PEER 1 Hosting Reports Fiscal 2011 Third Quarter Results

VANCOUVER, May 11 /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 nine months ended March 31, 2011.  All amounts are stated in US dollars unless otherwise noted.

Selected Financial Highlights Comparing the Third Quarters Ended March 31, 2011 and 2010

  • Revenue increased 14.6% to $28.73 million from $25.1 million;
  • Gross profit increased 6.0% to $10.8 million from $10.2 million;
  • Operating income decreased 80.5% to $0.4 million from $2.2 million;
  • Normalized EBITDA was $6.6 million, up from $6.4 million; and
  • Net loss was $1.31 million down from net income of $0.46 million.

Recent Operational Highlights

  • Commenced build out of the first phase (POD A) of a 50,000 square foot, scalable, green datacenter in Portsmouth, United Kingdom;
  • Completed build out and fully commissioned POD B at the Toronto data centre turning it over to key customer Capgemini Canada; and
  • Subsequent to quarter end, announced the arrival of the Company's IPv6 enabled 10GB backbone network.

"In the third quarter we continued to aggressively invest in key, strategic infrastructure that will support future growth, advancing the staged build out of POD C in our Toronto data centre and commencing work on POD A at our new UK facility," said Fabio Banducci, President and CEO of PEER 1 Hosting.  "These facilities will not only drive capacity improvements but also position us to capitalize on significant growth opportunities in the key North American and  EMEA markets."

Financial Review for the Three and Nine Months Ended March 31, 2011 and 2010

Revenue increased to $28.73 million for the three months ended March 31, 2011 from $25.07 million (or 14.61%) for the three months ended March 31, 2010. Revenue increased to $82.94 million for the nine months ended March 31, 2011 from $72.34 million (or 14.66%) for the nine months ended March 31, 2010. The increase in revenue 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 period, revenue for the nine months ended March 31, 2011 was $82.11 million. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 13.74% for the three months and 13.52% for the nine months ended March 31, 2011.

Colocation revenue increased to $4.19 million and $11.23 million for the three and nine months ended March 31, 2011 compared with $3.41 million and $10.07 million for the three and nine months ended March 31, 2010, respectively.  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 $0.53 million for the three and nine months ended March 31, 2011, respectively.

Bandwidth revenue decreased to $2.21 for the three months ended March 31, 2011 compared with $2.29 million for the three months ended March 31, 2010. Bandwidth revenue increased to $6.68 million for the nine months ended March 31, 2011 compared with $6.41 million for the nine months ended March 31, 2010. The increase in revenue is primarily attributable to the increased value of the Canadian dollar against the US dollar, and 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 $0.29 million for the three and nine months ended March 31, 2011, respectively.

Hosting Services revenues increased to $20.66 million and $60.44 million for the three and nine months ended March 31, 2011 from $17.92 million and $51.72 million for the three and nine months ended March 31, 2011, respectively.  The increase for the three and nine months ended March 31, 2011 is attributable to organic growth and additional revenue from the VIA acquisition of approximately $0.5 million and $1.5 million for the three and nine months ended March 31, 2011 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 $6.97 million of revenue for the three months ended March 31, 2011 compared with $5.17 million of revenue for the three months ended March 31, 2010. The Company's Canadian operations accounted for $18.51 million of revenue for the nine months ended March 31, 2011 compared to $14.86 million of revenue for the nine months ended March 31, 2010. This change is primarily related to organic growth and favorable foreign exchange effects of $0.22 million and $0.83 million for the three months and nine months ended March 31, 2011. 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 $3.05 million for the three months ended March 31, 2011 from $14.85 million for the three months ended March 31, 2010.  During the three months ended March 31, 2011, the Company incurred costs of $1.25 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 62.33% for the three months ended March 31, 2011 from 59.25% for the three months ended March 31, 2010.

The increase in cost of sales for the three months ended March 31, 2011 compared to the same period in the prior year is primarily due to increased staff costs of $0.07 million, increased depreciation costs of $1.29 million, increased software license costs of $0.21 million, increased power costs of $0.46 million, increased SLA and Charge backs of $0.22 million, increased bandwidth  costs of $0.27 million and increased rent costs of $0.54 million associated with data center expansion in the United Kingdom and Toronto.

