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Q9 Networks Reports Record Quarter and Full Year Results for 2004
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FY 2004 revenue of $26.27 million, a 35% increase over FY 2003 |
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Fourth quarter revenue of $7.34 million, a 29% increase over the same quarter, 2003 |
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68% improvement in fourth quarter EBITDA compared to the previous quarter |
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Fifth consecutive quarter of positive cash flow from operations |
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Opened downtown Toronto data centre expansion |
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Announced anchor tenant for Brampton facility |
Toronto, ON - December 20, 2004 - Q9 Networks Inc. (TSX:Q), a leading Canadian provider of outsourced Internet infrastructure and related managed services, today announced its quarterly and fiscal year-end results for the period ending October 31, 2004.
Revenue for the fourth quarter 2004 was $7.34 million, an increase of 29% from fourth quarter 2003 revenue of $5.71 million and an 11% increase over third quarter 2004 revenue of $6.59 million (all figures expressed in Canadian dollars).
Co-location revenue for the fourth quarter 2004 was $2.67 million, managed bandwidth revenue was $1.58 million and managed services revenue was $2.91 million.
EBITDA for the fourth quarter 2004 was $1.30 million, a $1.15 million improvement over the same period last year and a 68% improvement over the third quarter 2004. Please see the attached financial schedules for EBITDA definition and reconciliation to loss for the period.
Net loss for the fourth quarter 2004 was $0.86 million, compared to a net loss of $5.57 million for the fourth quarter 2003 and a net loss of $1.28 million for the third quarter 2004. Pro forma loss per share for the fourth quarter 2004 was $0.04 compared to $0.11 in the same quarter 2003 after taking into effect the conversion and subsequent consolidation of the then outstanding shares and the addition of accretion of interest on redeemable convertible preference shares and amortization of deferred financing costs to the loss for the period.
Cash flow generated from operations for the fourth quarter, 2004 was $2.16 million, marking the Company's fifth consecutive quarter of positive cash flow. The Company ended the quarter with cash, cash equivalents and short-term investments of $71.30 million, including $1.14 million in restricted cash. Other than $0.79 million in notes payable to an equipment supplier, Q9 had no debt outstanding.
During the quarter, Q9 opened the expansion to its downtown Toronto facility, adding capacity of approximately 300 cabinet equivalents. Also during the quarter, the Company announced the opening of its Brampton facility with the signing of a five-year, multi-million dollar contract with a major new customer.
Revenue for the 12 months ended October 31, 2004 was $26.27 million, a 35% increase over the previous year. EBITDA was $2.95 million, compared to a loss of $3.58 million in the previous year. Net loss for the 12 months ended October 31, 2004 was $5.86 million, or $0.32 per pro forma basic and diluted share, compared to $27.34 million or $0.75 per pro forma basic and diluted share for 2003.
"I am pleased to report a record quarter and year for the company," says Osama Arafat, CEO, Q9 Networks. "Along with double digit growth, we achieved several significant milestones in 2004. We expanded our Toronto data centre after reaching capacity, completed an IPO that added approximately $29 million to our balance sheet and signed an anchor tenant for our Brampton facility. The signing of this contract, the largest in Q9 history, allows us to add significant operational capacity with minimal capital expenditure. We believe these successes have positioned us exceedingly well to continue our momentum as a growth leader in fiscal 2005."
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 416-640-4127 and 1-800-814-4859. A replay will be available until December 27, 2004, following the conference call and can be accessed by dialing 416-640-1917, pass code 21104355#.
Non-GAAP Measures
The Company reports EBITDA because it is a key measure used by management to evaluate the Company's performance. The Company believes that 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. EBITDA is not a recognized measure under Canadian GAAP, and accordingly investors are cautioned that 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 EBITDA may differ from other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers. Please see the schedule below that sets out the Company's EBITDA calculations.
About Q9 Networks
Q9 Networks is a leading Canadian provider of outsourced Internet infrastructure and related managed services. Q9's data centres and network are backed by an industry leading SLA which guarantees 100% 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)
October 31, 2004 and 2003
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2004 2003
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Assets
Current assets:
Cash and cash equivalents $ 6,135 $ 2,195
Short-term investments 64,023 39,638
Accounts receivable 1,846 1,959
Unbilled revenue 154 223
Prepaid expenses 646 378
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72,804 44,393
Restricted cash 1,140 2,270
Capital assets 38,212 38,572
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$112,156 $ 85,235
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,075 $ 2,040
Deferred revenue 3,639 2,517
Current portion of leasehold inducements 195 175
Notes payable 789 467
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7,698 5,199
Deferred gain on sale of property 1,286 1,364
Leasehold inducements 818 779
Other long-term liabilities 316 -
Shareholders' equity:
Capital stock:
Common shares 177,750 420
Preference shares - 148,472
Contributed Surplus 1,149 -
Deficit (76,861) (70,999)
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102,038 77,893
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$112,156 $ 85,235
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Q9 NETWORKS INC.
