Q9 Networks Reports Third Quarter 2007 Results



    
             Records Largest-Ever Increase in Revenue and EBITDA

    -  Revenue of $14.6 million, a 22% increase over the same quarter, 2006
       and a 9% increase over the previous quarter
    -  Adjusted EBITDA of $4.1 million, a 29% increase from the same quarter
       2006 and a 36% increase from the previous quarter
    -  Income before taxes of $1.0 million, compared to $0.9 million for the
       same quarter 2006 and nil in the previous quarter
    -  Revenue under contract increases 7% to $13.0 million over the previous
       quarter
    

    TORONTO, Sept. 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 July 31, 2007.
    Revenue for the third quarter 2007 was $14.6 million, a 22% increase over
third quarter 2006 revenue of $12.0 million and an increase of 9% or $1.2
million from second quarter 2007 revenue of $13.4 million. This represents the
Company's largest-ever increase in quarter-over-quarter revenue growth (all
figures expressed in Canadian dollars).
    Revenue under contract entering the fourth quarter 2007 increased to
$13.0 million, up 7% over revenue under contract of $12.1 million at the
beginning of the third quarter 2007. Revenue under contract does not include
contracts signed but not yet installed.
    Co-location revenue for the third quarter 2007 was $7.4 million, managed
services revenue was $5.0 million and managed bandwidth revenue was $1.9
million.
    Adjusted EBITDA for the third quarter 2007 was $4.1 million, up 29% from
the third quarter 2006 and up 36% or $1.1 million compared to the previous
quarter. Please see the attached schedules for the Company's Adjusted EBITDA
definition and reconciliation.
    Net income for the third quarter 2007 was $0.5 million, compared to net
income of $0.9 million for the third quarter 2006 and a net loss of $0.3
million for the second quarter 2007. Basic and diluted earnings per share for
the third quarter 2007 was $0.02, compared to basic and diluted earnings per
share of $0.05 and $0.04 respectively in the same quarter 2006 and a basic and
diluted loss per share of $0.02 in the second quarter 2007.
    Cash flow generated from operations for the third quarter, 2007 was
$5.2 million. The Company ended the quarter with cash, cash equivalents and
short-term investments of $51.5 million, a decrease of $1.6 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 93,600 shares at an average
cost of $15.18 per share.
    "Q9 had an outstanding quarter," said Osama Arafat, CEO, Q9 Networks. "We
experienced strong growth across all key metrics, including record increases
in revenue and EBITDA. At the same time, we remained focused on our Brampton
expansion. We expect new capacity to be available there in the fourth quarter
and the expansion to be substantially complete by the end of the calendar
year. We are well positioned to further increase our momentum and extend our
leadership position over the coming quarters."

    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 416-644-3416 and 1-800-733-7571. A replay will be available until
September 20, 2007 following the conference call and can be accessed by
dialing 416-640-1917, pass code 21242921 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 third quarter 2007 MD&A, dated September 13, 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)

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                     July 31,     October 31,
                                                        2007            2006
    -------------------------------------------------------------------------

    Assets

    Current assets:
      Cash and cash equivalents                   $    8,396      $    5,961
      Short-term investments                          43,030          61,448
      Accounts receivable                              4,690           4,330
      Unbilled revenue                                   424             345
      Future tax asset                                 1,936             667
      Prepaid expenses                                   903             684
      -----------------------------------------------------------------------
                                                      59,379          73,435

    Restricted cash                                       50             230

    Other assets                                       1,100             948

    Future tax asset                                   3,714           6,393

    Property and equipment                            76,438          58,592

    -------------------------------------------------------------------------
                                                  $  140,681      $  139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities    $    8,272      $   11,830
      Deferred revenue                                 5,640           4,731
      Notes payable                                      731             434
      -----------------------------------------------------------------------
                                                      14,643          16,995

    Deferred revenue                                   1,031             755

    Deferred gain on sale of property                  1,069           1,128

    Leasehold inducements                              1,271           1,378

    Asset retirement obligation                        1,012             930

    Other long-term liabilities                        1,510           1,158

    Shareholders' equity:
      Common shares                                  146,257         139,427
      Contributed surplus                              1,041           3,949
      Deficit                                        (27,153)        (26,122)
      -----------------------------------------------------------------------
                                                     120,145         117,254

    -------------------------------------------------------------------------
                                                  $  140,681      $  139,598
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                     Three months ended     Nine months ended
                                           July 31,              July 31,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Revenue:
      Co-location                 $   7,363  $   5,999  $  19,890  $  16,451
      Managed services                5,035      4,010     14,481     11,717
      Managed bandwidth               1,939      1,682      5,671      4,951
      Set-up fees                       306        285        835        895
      -----------------------------------------------------------------------
                                     14,643     11,976     40,877     34,014

