PEER 1 Hosting Reports Fiscal 2011 Second Quarter Results

VANCOUVER, Feb. 9 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX:PIX), operating as PEER 1 Hosting, a leading provider of online IT infrastructure, today announced its results for the three and six months ended December 31, 2010. All amounts are stated in US dollars.

Selected Financial Highlights Comparing the Second Quarters Ended December 31, 2010 and 2009

  • Revenue increased 16.7% to $27.89 million from $23.9 million;
  • Gross profit increased 11.9% to $10.9 million from $9.8 million;
  • Operating income decreased 44.2% to $1.3 million from $2.3 million;
  • Normalized EBITDA was $6.4 million, up slightly from $6.2 million; and
  • Net loss was $0.17 million down from net income of $0.89 million.

Recent Operational Highlights

  • Announced entry into a credit agreement with a syndicate of lenders for a US$45 million non-revolving term facility and a US$30 million revolving credit facility;
  • Launched PEER 1 Hosting Partner Directory, enabling existing PEER 1 Hosting partners to connect and build relationships with potential customers using the directory database; and
  • Subsequent to quarter-end, commenced build out on a 50,000 square foot, £10 million, scalable, green datacenter in Portsmouth, United Kingdom.

"In the second quarter we successfully secured a non-dilutive source of growth capital on very favorable terms sufficient to drive both near and longer-term initiatives," said Fabio Banducci, President and CEO of PEER 1 Hosting.  "Subsequent to quarter-end we began deploying that capital announcing the start of a staged build out at a new, flagship UK datacenter that reinforces our strategic commitment to the EMEA region."

Financial Review for the Three and Six Months Ended December 31, 2010 and 2009

Revenue increased $3.99 million (or 16.7%) to $27.89 million for the three months ended December 31, 2010 from $23.90 million for the three months ended December 31, 2009.  For the first six months of the fiscal year, revenue grew $6.94 million (or 14.7%) from $47.27 million in the first half of fiscal 2010 to $54.21 million in the first half of fiscal 2011. The increase in revenue for the three and six months ended December 31, 2010, is primarily attributable to organic growth, the effect of the increase in value of the Canadian dollar against the US dollar, and from the VIA Net.Works USA, Inc. ("VIA") acquisition. When adjusted for the exchange rates in effect during the periods, revenue for the three months and six months ended December 31, 2010 was $27.68 million and $53.74 million, respectively. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 15.82% for the three months ended December 31, 2010 and by 13.69% for the six months ended December 31, 2010.

Colocation revenue increased to $3.55 million and $7.03 million for the three and six months ended December 31, 2010, respectively, compared with $3.34 million and $6.66 million for the three and six months ended December 31, 2009. The increase in colocation revenue is attributable to organic growth as well as the increase in the value of the Canadian dollar against the US dollar. The effect on revenue from the increase in value of the Canadian dollar against the US dollar was $0.14 million and $0.31 million for the three months and six months ended December 31, 2010, respectively.

Bandwidth revenue increased to $2.28 million and $4.48 million for the three and six months ended December 31, 2010, respectively, compared with $2.11 million and $4.13 million for the three and six months ended December 31, 2009. The increase in revenue is primarily attributable to the increased value of the Canadian dollar against the US dollar, increased bandwidth consumption partly offset by pricing pressures in the market. The effect on revenue from the increase in value of the Canadian dollar against the US dollar was $0.08 million and $0.17 million for the three months and six months ended December 31, 2010, respectively.

Hosting Services revenues increased to $20.54 million and $39.78 million for the three months and six months ended December 31, 2010, respectively, from $17.05 million and $33.80 million for the three months and six months ended December 31, 2009, respectively. The increase for the three and six months ended December 31, 2010 is attributable to organic growth, the positive impact of $0.3 million in revenues from short term projects during the most recent quarter and additional revenue from the VIA acquisition of approximately $0.5 million and $1.0 million for the three and six months ended December 31, 2010 respectively. Hosting Services revenues have not been materially impacted by foreign exchange effects as virtually all Hosting Services sales are currently denominated in US dollars. 

PEER 1 Hosting's Canadian operations accounted for $6.06 million of revenue for the three months ended December 31, 2010 compared with $4.97 million of revenue for the three months ended December 31, 2009. The Company's Canadian operations accounted for $11.54 million of revenue for the six months ended December 31, 2010 compared to $9.70 million of revenue for the six months ended December 31, 2009. This change is primarily related to organic growth and favorable foreign exchange effects of $0.21 million and $0.48 million for the three months and six months ended December 31, 2010. The foreign exchange effects on revenue largely provide a natural hedge which offset exchange effects on expenses incurred in Canadian operations.

