Q9 Networks Reports Second Quarter 2008 Results



    
    -   Revenue of $16.0 million, a 19% increase over the same quarter 2007
        and a 1% increase over the previous quarter
    -   Adjusted EBITDA of $4.6 million, a 54% increase from the same quarter
        2007 and an 11% increase from the previous quarter
    -   Income before taxes of $0.7 million, compared to $nil for the same
        quarter 2007 and $0.8 million in the previous quarter
    -   Revenue under contract entering the third quarter 2008 was
        $14.1 million, an increase of 3% over the previous quarter
    

    TORONTO, June 12 /CNW/ - Q9 Networks Inc. (TSX:Q) today announced its
quarterly results for the three and six months ended April 30, 2008.
    Revenue for the second quarter 2008 was $16.0 million, a 19% increase
over second quarter 2007 revenue of $13.4 million and an increase of 1% or
$0.2 million from first quarter 2008 revenue of $15.8 million (all figures
expressed in Canadian dollars).
    Revenue under contract entering the third quarter 2008 increased to
$14.1 million, up 3% over revenue under contract of $13.6 million at the
beginning of the second quarter 2008. Revenue under contract does not include
contracts signed but not yet installed.
    Co-location revenue for the second quarter 2008 was $8.1 million, managed
services revenue was $5.2 million and managed bandwidth revenue was
$2.3 million. Set-up and other fees were $0.4 million.
    Adjusted EBITDA for the second quarter 2008 was $4.6 million, a 54%
increase from the second quarter 2007 and an increase of $0.4 million or 11%
compared to the previous quarter. Please see the attached schedules for the
Company's Adjusted EBITDA definition and reconciliation.
    Net income for the second quarter 2008 was $0.3 million, compared to a
loss of $0.3 million in the second quarter 2007 and net income of $0.3 million
in the first quarter 2008. Basic and diluted earnings per share for the second
quarter 2008 was $0.01, compared to a basic and diluted loss per share of
$0.02 in the second quarter 2007 and basic and diluted earnings per share of
$0.01 in the first quarter 2008.
    Cash flow generated from operations for the second quarter 2008 was
$4.5 million. Q9 ended the quarter with cash, cash equivalents and short-term
investments of $31.2 million, a decrease of $2.0 million from the previous
quarter. The decrease is primarily related to Q9's investment in its Brampton
data centre expansion. Other than $0.3 million in notes payable to an
equipment supplier, Q9 had no debt outstanding.
    During the quarter, Q9 repurchased and cancelled 62,000 shares under its
Normal Course Issuer Bid program, at an average cost of $10.90 per share.
    "We had a solid quarter," said Osama Arafat, CEO, Q9 Networks. "Excluding
the one-time cancellation fee of $0.5 million we received in the first
quarter, revenue increased by approximately $0.7 million in the second
quarter. We added approximately $0.5 million in contracted revenue and entered
the third quarter with $14.1 million in revenue under contract. We also
completed our Brampton expansion with the addition of the final 400 cabinet
equivalents. We are well-positioned for the second half of the year with
continued strong demand from new and existing customers."

    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
416-644-3418 and 1-800-732-9303. A replay will be available until Thursday
June 19, 2008 following the conference call and can be accessed by dialing
416-640-1917 or 1-877-289-8525, pass code 21269126 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 amortization 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.
    Prior to the second quarter of fiscal 2007, the Company used the term
EBITDA for this key measure. For the purposes of reporting the second quarter
of fiscal 2007 results, the Company started using the term Adjusted EBITDA and
added back total stock-based compensation expense in determining Adjusted
EBITDA. Previously, the Company included only stock-based compensation expense
related to the nominal exercise options issued at the time of its IPO as
described in note 7 to the second quarter 2008 financial statements. Beginning
in the first quarter of fiscal 2008, the Company changed the method of
calculating Adjusted EBITDA by reclassifying from interest income, net
(referred to as investment income, net in fiscal 2007), realized and
unrealized gains and losses on short-term investments and included them as
reconciling items to Adjusted EBITDA.

