,448
      Accounts receivable                                4,630         4,330
      Unbilled revenue                                     658           345
      Future tax asset                                     578           667
      Prepaid expenses                                   1,551           866
      -----------------------------------------------------------------------
                                                        60,284        73,617

    Restricted cash                                        230           230

    Other assets                                           745           766

    Future tax asset                                     5,554         6,393

    Property and equipment                              74,524        58,592
    -------------------------------------------------------------------------
                                                    $  141,337    $  139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities      $    8,913    $   11,830
      Deferred revenue                                   5,147         4,731
      Notes payable                                        833           434
      -----------------------------------------------------------------------
                                                        14,893        16,995

    Deferred revenue                                       940           755

    Deferred gain on sale of property                    1,089         1,128

    Leasehold inducements                                1,333         1,378

    Asset retirement obligation                            984           930

    Other long-term liabilities                          1,398         1,158

    Shareholders' equity:
      Common shares                                    146,455       139,427
      Contributed surplus                                1,105         3,949
      Deficit                                          (26,860)      (26,122)
      -----------------------------------------------------------------------
                                                       120,700       117,254

    -------------------------------------------------------------------------
                                                    $  141,337    $  139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                      April 30,               April 30,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Revenue:
      Co-location              $   6,463   $   5,305   $  12,527   $  10,452
      Managed services             4,786       3,884       9,446       7,707
      Managed bandwidth            1,893       1,623       3,732       3,269
      Set-up fees                    280         279         529         610
      -----------------------------------------------------------------------
                                  13,422      11,091      26,234      22,038

    Cost of revenue                9,477       7,454      17,883      14,925
    -------------------------------------------------------------------------

    Gross profit                   3,945       3,637       8,351       7,113

    Expenses:
      Sales and marketing          1,693       1,182       3,202       2,273
      General and administrative   2,517       2,138       4,824       4,066
      Amortization of property
       and equipment                 230         190         464         549
      -----------------------------------------------------------------------
                                   4,440       3,510       8,490       6,888
    -------------------------------------------------------------------------

    Income (loss) from operations   (495)        127        (139)        225

    Investment income, net           514         593       1,106       1,112
    -------------------------------------------------------------------------

    Income before income taxes        19         720         967       1,337

    Income tax expense:
      Current                          1           1           1           8
      Future                         354           -         928           -
    -------------------------------------------------------------------------

    Net income (loss) and
     comprehensive income
     (loss)                         (336)        719          38       1,329

    Deficit, beginning
     of period                   (25,761)    (35,619)    (26,122)    (36,090)

    Repurchase of shares            (763)       (222)       (776)       (361)

    -------------------------------------------------------------------------
    Deficit, end of period     $ (26,860)  $ (35,122)  $ (26,860)  $ (35,122)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per share:
      Basic                    $   (0.02)  $    0.04   $    0.00   $    0.07
      Diluted                      (0.02)       0.03        0.00        0.06

    Weighted average number
     of shares outstanding:
      Basic                       20,522      20,349      20,391      20,311
      Diluted                     20,522      20,886      21,123      20,881

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



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                      April 30,               April 30,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net income (loss)        $    (336)  $     719   $      38   $   1,329
      Items not involving cash:
        Amortization of property
         and equipment             2,897       2,215       5,220       4,583
        Amortization of other
         assets                       11          11          21          25
        Gain on sale of property     (20)        (19)        (39)        (39)
        Accretion expense             27          19          54          37
        Unrealized gain on
         short-term investments       (2)          -         (10)          -
        Net non-cash rent expense     58         238         195         485
        Stock-based compensation
         expense                     571         558       1,147       1,026
        Future income taxes          354           -         928           -
      Change in non-cash
       operating working capital     129         697         250       1,677
      -----------------------------------------------------------------------
                                   3,689       4,438       7,804       9,123

    Financing activities:
      Issuance of notes payable      388         135         878         376
      Repayment of notes payable    (253)       (234)       (484)       (484)
      Repurchase of shares        (1,489)       (713)     (1,516)     (1,343)
      Issuance of shares           3,769         421       3,796         514
      -----------------------------------------------------------------------
                                   2,415        (391)      2,674        (937)

    Investing activities:
      Purchase of property
       and equipment              (8,789)     (4,189)    (24,798)     (6,148)
      Purchase of short-term
       investments               (38,933)    (42,962)   (144,982)   (101,096)
      Sale of short-term
       investments                38,499      42,545     158,761     100,196
      Increase in other assets         -           -           -         (11)
      -----------------------------------------------------------------------
                                  (9,223)     (4,606)    (11,019)     (7,059)
    -------------------------------------------------------------------------

    Increase (decrease) in
     cash and cash equivalents    (3,119)       (559)       (541)      1,127

    Cash and cash equivalents,
     beginning of period           8,539       9,529       5,961       7,843

    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $   5,420   $   8,970   $   5,420   $   8,970
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:
      Interest received        $     502   $     517   $   1,350   $   1,286
      Interest paid                   10           -          19           -
      Income taxes paid                1           8           1           8

    Supplemental disclosure
     of non-cash financing
     and investing activities:
      Effect of acquisition of
       property and equipment
       in accounts payable and
       accrued liabilities           112         620       3,646         (30)
      Effect of repurchase of
       shares in accounts
       payable and accrued
       liabilities                   (24)        (12)        (24)        128
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                      April 30,               April 30,
                                    2007        2006        2007        2006
    -------------------------------------------------------------------------


    Net income (loss) for
     the period                $    (336)  $     719   $      38   $   1,329
    Income taxes                     355           1         929           8
    Accretion expense                 27          19          54          37
    Investment income, net          (514)       (593)     (1,106)     (1,112)
    Amortization                   2,888       2,207       5,202       4,569
    Stock-based compensation(2)      571         558       1,147       1,026
    -------------------------------------------------------------------------

    Adjusted EBITDA            $   2,991   $   2,911   $   6,264   $   5,857
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note:
        (1)  Adjusted EBITDA means earnings before interest, income taxes,
             amortization, accretion expense and stock-based compensation.
        (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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