Cost of sales increased by $2.82 million for the three months ended December 31, 2010 from $14.11 million for the three months ended December 31, 2009.  During the three months ended December 31, 2010, the Company incurred costs of $1.05 million related to its further expansion in the United Kingdom which are included in cost of sales. Cost of sales as a percentage of revenue increased to 60.71% for the three months ended December 31, 2010 from 59.03% for the three months ended December 31, 2009. Cost of sales increased to $33.19 million for the six months ended December 31, 2010 from $27.82 million for the six months ended December 31, 2009. Cost of sales as a percentage of revenue increased to 61.22% for the six months ended December 31, 2010 from 58.85% for the six months ended December 31, 2009. 

The increase in cost of sales for the three months ended December 31, 2010 compared to the same period in the prior year is primarily due to increased staff costs of $0.12 million, increased depreciation costs of $1.00 million, increased software license costs of $0.32 million, increased power costs of $0.64 million, increased repairs and maintenance costs of $0.06 million, increased bandwidth costs of $0.20 million and increased rent costs of $0.55 million associated with data center expansion in the United Kingdom and Toronto.

The increase in cost of sales for the six months ended December 31, 2010 compared to the same period in the prior year is primarily due to increased staff costs of $0.30 million, increased depreciation costs of $2.05 million, increased software license costs of $0.43 million, increased power costs of $1.02 million, increased repairs and maintenance costs of $0.22 million, increased bandwidth costs of $0.36 million and increased rent costs of $1.09 million associated with data center expansion in the United Kingdom and Toronto.

Total operating expenses increased $2.16 million to $9.69 million for the three months ended December 31, 2010 from $7.53 million for the three months ended December 31, 2009. Operating expenses as a percentage of revenue increased to 34.76% for the three months ended December 31, 2010 from 31.51% for the three months ended December 31, 2009. The increase in operating expenses for the three months ended December 31, 2010 is largely attributable to $1.25 million higher staff and training cost, increased commission expenses of $0.13 million, increased professional services of $0.08 million, increased rent of $0.05 million, increased office expenses of $0.05 million, increased property tax of $0.06 million, increased bonus expenses of $0.11 million, increased bad debt expense of $0.01 million, increased stock based compensation expenses of $0.16 million, and $0.32 million higher advertising expenses, in part offset by lower amortization expense of $0.01 million and lower travel expense of $0.06 million. Total operating expense for the three months ended December 31, 2010 is comprised of $3.98 million (2009: $3.0 million) sales and marketing expenses, $4.5 million (2009: $3.84 million) general and administrative expenses, and $1.21 million (2009: $0.69 million) in expenses for technology and customer relations. During the three months ended December 31, 2010, the company incurred $0.84 million related to its United Kingdom expansion which are included in operating expenses, $0.36 million of which are categorized as general and administrative expenses and $0.47 million of which are categorized as selling and marketing expenses. 

Total operating expenses increased $3.84 million to $18.56 million for the six months ended December 31, 2010 from $14.71 million for the six months ended December 31, 2009.  Operating expenses as a percentage of revenue increased to 34.23% for the six months ended December 31, 2010 from 31.13% for the six months ended December 31, 2009.  The increase in operating expenses for the six months ended December 31, 2010 is largely attributable to $2.08 million higher staff and training cost, increased commission expenses of $0.45 million attributable to new sales, increased professional services of $0.47 million, increased rent of $0.10 million, increased office expenses of $0.11 million, increased property tax of $0.10 million, increased insurance expenses of $0.02 million, increased stock based compensation expenses of $0.05 million, and $0.85 million higher advertising expenses offset in part by $0.17 million lower amortization, $0.03 million in decreased bad debt expense, lowered travel expense of $0.03 million and lower bonus expense of $0.18 million. The decrease in bad debt expense reflects a lower estimated expense for doubtful accounts that is based on management's review of specific customer payment history, the age of the accounts receivable and collection trends. Total operating expense for the six months ended December 31, 2010 is comprised of $7.93 million (2009: $5.97 million) sales and marketing expenses, $8.23 million (2009: $7.36 million) general and administrative expenses, and $2.40 million (2009: $1.38 million) in expenses for Technology and Customer relations. During the six months ended December 31, 2010, the company incurred $1.60 million related to its United Kingdom expansion which are included in operating expenses, $0.65 million of which are categorized as general and administrative expenses and $0.94 million of which are categorized as selling and marketing expenses. 

