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Q9 Networks Reports Second Quarter 2006 Results; Secures Site for Second Calgary Data Centre
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Second quarter revenue of $11.1 million, a 26% increase over the same quarter in 2005 and a 1% increase from the previous quarter |
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EBITDA of $2.8 million, a 16% increase over the same quarter in 2005 and a 2% decrease from the previous quarter |
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Net income of $0.7 million, compared to net income of $0.2 million for the same quarter in 2005 and net income of $0.6 million in the previous quarter |
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Cash flow from operations of $4.4 million |
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Revenue under contract increases 6% to $10.0 million |
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Site secured for second Calgary data centre |
Toronto, ON - June 8, 2006 - Q9 Networks Inc. (TSX:Q), a leading Canadian provider of outsourced Internet infrastructure and related managed services, today announced its quarterly results for the period ending April 30, 2006.
Revenue for the second quarter 2006 was $11.1 million, an increase of 26% over second quarter 2005 revenue of $8.8 million and an increase of 1% over the previous quarter. Usage fees declined $0.3 million during the quarter due to colder weather and lower energy prices. Excluding usage and set-up fees, quarter-over-quarter revenue grew $0.5 million or 6%.
Revenue under contract entering the third quarter 2006 increased to a record $10.0 million, up 6% over revenue under contract of $9.4 million at the beginning of the second quarter, 2006. This increase was due to demand from both new and existing customers.
Co-location revenue for the second quarter 2006 was $5.3 million, managed bandwidth revenue was $1.6 million and managed services revenue was $3.9 million.
EBITDA for the second quarter 2006 was $2.8 million, up 16% or $0.4 million over the same period last year and a decrease of 2% compared to the first quarter 2006 as a result of continued investment in Q9's data centre expansions. Please see the attached schedules for the Company's EBITDA definition and reconciliation.
Net income for the second quarter 2006 was $0.7 million, compared to net income of $0.2 million for the second quarter 2005 and net income of $0.6 million for the first quarter 2006. Basic and diluted earnings per share for the second quarter 2006 were $0.04 and $0.03 respectively, compared to basic and diluted earnings per share of $0.01 in the same quarter 2005 and basic and diluted earnings per share of $0.03 in the first quarter 2006.
Cash flow generated from operations for the second quarter 2006 was $4.4 million, marking the Company's eleventh consecutive quarter of positive cash flow from operations. The Company ended the quarter with cash, cash equivalents and short-term investments of $77.7 million. Other than $0.4 million in notes payable to an equipment supplier, the Company had no debt outstanding.
In September 2005, Q9 announced a Normal Course Issuer Bid (NCIB) for up to 1,015,000 of its common shares, representing 5% of the approximately 20.3 million shares outstanding as of September 20, 2005. During the quarter ended April 30, 2006, Q9 repurchased and cancelled 73,100 shares at an average market price of $9.89 per share. On a cumulative basis, the Company has repurchased 197,300 shares pursuant to this NCIB at a total cost of $1.9 million.
"We made considerable progress in our Calgary and Toronto expansions this quarter, most notably the selection of a site for our second Calgary data centre," said Osama Arafat, CEO, Q9 Networks. "I am also pleased with the ongoing demand for our current facilities and services as evidenced by the strong growth in revenue under contract."
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 416-644-3414 and 1-800-796-7558. A replay will be available until June 15, 2006, following the conference call and can be accessed by dialing 416-640-1917, pass code 21188699#.
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 differs 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 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.
Q9 NETWORKS INC.
Balance Sheets
(In thousands)
(Unaudited)
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April 30, October 31,
2006 2005
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Assets
Current assets:
Cash and cash equivalents $ 8,970 $ 7,843
Short-term investments 68,337 67,610
Accounts receivable 3,470 3,242
Unbilled revenue 209 752
Prepaid expenses 995 676
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81,981 80,123
Restricted cash 410 410
Other assets 787 801
Property and equipment 38,352 36,757
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$ 121,530 $ 118,091
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Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 3,646 $ 3,041
Deferred revenue 4,627 3,946
Notes payable 434 542
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8,707 7,529
Deferred revenue 770 646
Deferred gain on sale of property 1,168 1,207
Leasehold inducements 1,427 1,099
Asset retirement obligation 668 631
Other long-term liabilities 858 701
Shareholders' equity:
Common shares 139,970 139,276
Contributed surplus 3,084 3,092
Deficit (35,122) (36,090)
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107,932 106,278
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$ 121,530 $ 118,091
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Q9 NETWORKS INC.
