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Q9 Networks Reports Fourth Quarter and Full Year 2007 Results
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FY 2007 revenue of $56.5 million, a 22% increase over FY 2006 |
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Fourth quarter revenue of $15.6 million, a 25% increase over the same quarter 2006 and a 7% increase over the previous quarter |
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Fourth quarter Adjusted EBITDA of $4.8 million, a 38% increase from the same quarter 2006 and a 17% increase over the previous quarter |
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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 |
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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 |
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Revenue under contract entering Q1 2008 was $12.9 million, down slightly from the previous quarter |
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Brampton data centre expansion opens |
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Announces plan to proceed with third data centre in the Calgary market |
Toronto, ON - December 11, 2007 - 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#.
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)
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October 31, October 31,
2007 2006
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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
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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
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$ 141,435 $ 139,598
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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
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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)
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117,100 117,254
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$ 141,435 $ 139,598
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Q9 NETWORKS INC.
Statements of Operations and Deficit
(In thousands, except per share amounts)
(Unaudited)
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Three months ended Years ended
October 31, October 31,
2007 2006 2007 2006
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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
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15,609 12,453 56,486 46,467
Cost of revenue 10,614 8,010 38,727 31,199
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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
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3,857 3,703 16,280 14,096
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Income from operations 1,138 740 1,479 1,172
Investment income, net 509 721 2,101 2,543
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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)
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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)
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Deficit, end of period $ (29,424) $ (26,122) $ (29,424) $ (26,122)
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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
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended Years ended
October 31, October 31,
2007 2006 2007 2006
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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
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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
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(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
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(3,117) (3,115) (16,251) (16,827)
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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
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Cash and cash equivalents,
end of period $ 5,956 $ 5,961 $ 5,956 $ 5,961
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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
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Q9 NETWORKS INC.
Adjusted EBITDA(1) Reconciliation
(In thousands)
(Unaudited)
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Three months ended Years ended
October 31, October 31,
2007 2006 2007 2006
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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
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Adjusted EBITDA $ 4,767 $ 3,457 $ 15,105 $ 12,469
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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, please contact:
Media Relations:
Kevin Spikes
Director of Corporate & Investor Relations
Toronto: 416-848-3311
Toll Free: 1-888-696-2266
media.relations@Q9.com
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