    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 2008 MD&A, dated June 12, 2008, which can be found
on the Company's website at www.Q9.com or through SEDAR. Q9 does not intend,
and disclaims any obligation, except as required by law, to update or revise
any forward-looking statements whether as a result of new information, future
events or otherwise.

    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)
    -------------------------------------------------------------------------
                                                      April 30,   October 31,
                                                          2008          2007
    -------------------------------------------------------------------------

    Assets

    Current assets:
      Cash and cash equivalents                     $    8,085    $    5,956
      Short-term investments                            23,082        36,922
      Accounts receivable                                5,201         4,552
      Unbilled revenue                                     493           593
      Future tax asset                                   2,447         2,554
      Prepaid expenses                                   1,387           686
      -----------------------------------------------------------------------
                                                        40,695        51,263

    Restricted cash                                          -            50

    Other assets                                         1,105         1,101

    Future tax asset                                       983         1,795

    Property and equipment                              92,660        87,226

    -------------------------------------------------------------------------
                                                    $  135,443    $  141,435
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities      $    5,967    $   12,003
      Deferred revenue                                   6,291         5,923
      Notes payable                                        287           403
      -----------------------------------------------------------------------
                                                        12,545        18,329

    Deferred revenue                                     1,252         1,032

    Deferred gain on sale of property                    1,010         1,049

    Leasehold inducements                                1,086         1,209

    Asset retirement obligations                         1,176         1,111

    Deferred rent                                        1,778         1,605

    Shareholders' equity:
      Capital stock:
        Common shares                                  144,476       145,452
      Contributed surplus                                1,843         1,072
      Deficit                                          (29,723)      (29,424)
      -----------------------------------------------------------------------
                                                       116,596       117,100

    -------------------------------------------------------------------------
                                                    $  135,443    $  141,435
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                      April 30,               April 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Revenue:
      Co-location              $   8,098   $   6,463   $  15,606   $  12,520
      Managed services             5,221       4,785      10,431       9,442
      Managed bandwidth            2,289       1,893       4,520       3,729
      Set-up and other fees          383         281       1,236         543
      -----------------------------------------------------------------------
                                  15,991      13,422      31,793      26,234

    Cost of revenue               11,426       9,477      22,343      17,883
    -------------------------------------------------------------------------

    Gross profit                   4,565       3,945       9,450       8,351

    Expenses:
      Sales and marketing          1,460       1,693       3,079       3,202
      General and
       administrative              2,499       2,517       5,166       4,824
      Amortization of property
       and equipment                 193         230         386         464
      -----------------------------------------------------------------------
                                   4,152       4,440       8,631       8,490
    -------------------------------------------------------------------------

    Income (loss) from operations    413        (495)        819        (139)

    Investment income, net           252         514         638       1,106

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

    Income before income taxes       665          19       1,457         967

    Income tax expense:
      Current                          -           1           -           1
      Future                         399         354         919         928
    -------------------------------------------------------------------------
                                     399         355         919         929
    -------------------------------------------------------------------------

    Net income (loss) and
     comprehensive income
     (loss)                          266        (336)        538          38

    Deficit, beginning of
     period                      (29,743)    (25,761)    (29,424)    (26,122)

    Repurchase of shares            (246)       (763)       (837)       (776)

    -------------------------------------------------------------------------
    Deficit, end of period     $ (29,723)  $ (26,860)  $ (29,723)  $ (26,860)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings (loss) per
     share:
      Basic                    $    0.01   $   (0.02)  $    0.03   $    0.00
      Diluted                       0.01       (0.02)       0.03        0.00