Normalized EBITDA was $6.4 million for the three months ended December 31, 2010, compared with $6.2 million in the prior year period.

Net loss for the quarter ended December 31, 2010 increased to $0.17 million, compared to net income $0.89 million for the same period in 2009. Net income for the six month period ended December 31, 2010 decreased to $0.18 million, compared to $2.1 million for the same period in 2009.

The Company had a working capital deficit of $2.81 million at December 31, 2010 compared to working capital deficit of $7.14 million as at June 30, 2010. The decrease in working capital deficit is primarily due to additional drawdown on the credit facilities partly offset by investments in property and equipment. The Company anticipates current liquidity and cash generated from operations to be sufficient to fund operations for the foreseeable future.  As at December 31, 2010, the Company had available $37.76 million from its $75 million credit facilities.

PEER 1 Hosting had 120,511,606 common shares issued and outstanding as at February 8, 2011.   

EBITDA Reconciliation

EBITDA Reconciliation    
(unaudited - prepared by management)    
(in $ thousands) Three Months Ended
  31-Dec-10 31-Dec-09
     
Net profit (loss)                     (172)                    886
Income tax expense                      298                    959
Interest expense                      865                    336
Amortization - licences, fixed assets and deferred network costs                   4,504                 3,508
Stock based compensation                      659                    502
Loss (gain) on disposal of assets                      (12)                    (30)
Amortization of deferred gain                      (20)                    (20)
Foreign exchange loss                      258                    109
EBITDA                   6,380                 6,250
     
Settlement of legal claim                       24                      -  
Normalized EBITDA                   6,404                 6,250

Conference Call

PEER 1 Hosting will hold a conference call Wednesday, February 9, 2011 at 5:30pm Eastern Time (ET), to discuss the results the second quarter of fiscal 2011. The Company's full Financial Statements and Management's Discussion and Analysis are available on its website at http://www.peer1.com/investors.

To access the conference call by telephone, dial (647) 427-7450 or 1-888-231-8191.  Please connect approximately 15 minutes prior to the beginning of the call. The conference call will be archived for replay until February 16, 2011, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-800-642-1687 and enter the reservation number: 41213783 followed by the number sign.

A live audio webcast of the conference call will be available at:

http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=3391300

Please connect at least 15 minutes prior to the conference call to ensure adequate time for any software download that may be required to join the webcast. The webcast will be archived at the above website for 90 days.

Non-GAAP Measures

PEER 1 Hosting reports EBITDA because it is a key measure used by management to evaluate the Company's performance. PEER 1 Hosting believes that EBITDA is useful supplemental information, as it provides an indication of the results generated by PEER 1 Hosting's main business activities prior to taking into consideration how those activities are financed and expensed. 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 financial performance of PEER 1 Hosting, or as a measure of the company's liquidity and cash flows. PEER 1 Hosting's method of calculating EBITDA may differ from other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers. The schedule above sets out PEER 1 Hosting's EBITDA calculations.

About PEER 1 Hosting
PEER 1 Hosting believes in the limitless opportunity of the Internet, and the business growth potential it provides for its more than 10,000 customers. As a global online IT hosting provider, PEER 1 Hosting offers a reliable high performance Internet network supporting scalable managed hosting, dedicated hosting through the ServerBeach brand, and colocation solutions. Backed by its 100 percent uptime guarantee and 24x7x365 FirstCall Support™, PEER 1 Hosting ensures customers' online presence is always fast, always available. Since 1999, PEER 1 Hosting has grown to include 18 state-of-the-art data centers and points-of-presence throughout North America and Europe. The company's headquarters are in Vancouver, Canada, with European operations headquartered in Southampton, UK.  PEER 1 Hosting shares are traded on the TSX under the symbol PIX. For more information visit: www.peer1.com or www.peer1hosting.co.uk.

Forward Looking Statements
Statements in this release relating to matters that are not historical fact are forward-looking statements based on current expectations, forecasts and assumptions that involve risks and uncertainties that could cause actual outcomes and results to differ materially. Factors that could cause or contribute to such differences include, but are not limited to, general economic conditions, changes in technology, reliance on third party manufacturing, managing rapid growth, global sales risks, limited intellectual property protection and other risks and uncertainties described in PEER 1 Hosting's public filings with securities regulatory authorities.