Statements of Operations and Deficit
(In thousands, except per share amounts)
(Unaudited)
-------------------------------------------------------------------------
Three months ended Six months ended
April 30, April 30,
2006 2005 2006 2005
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Revenue:
Co-location $ 5,305 $ 3,615 $ 10,452 $ 6,592
Managed bandwidth 1,623 1,613 3,269 3,270
Managed services 3,884 3,360 7,707 6,514
Set-up fees 279 241 610 461
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11,091 8,829 22,038 16,837
Cost of revenue 7,454 6,211 14,925 12,012
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Gross margin 3,637 2,618 7,113 4,825
Expenses:
Sales and marketing 1,182 918 2,273 1,878
General and administrative 2,138 1,771 4,066 3,535
Amortization of property
and equipment 190 138 549 276
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3,510 2,827 6,888 5,689
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Income (loss) from operations 127 (209) 225 (864)
Interest income 593 393 1,112 805
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Income (loss) before
income taxes 720 184 1,337 (59)
Income taxes, current 1 13 8 27
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Net income (loss) 719 171 1,329 (86)
Deficit, beginning of period
as previously reported (35,619) (77,360) (36,090) (76,861)
New accounting
pronouncement adopted - - - (242)
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As restated (35,619) (77,360) (36,090) (77,103)
Reduction of deficit - 39,275 - 39,275
Repurchase of shares (222) - (361) -
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Deficit, end of period $ (35,122) $ (37,914) $ (35,122) $ (37,914)
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Earnings (loss) per share
Basic $ 0.04 $ 0.01 $ 0.07 $ 0.00
Diluted 0.03 0.01 0.06 0.00
Weighted average number
of shares outstanding
Basic 20,349 20,138 20,311 20,137
Diluted 20,886 20,449 20,881 20,137
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Q9 NETWORKS INC.
Statements of Cash Flows
(In thousands)
(Unaudited)
-------------------------------------------------------------------------
Three months ended Six months ended
April 30, April 30,
2006 2005 2006 2005
-------------------------------------------------------------------------
Cash provided by (used in):
Operating activities:
Net income (loss) $ 719 $ 171 $ 1,329 $ (86)
Items not involving cash:
Amortization of
property and equipment 2,215 2,102 4,583 4,134
Amortization of other
assets 11 10 25 13
Gain on sale of property (19) (20) (39) (40)
Accretion expense 19 17 37 33
Net non-cash rent
expense 238 62 485 129
Stock-based
compensation expense 558 555 1,026 1,117
Change in non-cash
operating working capital 697 150 1,677 388
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4,438 3,047 9,123 5,688
Financing activities:
Issuance of notes payable 135 295 376 481
Repayment of notes payable (234) (444) (484) (673)
Repurchase of shares (713) - (1,343) -
Issuance of shares 421 320 514 322
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(391) 171 (937) 130
Investing activities:
Purchase of property
and equipment (4,189) (2,037) (6,148) (3,762)
Purchase of short-term
investments (42,962) (18,617) (101,096) (49,452)
Sale of short-term
investments 42,545 16,361 100,196 46,868
Increase in other assets - - (11) (761)
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(4,606) (4,293) (7,059) (7,107)
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Increase (decrease) in
cash and cash equivalents (559) (1,075) 1,127 (1,289)
Cash and cash equivalents,
beginning of period 9,529 5,921 7,843 6,135
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Cash and cash equivalents,
end of period $ 8,970 $ 4,846 $ 8,970 $ 4,846
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Supplemental cash flow
information:
Interest received $ 517 $ 414 $ 1,286 $ 1,066
Income taxes paid 8 - 8 -
Supplemental disclosure of
non-cash financing and
investing activities:
Effect of acquisition
of property and
equipment in accounts
payable and accrued
liabilities 620 262 (30) 114
Effect of repurchase
of shares in accounts
payable and accrued
liabilities (12) - 128 -
Reduction of share
capital - 39,275 - 39,275
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Q9 NETWORKS INC.
EBITDA Reconciliation
(In thousands)
(Unaudited)
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Three months ended Six months ended
April 30, April 30,
2006 2005 2006 2005
-------------------------------------------------------------------------
Net Income (loss) for
the period 719 171 1,329 (86)
Income taxes 1 13 8 27
Accretion expense 19 17 37 33
Interest income (593) (393) (1,112) (805)
Amortization 2,207 2,092 4,569 4,107
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EBITDA before the
under-noted 2,353 1,900 4,831 3,276
Stock-based compensation(1) 493 550 911 1,108
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EBITDA 2,846 2,450 5,742 4,384
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Note:
1. Stock-based compensation expense included above is related solely 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 is not
added back to net income (loss) for the period in calculating EBITDA.
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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