    Weighted average number of
     shares outstanding:
      Basic                       20,862      20,522      20,912      20,391
      Diluted                     20,868      20,522      20,953      21,123
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                      April 30,               April 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Cash provided by (used in):
    Operating activities:
      Net income (loss)        $     266   $    (336)  $     538   $      38
      Items not involving cash:
        Amortization of
         property and equipment    3,749       2,897       7,057       5,220
        Amortization of other
         assets                       10          11          20          21
        Gain on sale of
         property                    (20)        (20)        (39)        (39)
        Accretion expense             33          27          65          54
        Unrealized gain on
         short-term investments       (4)         (2)        (19)         (9)
        Loss on disposal of
         property and equipment        3           -           3           -
        Net non-cash rent
         expense                      18          58          50         195
        Stock-based
         compensation expense        426         571         852       1,147
        Future income taxes          399         354         919         928
      Change in non-cash
       operating working
       capital                      (396)        303          59         422
      -----------------------------------------------------------------------
                                   4,484       3,863       9,505       7,977

    Financing activities:
      Issuance of notes payable        -         388         375         878
      Repayment of notes
       payable                      (240)       (253)       (491)       (484)
      Repurchase of shares          (676)     (1,489)     (2,272)     (1,516)
      Proceeds upon exercise
       of options                      5       3,769          33       3,796
      -----------------------------------------------------------------------
                                    (911)      2,415      (2,355)      2,674

    Investing activities:
      Purchase of property and
       equipment                  (5,583)     (8,789)    (18,700)    (24,798)
      Purchase of short-term
       investments               (16,470)    (38,933)    (45,381)   (144,982)
      Sale of short-term
       investments                20,591      38,499      59,034     158,760
      Decrease (increase) in
       other assets                   15        (174)        (24)       (172)
      Decrease in restricted
       cash                            -           -          50           -
      -----------------------------------------------------------------------
                                  (1,447)     (9,397)     (5,021)    (11,192)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents          2,126      (3,119)      2,129        (541)

    Cash and cash equivalents,
     beginning of period           5,959       8,539       5,956       5,961

    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period             $   8,085   $   5,420   $   8,085   $   5,420
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Cash and cash equivalents
     is comprised of:
      Cash on hand and cash in
       the bank                $   7,845   $   5,420   $   7,845   $   5,420
      Money market mutual funds      240           -         240           -
    -------------------------------------------------------------------------
                               $   8,085   $   5,420   $   8,085   $   5,420
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:
      Interest received        $     260   $     502   $     833   $   1,350
      Interest paid                    8          10          15          19
      Income taxes paid                -           1           -           1

    Supplemental disclosure of
     non-cash financing and
     investing activities:
      Effect of acquisition of
       property and equipment
       in accounts payable and
       accrued liabilities         2,788         112       6,206       3,646
      Effect of repurchase of
       shares in accounts
       payable and accrued
       liabilities                     -         (24)        345         (24)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
                                 Three months ended       Six months ended
                                      April 30,               April 30,
                                    2008        2007        2008        2007
    -------------------------------------------------------------------------

    Net income (loss) for the
     period                    $     266   $    (336)  $     538   $      38
      Interest income, net(2)       (242)       (512)       (613)     (1,140)
      Income tax expense             399         355         919         929
      Amortization                 3,739       2,888       7,038       5,202
    -------------------------------------------------------------------------
    EBITDA                         4,162       2,395       7,882       5,029
      Stock-based compensation
       expense                       426         571         852       1,147
      Accretion expense               33          27          65          54
      Realized (gain) loss on
       short-term investments(2)      (6)          -          (6)         25
      Unrealized (gain) loss on
       short-term investments(2)      (4)         (2)        (19)          9
    -------------------------------------------------------------------------
    Adjusted EBITDA            $   4,611   $   2,991   $   8,774   $   6,264
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Note 1: Adjusted EBITDA means earnings before interest income and
    expense, income tax expense, amortization, stock-based compensation
    expense, accretion expense, and realized and unrealized gains and losses
    on short-term investments.

    Note 2: Realized and unrealized gains and losses on short-term
    investments have been reclassified from interest income, net (referred to
    as investment income, net in fiscal 2007 Adjusted EBITDA reconciliation)
    and included as reconciling items to Adjusted 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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