Statements of Operations and Deficit
(In thousands, except per share amounts)
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Three months ended, Fiscal year ended,
October 31, October 31,
2004 2003 2004 2003
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Revenue:
Co-location $ 2,666 $ 1,768 $ 9,298 $ 6,343
Managed bandwidth 1,579 1,493 6,270 5,520
Managed services 2,907 2,298 10,004 7,053
Set-up fees 190 148 696 594
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7,342 5,707 26,268 19,510
Cost of revenue 5,458 5,062 20,768 20,629
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Gross margin 1,884 645 5,500 (1,119)
Expenses:
Sales and marketing 1,367 1,010 4,529 4,365
General and administrative 1,669 1,322 5,991 5,648
Lease termination costs
and asset impairment - 196 1,571 1,297
Amortization 142 174 550 763
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3,178 2,702 12,641 12,073
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Loss from operations (1,294) (2,057) (7,141) (13,192)
Interest expense (1) (3) (5) (54)
Accretion of interest on redeemable
convertible preference shares - (3,671) - (14,687)
Interest income 388 307 1,284 1,160
Amortization of deferred
financing costs - (120) - (477)
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387 (3,487) 1,279 (14,058)
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Loss before income taxes (907) (5,544) (5,862) (27,250)
Income taxes (50) 22 - 85
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Loss for the period (857) (5,566) (5,862) (27,335)
Deficit, beginning of period (76,004) (65,433) (70,999) (43,664)
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Deficit, end of period $(76,861) $(70,999) $(76,861) $(70,999)
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Basic and diluted loss per share $ (0.04) $ (13.98) $ (0.56) $ (68.73)
Basic and diluted weighted average
number of common shares
outstanding 20,135 398 10,429 398
Pro forma basic and diluted loss
per share $ (0.04) $ (0.11) $ (0.32) $ (0.75)
Pro forma basic and diluted
weighted average number of
common shares outstanding 20,135 16,320 18,260 16,320
Q9 NETWORKS Inc.
Statements of Cash Flows
(In thousands)
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Three months ended, Fiscal year ended,
October 31, October 31,
2004 2003 2004 2003
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Cash provided by (used in):
Operating activities:
Loss for the year $ (857) $ (5,566) $ (5,862) $(27,335)
Items not involving cash:
Amortization 2,059 2,037 7,454 8,365
Deferred gain on sale
of property (19) (19) (78) (52)
Amortization of leasehold
inducements (34) (28) (135) (106)
Accretion of interest on
redeemable convertible
preference shares - 3,672 - 14,687
Amortization of deferred
financing costs - 120 - 477
Non-cash rent expense 106 - 316 -
Write-down of capital assets - 195 - 195
Stock-based compensation expense 559 - 1,149 -
Change in non-cash operating
working capital 345 (375) 1,742 (213)
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2,159 36 4,586 (3,982)
Financing activities:
Issuance of notes payable 437 340 1,112 721
Repayment of notes payable (254) (135) (790) (254)
Repayments of long-term debt - (12) - (594)
Increase in leasehold inducements - 93 194 93
Issuance of shares,
net of issue costs - - 28,858 -
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183 286 29,374 (34)
Investing activities:
Proceeds on sale of property
and building - - - 12,500
Purchase of capital assets (2,092) (872) (6,765) (3,394)
Decrease (increase) in
short-term investments 155 304 (24,385) (8,481)
Decrease (increase) in
restricted cash 180 180 1,130 2,305
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(1,757) (388) (30,020) 2,930
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Increase (decrease) in cash
and cash equivalents 585 (66) 3,940 (1,086)
Cash and cash equivalents,
beginning of year 5,550 2,261 2,195 3,281
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Cash and cash equivalents,
end of period $ 6,135 $ 2,195 $ 6,135 $ 2,195
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Supplemental cash flow information:
Interest received $ 161 $ 8 $ 1,203 $ 1,045
Interest paid 1 - 5 54
Income taxes paid 20 34 77 220
Supplemental disclosure of non-cash
financing and investing activities:
Acquisition of capital assets
in accounts payable 607 278 607 278
Q9 NETWORKS Inc.
EBITDA Reconciliation
(In thousands)
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Three months ended, Fiscal year ended,
October 31, October 31,
2004 2003 2004 2003
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Loss for the Period (857) (5,566) (5,862) (27,335)
Income taxes (50) 22 - 85
Accretion of interest on redeemable
Convertible preference shares - 3,671 - 14,687
Interest expense 1 3 5 54
Interest income (388) (307) (1,284) (1,160)
Amortization 2,040 2,018 7,376 8,313
Amortization of deferred financing
Costs - 120 - 477
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EBITDA before the under-noted 746 (39) 235 (4,879)
Stock-based compensation(x) 558 - 1,148 -
Lease termination costs - 196 1,571 1,297
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EBITDA 1,304 157 2,954 (3,582)
(x) Note: Stock-based compensation expense included here is related to
the nominal exercise price options, which were awarded to employees
immediately prior to the Company's Initial Public Offering (IPO).
Stock-based compensation expense related to all other options will
not be added back to loss for the period in calculating EBITDA.
For further information, please contact:
Media Relations:
Kevin Spikes
Director of Corporate & Investor Relations
Toronto: 416-365-7211
Toll Free: 1-888-696-2266
media.relations@Q9.com
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