    Cost of revenue                  10,230      8,264     28,113     23,189
    -------------------------------------------------------------------------

    Gross profit                      4,413      3,712     12,764     10,825

    Expenses:
      Sales and marketing             1,643      1,178      4,845      3,451
      General and administrative      2,084      2,114      6,908      6,180
      Amortization of property and
       equipment                        206        213        670        762
      -----------------------------------------------------------------------
                                      3,933      3,505     12,423     10,393
    -------------------------------------------------------------------------

    Income from operations              480        207        341        432

    Investment income, net              486        710      1,592      1,822
    -------------------------------------------------------------------------

    Income before income taxes          966        917      1,933      2,254

    Income tax expense:
      Current                             -          1          1          9
      Future                            482          -      1,410          -
    -------------------------------------------------------------------------

    Net income and comprehensive
     income                             484        916        522      2,245

    Deficit, beginning of period    (26,860)   (35,122)   (26,122)   (36,090)

    Repurchase of shares               (777)      (330)    (1,553)      (691)

    -------------------------------------------------------------------------
    Deficit, end of period        $ (27,153) $ (34,536) $ (27,153) $ (34,536)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Earnings per share:
      Basic                       $    0.02  $    0.05  $    0.03  $    0.11
      Diluted                          0.02       0.04       0.02       0.11

    Weighted average number of
     shares outstanding:
      Basic                          21,216     20,313     20,669     20,312
      Diluted                        21,363     20,892     21,263     20,886

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



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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                     Three months ended     Nine months ended
                                           July 31,              July 31,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Cash provided by (used in):

    Operating activities:
      Net income                  $     484  $     916  $     522  $   2,245
      Items not involving cash:
        Amortization of property
         and equipment                3,231      2,380      8,451      6,963
        Amortization of other assets     11         10         32         35
        Gain on sale of property        (20)       (20)       (59)       (59)
        Accretion expense                28         19         82         56
        Unrealized loss on short-
         term investments                26          -         16          -
        Net non-cash rent expense        50         72        245        557
        Stock-based compensation
         expense                        344        559      1,491      1,585
        Future income taxes             482          -      1,410          -
      Change in non-cash operating
       working capital                  525       (752)       947        996
      -----------------------------------------------------------------------
                                      5,161      3,184     13,137     12,378

    Financing activities:
      Issuance of notes payable         225        197      1,103        573
      Repayment of notes payable       (326)      (231)      (810)      (715)
      Repurchase of shares             (176)    (1,030)    (1,692)    (2,373)
      Issuance of shares                 35         16      3,831        530
      -----------------------------------------------------------------------
                                       (242)    (1,048)     2,432     (1,985)

    Investing activities:
      Purchase of property and
       equipment                     (6,274)    (4,931)   (31,072)   (11,079)
      Purchase of short-term
       investments                 (110,431)   (72,871)  (255,413)  (173,967)
      Sale of short-term
       investments                  114,594     71,036    273,355    171,232
      Decrease (increase) in
       other assets                     (12)         4       (184)       (78)
      Decrease in restricted cash       180        180        180        180
      -----------------------------------------------------------------------
                                     (1,943)    (6,582)   (13,134)   (13,712)
    -------------------------------------------------------------------------

    Increase (decrease) in cash
     and cash equivalents             2,976     (4,446)     2,435     (3,319)

    Cash and cash equivalents,
     beginning of period              5,420      8,970      5,961      7,843

    -------------------------------------------------------------------------
    Cash and cash equivalents,
     end of period                $   8,396  $   4,524  $   8,396  $   4,524
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Supplemental cash flow
     information:
      Interest received           $     752  $     760  $   2,102  $   2,046
      Interest paid                      12          1         31          1
      Income taxes paid                   -          1          1          9

    Supplemental disclosure of
     non-cash financing and
     investing activities:
      Effect of acquisition of
       property and equipment in
       accounts payable and
       accrued liabilities            1,129     (4,367)     4,775     (4,397)
      Effect of repurchase of
       shares in accounts payable
       and accrued liabilities       (1,247)         2     (1,271)       130

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



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

    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                     Three months ended     Nine months ended
                                           July 31,              July 31,
                                       2007       2006       2007       2006
    -------------------------------------------------------------------------

    Net income for the period     $     484  $     916  $     522  $   2,245
    Income taxes                        482          1      1,411          9
    Accretion expense                    28         19         82         56
    Investment income, net             (486)      (710)    (1,592)    (1,822)
    Amortization                      3,222      2,370      8,424      6,939
    Stock-based compensation(2)         344        559      1,491      1,585
    -------------------------------------------------------------------------

    Adjusted EBITDA               $   4,074  $   3,155  $  10,338  $   9,012
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    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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