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Balance Sheet
December 31, 2010
(in thousands of United States dollars)

  December 31,
2010
June 30,
2010
Assets        
Current:        
  Cash and cash equivalents $ 2,516 $ 2,321
  Accounts receivable   4,815   3,249
  Income tax receivable   2,304   623
  Future income tax asset   148   97
  Prepaid expenses   3,309   1,655
    13,092   7,945
Other assets   2,362   2,688
Future income tax asset   2,671   1,900
Property and equipment   67,175   53,237
Equipment under capital lease   880   986
Goodwill   2,363   2,363
Intangible assets   3,867   3,527
  $ 92,410 $ 72,646
Liabilities        
Current:        
  Accounts payable and accrued liabilities $ 10,962 $ 9,114
  Deferred revenue   2,232   2,216
  Current portion of deferred gain   79   79
  Current portion of deferred lease inducements   126   126
  Current portion of derivative liabilities   283   170
  Current portion of notes payable   1,838   3,000
  Current portion of obligations under capital lease   379   376
    15,899   15,081
Deferred gain   374   414
Deferred lease inducements   520   557
Derivative liabilities   -   170
Notes payable   34,327   16,404
Obligation under capital lease   53   232
    51,173   32,858
Shareholders' equity   41,237   39,788
  $ 92,410 $ 72,646
         

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Statements of Shareholders' Equity
For the Three and Six Months Ended December 31, 2010
(in thousands of United States dollars except number of shares)

  Three months ended   Six months ended
  December 31, 2010 December 31, 2009   December 31, 2010 December 31, 2009
  Number Amount Number Amount   Number Amount Number Amount
SHARE CAPITAL                  
Common shares                  
  Balance at beginning of period 119,579,619 $   27,634 121,055,984 $    27,790   119,721,834 $    27,631 119,314,323 $    26,950
  Stock options exercised 66,046              59 204,757            152            113,331             106         318,132             211
  Warrants exercised     - -           1,628,286             781
  Purchase of shares for cancellation pursuant to normal course issuer bid - - - -   (189,500) (44) - -
Balance at end of period 119,645,665      27,693 121,260,741       27,942   119,645,665      27,693 121,260,741     27,942
                   
CONTRIBUTED SURPLUS                  
  Balance at beginning of period          7,240          5,307            6,804          4,766
  Stock-based compensation              659              502            1,116          1,065
  Stock options exercised   (22)      (100)     (43)   (122)
Balance at end of period          7,877          5,709            7,877          5,709
                   
Warrants                  
  Balance at beginning of period 833,333            86 833,333            86          833,333            86     2,461,619          493
  Warrants exercised     - -       (1,628,286) (407)
  Balance at end of period 833,333            86 833,333            86          833,333            86 833,333            86
RETAINED EARNINGS                  
  Balance at beginning of period           5,764         5,976           5,619           4,709
  Net income   (172)             886               184           2,153
  Purchase of shares for cancellation pursuant to normal course issuer bid   -   -     (211)               -
Balance at end of period          5,592          6,862             5,592         6,862
ACCUMULATED OTHER COMPREHENSIVE INCOME                  
  Balance at beginning of period   (363)   (361)     (352)   (279)
  Other comprehensive income (loss)               352         46                341    (36)
Balance at end of period   (11)   (315)     (11)   (315)
Total - shareholders' equity   $    41,237   $  40,284      $   41,237   $    40,284
                   

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Statement of Operations
For the Three and Six Months Ended December 31, 2010
(in thousands of United States dollars, except per share amounts)

  Three months ended   Six months ended
  December 31,
2010
December 31,
2009
  December 31,
2010
December 31,
2009
Revenue          
  Colocation Services $              7,341 $               6,845   $             14,433 $             13,473
  Hosting Services               20,544                17,051                  39,780                 33,797
                27,885                23,896                  54,213                 47,270
           
