Q9 Networks Reports First Quarter 2008 Results

    -   Revenue of $15.8 million, a 23% increase over the same quarter, 2007
        and a 1% increase over the previous quarter
    -   Adjusted EBITDA of $4.2 million, a 27% increase from the same quarter
        2007 and a 13% decrease from the previous quarter
    -   Income before taxes of $0.8 million, compared to $0.9 million for the
        same quarter 2007 and $1.6 million in the previous quarter
    -   Revenue under contract entering the second quarter 2008 was
        $13.6 million, an increase of 5% over the previous quarter
    -   Added 700 cabinet equivalents of capacity in Brampton

    TORONTO, March 5 /CNW/ - Q9 Networks Inc. (TSX:Q) today announced its
quarterly results for the period ended January 31, 2008.
    Revenue for the first quarter 2008 was $15.8 million, a 23% increase over
first quarter 2007 revenue of $12.8 million and an increase of 1% or
$0.2 million from fourth quarter 2007 revenue of $15.6 million. Revenue was
positively impacted by a one-time cancellation fee of $0.5 million from a
particular customer (all figures expressed in Canadian dollars).
    Revenue under contract entering the second quarter 2008 increased to
$13.6 million, up 5% over revenue under contract of $12.9 million at the
beginning of the first quarter 2008. Revenue under contract does not include
contracts signed but not yet installed.
    Co-location revenue for the first quarter 2008 was $7.5 million, managed
services revenue was $5.2 million and managed bandwidth revenue was
$2.2 million. Set-up and other fees were $0.9 million, which included the
one-time cancellation fee of $0.5 million.
    Adjusted EBITDA for the first quarter 2008 was $4.2 million, a 27%
increase from the first quarter 2007 and a decrease of $0.6 million or 13%
compared to the previous quarter. Please see the attached schedules for the
Company's Adjusted EBITDA definition and reconciliation.
    Net income for the first quarter 2008 was $0.3 million, compared to net
income of $0.4 million for the first quarter 2007 and $0.3 million for the
fourth quarter 2007. Basic and diluted earnings per share for the first
quarter 2008 was $0.01, compared to basic and diluted earnings per share of
$0.02 in the first quarter 2007 and in the fourth quarter 2007.
    Cash flow generated from operations for the first quarter 2008 was
$5.0 million. Q9 ended the quarter with cash, cash equivalents and short-term
investments of $33.2 million, a decrease of $9.7 million from the previous
quarter. The decrease is primarily related to Q9's investment in its Brampton
data centre expansion. Other than $0.5 million in notes payable to an
equipment supplier, Q9 had no debt outstanding.
    During the quarter, Q9 commissioned 700 normalized cabinet equivalents at
its Brampton data centre. The remaining 400 cabinet equivalents will be made
available in the second quarter 2008. Upon completion, the total capital cost
for the Brampton expansion will be approximately $25 million, $5 million more
than originally estimated.
    Also during the quarter, Q9 repurchased and cancelled 95,200 shares under
its Normal Course Issuer Bid program, at an average cost of $13.14 per share.
    "We had a strong first quarter," said Osama Arafat, CEO, Q9 Networks.
"Despite the non-renewal of the customer reported last quarter, representing
approximately $0.8 million in quarterly revenue, we were able to replace the
majority of that revenue with contracts from new and existing customers. We
added approximately $0.7 million in contracted revenue and entered the second
quarter well-positioned for the remainder of the year, with $13.6 million in
revenue under contract, increased capacity at our Brampton facility and
continued strong demand fundamentals."

    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
416-644-3416 and 1-800-733-7560. A replay will be available until March 12,
2008 following the conference call and can be accessed by dialing 416-640-1917
or 1-877-289-8525, pass code 21261364 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.

    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 first quarter 2008 MD&A, dated March 5, 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.