Cost of sales increased to $51.09 million for the nine months ended March 31, 2011 from $42.67 million for the nine months ended March 31, 2010.  Cost of sales as a percentage of revenue increased to 61.60% for the nine months ended March 31, 2011 from 58.99% for the nine months ended March 31, 2010.

The increase in cost of sales for the nine months ended March 31, 2011 compared with the same period in the prior year is primarily due to increased staff costs of $0.37 million, increased depreciation costs of $3.35 million, increased software license costs of $0.65 million, increased power costs of $1.48 million, increased repairs and maintenance costs of $0.22 million, increased SLA and Charge backs of $0.1 million, increased bandwidth  costs of $0.63 million and increased rent costs of $1.63 million associated with data center expansion in the United Kingdom and Toronto.

Total operating expenses increased by $2.35 million to $10.4 million for the three months ended March 31, 2011 from $8.05 million for the three months ended March 31, 2010.  Operating expenses as a percentage of revenue increased to 36.2% for the three months ended March 31, 2011 from 32.10% for the three months ended March 31, 2010.  The increase in operating expenses for the three months ended March 31, 2011 is largely attributable to $0.98 million higher staff and training cost, increased commission expenses of $0.45 million, increased professional services of $0.06 million, increased rent of $0.07 million, increased office expenses of $0.12 million, increased property tax of $0.03 million, increased bonus expenses of $0.17 million, increased amortization expense of $0.35 million, increased travel expenses of $0.05 million, higher insurance expenses of $0.01 million and $0.33 million higher advertising expenses, in part offset by lower stock based compensation of $0.14 million, lower bad debt expense of $0.12 million, and bank and credit card charges of $0.02 million. Total operating expense for the three months ended March 31, 2011 is comprised of $4.74 million (2010: $3.32 million) sales and marketing expenses, $4.39 million (2010: $3.95 million) general and administrative expenses, and $1.27 million (2010: $0.78 million) in expenses for technology and customer relations. During the three months ended March 31, 2011, the company incurred $0.97 million related to its United Kingdom expansion which are included in operating expenses, $0.33 million of which are categorized as general and administrative expenses and $0.63 million of which are categorized as selling and marketing expenses.

Total operating expenses increased by $6.2 million to $28.96 million for the nine months ended March 31, 2011 from $22.76 million for the nine months ended March 31, 2010.  Operating expenses as a percentage of revenue increased to 34.91% for the nine months ended March 31, 2011 from 31.47% for the nine months ended March 31, 2010.  The increase in operating expenses for the nine months ended March 31, 2011 is largely attributable to $3.06 million higher staff and training cost, increased commission expenses of $0.9 million attributable to new sales, increased professional services of $0.54 million, increased rent of $0.18 million, increased office expenses of $0.23 million, increased property tax of $0.13 million, increased insurance expenses of $0.03 million, increased travel expenses of $0.03 million, increased amortization expenses of $0.18 million and $1.19 million higher advertising expenses offset in part by $0.09 million lower stock based compensation, $0.15 million in decreased bad debt expense, lowered bank and credit card charges $0.02 million and lower bonus expense of $0.01 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 nine months ended March 31, 2011 is comprised of $12.67 million (2010: $9.29 million) sales and marketing expenses, $12.62 million (2010: $11.31 million) general and administrative expenses, and $3.67 million (2010: $2.16 million) in expenses for Technology and Customer relations. During the nine months ended March 31, 2011, the company incurred $2.57 million related to its United Kingdom expansion which are included in operating expenses, $0.98 million of which are categorized as general and administrative expenses and $1.57 million of which are categorized as selling and marketing expenses.

Normalized EBITDA was $6.6 million for the three months ended March 31, 2011, compared with $6.4 million in the prior year period.

Net loss for the quarter ended March 31, 2011 was $1.31 million, compared to net income $0.46 million for the same period in 2010. Net loss for the nine month period ended March 31, 2011 was $1.6 million, compared to net income of $2.6 million for the same period in 2010.