Cost of revenue              16,930                14,107                  33,187                 27,818
Gross profit              10,955                  9,789                  21,026                 19,452
Operating expenses                9,694                  7,530                  18,558                 14,715
Operating income before other items                1,261                  2,259                    2,468                   4,737
Other items:          
   Interest income - (1)   (13) (6)
   Gain on insurance recovery - -   - (93)
  Gain on disposal of property and equipment (12) (30)      (28) (42)
   Loss on legal settlement                     24 -                        24 -
   Foreign exchange loss                   258                    109                      205                    189
   Interest expense - long term                   865                    336                   1,229                    648
                 1,135                    414                  1,417                    696
Income before income taxes                  126                 1,845                  1,051                 4,041
Future income tax recovery                  (477) (204)   (848) (500)
Current income tax expense                   775                 1,163                   1,715                 2,388
Income tax expense                   298                    959                     867                 1,888
Net income (loss) $              (172) $                 886   $               184 $             2,153
Other comprehensive income:          
  Change in unrealized fair value of derivatives designated as cash flow hedges                  351                     46                    341 (36)
Comprehensive income $              179 $                932   $               525 $             2,117
           
Net income (loss) attributable to:          
   Common shares $            (172) $                886   $               184 $             2,153
Comprehensive income attributable to:          
   Common shares                179                   932                    525                2,117
Basic and diluted earnings (loss) per share $           (0.00) $               0.01   $              0.00 $              0.02
           
Weighted average number of shares:          
    Basic 119,612,118   121,197,002     119,683,351 120,350,957
    Diluted 119,612,118   124,518,581     122,964,974 124,332,317
             

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Statement of Cash Flows
For the Three and Six Months Ended December 31, 2010
(in thousands of United States dollars)

  Three months ended   Six months ended
  December 31,
2010
December 31,
2009
  December 31,
2010
December 31,
2009
Operating Activities:          
  Net income (loss) $         (172) $           886   $         184 $       2,153
  Adjustments for non-cash items:          
    Amortization of property and equipment            4,395           3,344            8,643           6,495
    Amortization of intangible assets                109              164               226              487
    Ineffective portion of cash flow hedge               283                   -                283 -
    Bad debt expense                71                56                182              214
    Gain on disposal of property and equipment (12) (30)   (28) (42)
    Gain on insurance - -   - (93)
    Amortization of deferred gain (20) (20)   (39) (39)
    Amortization of deferred loan origination fees               291                 68                346              117
    Future income tax recovery (477) (204)   (848) (500)
    Stock-based compensation included in income              659              502             1,116            1,065
    Decrease in deferred lease inducements (18) (37)   (36) (73)
  Changes in non-cash working capital:          
    Increase in accounts receivable (1,667) (354)   (1,748) (863)
    Decrease (increase) in prepaid expenses              236 (489)   (1,657) (576)
    Increase (decrease) in accounts payable and accrued liabilities            1,189             814   (382)              657
    Increase (decrease) in income taxes payable (614)             247   (1,681) (2,177)
    Decrease (increase) in deferred revenue (115)               30                  16              114
Cash flows from operating activities           4,138         4,977             4,577           6,939
Investing Activities:          
    Investment in other assets (827) (135)   (670) (226)
    Acquisition of property and equipment (15,039) (7,645)   (20,255) (13,603)
    Acquisition of intangible assets (301) (612)   (557) (936)
    Proceeds on disposition of equipment                 12                30                  28                42
Cash flows used in investing activities (16,155) (8,362)   (21,454) (14,723)
Financing Activities:          
    Proceeds from notes payable         43,193 -           49,193 -
    Repayments of notes payable (31,033) (750)   (31,783) (750)
    Payment of capital lease obligations (97) (58)   (197) (112)
    Issuance of capital stock 37                52                   63               462 
    Purchase of shares for cancellation pursuant to normal course issuer bid - -   (255) -
Cash flows from (used in) financing activities        12,100 (756)          17,021 (400)
Foreign exchange gain (loss) on cash and cash equivalents              72                   9                  51                62
Increase (decrease) in cash and cash equivalents            155 (4,132)               195 (8,122)
Cash and cash equivalents, beginning        2,361         11,754            2,321        15,744
Cash and cash equivalents, ending $     2,516 $        7,622   $       2,516 $       7,622

SOURCE Peer 1 Network Enterprises, Inc.

For further information:

David Feick
The Equicom Group
+1 (403) 218-2839
dfeick@equicomgroup.com

For media inquiries please contact:

Marcela Peake
PEER 1
+1 (604) 909-6428
mpeake@peer1.com

Profil de l'entreprise

Peer 1 Network Enterprises, Inc.

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