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Q9 Networks Reports Second Quarter 2005 Results; Achieves Record Revenue,
Cash Flow and EBITDA
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Increased revenue to a record $8.83 million, a 41% increase over the same quarter 2004 and a 10% increase over the previous quarter |
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Increased EBITDA to a record $2.45 million, a 482% increase over the same quarter 2004 and a 27% increase over the previous quarter |
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Seventh consecutive quarter of positive cash flow from operations |
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Net income of $0.17 million, compared to a loss for the period of $2.71 million for the same quarter 2004 and a loss of $0.26 million in the previous quarter |
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Largest dollar increase in monthly service revenue quarter over quarter |
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New capacity to be built in downtown Toronto |
Toronto, ON - June 7, 2005 - Q9 Networks Inc. (TSX:Q), a leading Canadian provider of outsourced Internet infrastructure and related managed services, today announced its financial results for the second quarter ended April 30, 2005.
Revenue for the second quarter 2005 was $8.83 million, an increase of 41% from second quarter 2004 revenue of $6.27 million and a 10% increase over first quarter 2005 revenue of $8.01 million (all figures expressed in Canadian dollars).
Co-location revenue for the second quarter 2005 was $3.62 million, managed bandwidth revenue was $1.61 million and managed services revenue was $3.36 million.
EBITDA for the second quarter 2005 was $2.45 million, up 482% or $2.03 million over the same period last year and a $0.52 million or 27% improvement over the first quarter 2005. Please see the attached financial statements for EBITDA definition and reconciliation to loss for the period.
Net income for the second quarter 2005 was $0.17 million compared to a net loss of $2.71 million for the second quarter 2004 and a net loss of $0.26 million for the first quarter 2005. Basic and diluted earnings per share for the second quarter 2005 was $0.01 compared to a pro forma loss per share of $0.17 in the same quarter 2004, after taking into effect the conversion of the then outstanding preference shares and subsequent share capital consolidation.
Cash flow generated from operations for the second quarter, 2005 was $3.03 million, marking the Company's seventh consecutive quarter of positive cash flow. The Company ended the quarter with cash, cash equivalents and short-term investments of $72.33 million, including $1.14 million in restricted cash. Other than $0.60 million in notes payable to an equipment supplier, Q9 had no debt outstanding.
"I am pleased to report another solid quarter with record revenue, cash flow and EBITDA, along with a commitment to build additional capacity in downtown Toronto," says Osama Arafat, CEO, Q9 Networks. "Our results continue to demonstrate the leadership position Q9 has earned in ensuring the high performance and reliability of mission-critical operations for an ever-increasing number of Canada's top enterprises. I would like to thank our dedicated employees for their efforts in achieving these outstanding results."
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 1-800-796-7558. A replay will be available until Tuesday, June 14, 2005, following the conference call and can be accessed by dialing 416-640-1917, pass code 21125197#.
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)
(Unaudited)
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April 30, October 31,
2005 2004
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Assets
Current assets:
Cash and cash equivalents $ 4,846 $ 6,135
Short-term investments 66,346 64,023
Accounts receivable 1,960 1,846
Unbilled revenue 299 154
Prepaid expenses 740 646
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74,191 72,804
Restricted cash 1,140 1,140
Other assets 748 -
Capital assets 38,047 38,533
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$ 114,126 $ 112,477
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 2,813 $ 3,075
Deferred revenue 3,637 3,212
Current portion of leasehold inducements 195 195
Notes payable 597 789
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7,242 7,271
Deferred revenue 630 427
Deferred gain on sale of property 1,246 1,286
Leasehold inducements 750 818
Other long-term liabilities 1,109 879
Shareholders' equity:
Capital stock:
Common shares 138,797 177,750
Contributed surplus 2,266 1,149
Deficit (37,914) (77,103)
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103,149 101,796
New accounting pronouncement adopted
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$ 114,126 $ 112,477
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Q9 NETWORKS INC.