    Balance Sheets
    (In thousands)

                                                      January 31, October 31,
                                                            2008        2007

    Current assets:
      Cash and cash equivalents                        $   5,959   $   5,956
      Short-term investments                              27,211      36,922
      Accounts receivable                                  5,256       4,552
      Unbilled revenue                                       835         593
      Future tax asset                                     2,346       2,554
      Prepaid expenses                                     1,099         686
                                                          42,706      51,263

    Restricted cash                                            -          50

    Other assets                                           1,130       1,101

    Future tax asset                                       1,483       1,795

    Property and equipment                                93,617      87,226

                                                       $ 138,936   $ 141,435

    Liabilities and Shareholders' Equity

    Current liabilities:
      Accounts payable and accrued liabilities         $   9,634   $  12,003
      Deferred revenue                                     5,966       5,923
      Notes payable                                          528         403
                                                          16,128      18,329

    Deferred revenue                                       1,214       1,032

    Deferred gain on sale of property                      1,030       1,049

    Leasehold inducements                                  1,147       1,209

    Asset retirement obligations                           1,143       1,111

    Other long-term liabilities                            1,699       1,605

    Shareholders' equity:
      Capital stock:
        Common shares                                    144,856     145,452
      Contributed surplus                                  1,462       1,072
      Deficit                                            (29,743)    (29,424)
                                                         116,575     117,100

                                                       $ 138,936   $ 141,435

    Statements of Operations and Deficit
    (In thousands, except per share amounts)

                                                          Three months ended
                                                              January 31,
                                                            2008        2007

      Co-location                                      $   7,508   $   6,057
      Managed services                                     5,210       4,657
      Managed bandwidth                                    2,231       1,836
      Set-up and other fees                                  853         262
                                                          15,802      12,812

    Cost of revenue                                       10,917       8,406

    Gross profit                                           4,885       4,406

      Sales and marketing                                  1,619       1,509
      General and administrative                           2,667       2,307
      Amortization of property and equipment                 193         234
                                                           4,479       4,050

    Income from operations                                   406         356

    Investment income, net                                   386         592

    Income before income taxes                               792         948

    Future income tax expense                                520         574

    Net income and comprehensive income                      272         374

    Deficit, beginning of period                         (29,424)    (26,122)

    Repurchase of shares                                    (591)        (13)

    Deficit, end of period                             $ (29,743)  $ (25,761)

      Earnings per share:
        Basic                                          $    0.01   $    0.02
        Diluted                                             0.01        0.02

      Weighted average number of shares outstanding:
        Basic                                             20,960      20,264
        Diluted                                           21,030      21,040


    Statements of Cash Flows
    (In thousands)

                                                          Three months ended
                                                              January 31,
                                                            2008        2007

    Cash provided by (used in):

    Operating activities:
      Net income                                       $     272   $     374
      Items not involving cash:
        Amortization of property and equipment             3,308       2,323
        Amortization of other assets                          10          10
        Gain on sale of property                             (19)        (19)
        Accretion expense                                     32          27
        Unrealized gain on short-term investments            (15)         (8)
        Net non-cash rent expense                             32         137
        Stock-based compensation expense                     426         576
        Future income taxes                                  520         574
      Change in non-cash operating working capital           455         119
                                                           5,021       4,113

    Financing activities:
      Issuance of notes payable                              375         490
      Repayment of notes payable                            (251)       (231)
      Repurchase of shares                                (1,596)        (27)
      Proceeds upon exercise of options                       28          27
                                                          (1,444)        259

    Investing activities:
      Purchase of property and equipment                 (13,117)    (16,009)
      Purchase of short-term investments                 (28,911)   (106,049)
      Sale of short-term investments                      38,443     120,262
      Decrease (increase) in other assets                    (39)          2
      Decrease in restricted cash                             50           -
                                                          (3,574)     (1,794)

    Increase in cash and cash equivalents                      3       2,578

    Cash and cash equivalents, beginning of period         5,956       5,961

    Cash and cash equivalents, end of period           $   5,959   $   8,539

    Supplemental cash flow information:
      Interest received                                $     572   $     848
      Interest paid                                            7           -
      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         3,418       3,534
      Effect of repurchase of shares in accounts
       payable and accrued liabilities                       345           -

    Adjusted EBITDA(1) Reconciliation
    (In thousands)

                                                          Three months ended
                                                              January 31,
                                                            2008        2007

    Net income for the period                          $     272   $     374
    Interest income, net                                    (371)       (628)
    Future income tax expense                                520         574
    Amortization                                           3,299       2,314
    EBITDA                                                 3,720       2,634
    Stock-based compensation expense                         426         576
    Accretion expense                                         32          27
    Realized loss on short-term investments                    -          25
    Unrealized (gain) loss on short-term investments         (15)         11
    Adjusted EBITDA                                    $   4,163   $   3,273

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

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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