Statements of Operations and Deficit
(In thousands, except for per share amounts)
(Unaudited)
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Three months ended Six months ended
April 30, April 30,
2005 2004 2005 2004
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Revenue:
Co-location $ 3,615 $ 2,230 $ 6,592 $ 4,189
Managed bandwidth 1,613 1,606 3,270 3,179
Managed services 3,360 2,281 6,514 4,646
Set-up fees 241 155 461 319
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8,829 6,272 16,837 12,333
Cost of revenue 6,211 5,204 12,012 10,134
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Gross margin 2,618 1,068 4,825 2,199
Expenses:
Sales and marketing 918 1,090 1,878 2,018
General and administrative 1,771 1,222 3,535 2,609
Lease termination costs - 1,571 - 1,571
Amortization 138 134 276 267
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2,827 4,017 5,689 6,465
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Loss from operations (209) (2,949) (864) (4,266)
Interest income, net 393 249 805 536
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Income (loss) before income taxes 184 (2,700) (59) (3,730)
Income taxes 13 12 27 33
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Net income (loss) 171 (2,712) (86) (3,763)
Deficit, beginning of period as
previously reported (77,360) (72,036) (76,861) (70,999)
Change in accounting policy - (175) (242) (161)
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As restated (77,360) (72,211) (77,103) (71,160)
Reduction of deficit 39,275 - 39,275 -
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Deficit, end of period $(37,914) $(74,923) $(37,914) $(74,923)
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Earnings (loss) per share
Basic $ 0.01 $ (3.24) $ 0.00 $ (6.12)
Diluted 0.01 (3.24) 0.00 (6.12)
Weighted average number of
common shares outstanding:
Basic 20,138 838 20,137 615
Diluted 20,449 838 20,137 615
Pro forma earnings (loss) per
share
Basic $ 0.01 $ (0.17) $ 0.00 $ (0.23)
Diluted 0.01 (0.17) 0.00 (0.23)
Pro forma weighted average number
of common shares outstanding:
Basic 20,138 16,407 20,137 16,363
Diluted 20,449 16,407 20,137 16,363
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
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Three months ended Six months ended
April 30, April 30,
2005 2004 2005 2004
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Cash provided by (used in):
Operating activities:
Net income (loss) $ 171 $ (2,712) $ (86) $ (3,763)
Items not involving cash:
Amortization of fixed assets 2,102 1,787 4,134 3,568
Amortization of other assets 10 - 13 -
Deferred gain on sale of property (20) (19) (40) (39)
Amortization of leasehold
inducements (34) (33) (68) (67)
Accretion expense 17 12 33 23
Non-cash rent expense 96 105 197 105
Stock-based compensation expense 555 19 1,117 19
Change in non-cash operating
working capital 129 1,673 127 1,942
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3,026 832 5,427 1,788
Financing activities:
Issuance of notes payable 295 105 481 105
Repayment of notes payable (444) (191) (673) (363)
Increase in leasehold inducements - - - 194
Issuance of shares, net of issue
costs 320 28,858 322 28,858
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171 28,772 130 28,794
Investing activities:
Purchase of capital assets (2,037) (1,144) (3,762) (1,515)
Increase in short-term
investments (2,235) (14,568) (2,323) (13,312)
Increase in other assets - - (761) -
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(4,272) (15,712) (6,846) (14,827)
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Increase (decrease) in cash and
cash equivalents (1,075) 13,892 (1,289) 15,755
Cash and cash equivalents,
beginning of period 5,921 4,058 6,135 2,195
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Cash and cash equivalents,
end of period $ 4,846 $ 17,950 $ 4,846 $ 17,950
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Supplemental cash flow
information:
Interest received $ 414 $ 181 $ 1,066 $ 697
Supplemental disclosure of
non-cash financing and investing
activities:
Acquisition of capital assets
in accounts payable 493 1,514 493 1,514
Reduction of share capital 39,275 - 39,275 -
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Q9 NETWORKS INC.
EBITDA Reconciliation
(In thousands)
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Three months ended Six months ended
April 30, April 30,
2005 2004 2005 2004
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Net Income (loss) for the period 171 (2,712) (86) (3,763)
Income taxes 13 12 27 33
Accretion expense 17 12 33 23
Interest income (393) (249) (805) (536)
Amortization 2,092 1,768 4,107 3,529
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EBITDA before the under-noted 1,900 (1,169) 3,276 (714)
Stock-based compensation(x) 550 19 1,108 19
Lease termination costs - 1,571 - 1,571
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EBITDA 2,450 421 4,384 876
(x) Note: Stock-based compensation expense included here is related
solely to 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
is not added back to loss for the period in calculating EBITDA.
Note: Comparative figures have been restated due to the adoption of a
new accounting pronouncement related to asset retirement
obligations.
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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