The Company had working capital of $15.95 million at March 31, 2011 compared to a working capital deficit of $7.14 million as at June 30, 2010.  The increase in working capital 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 March 31, 2011, the Company had available $12.81 million from its $75 million credit facilities.

PEER 1 Hosting had 120,576,370 common shares issued and outstanding as at May 6, 2011.

EBITDA Reconciliation

     
(unaudited - prepared by management)    
(in $ thousands) Three Months Ended
  31-Mar-11 31-Mar-10
     
Net Profit (Loss)         (1,311)                459 
Income tax expense                     698          775 
Interest expense                 721                   338 
Amortization - licences, fixed assets and deferred network costs          5,288       3,642 
Stock based compensation          482                  620 
Loss (gain) on disposal of assets                  (8)                  (29)
Amortization of deferred gain         (20)                   (20)
Loss on Derivative                        -                    111 
Foreign exchange loss                 325                   75 
EBITDA              6,175                5,971 
     
Commission - one time                    375   
Settlement of legal claim                        -                   440 
Normalized EBITDA              6,550                 6,411

Conference Call

PEER 1 Hosting will hold a conference call Wednesday, May 11, 2011 at 5:30pm Eastern Time (ET), to discuss the results the third 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 May 18, 2011, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-800-642-1687 and enter the reservation number: 64120554 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=3513400

Please connect at least 10 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
March 31, 2011
(in thousands of United States dollars)

  March 31,
2011
June 30,
2010
Assets        
Current:        
  Cash and cash equivalents $ 23,503 $ 2,321
  Accounts receivable   4,919   3,249
  Income tax receivable   1,088   623
  Future income tax asset   228   97
  Prepaid expenses   2,415   1,655
    32,153   7,945
Other assets   2,321   2,688
Future income tax asset   2,684   1,900
Property and equipment   71,078   53,237
Equipment under capital lease   789   986
Goodwill   2,363   2,363
Intangible assets   4,123   3,527
  $ 115,511 $ 72,646
Liabilities        
Current:        
  Accounts payable and accrued liabilities $ 9,517 $ 9,114
  Deferred revenue   2,707   2,216
  Current portion of deferred gain   79   79
  Current portion of deferred lease inducements   126   126
  Current portion of derivative liabilities   111   170
  Current portion of notes payable   3,333   3,000
  Current portion of obligations under capital lease   328   376
    16,201   15,081
Deferred gain   355   414
Deferred lease inducements   502   557
Derivative liabilities   424   170
Notes payable   57,780   16,404
Obligation under capital lease   17   232
    75,279   32,858
Shareholders' equity   40,232   39,788
  $ 115,511 $ 72,646

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Statements of Shareholders' Equity
For the Three and Nine Months Ended March 31, 2011
(in thousands of United States dollars except number of shares)

  Three months ended   Nine months ended
  March 31, 2011 March 31, 2010   March 31, 2011 March 31, 2010
  Number Amount Number Amount   Number Amount Number Amount
SHARE CAPITAL                  
Common shares                  
  Balance at beginning of period 119,645,665 $    27,693 121,260,741 $    27,942   119,721,834 $    27,631 119,314,323 $    26,950
  Stock options exercised           56,972            67 33,879             14          170,303          173        352,011           225
  Warrants exercised        833,333           422 -               -          833,333           422     1,628,286           781
  Purchase of shares for cancellation pursuant to normal course issuer bid                   -               - -               -   (189,500) (44)                   -               -
  Balance at end of period 120,535,970      28,182 121,294,620     27,956   120,535,970      28,182 121,294,620      27,956
                   
CONTRIBUTED SURPLUS                  
  Balance at beginning of period          7,877          5,709           6,804          4,766
  Stock-based compensation              482             619           1,598         1,684
  Stock options exercised             (51)      (5)     (94)   (127)
  Balance at end of period         8,308          6,323           8,308         6,323
                   
Warrants                  
  Balance at beginning of period       833,333            86 833,333            86         833,333            86     2,461,619          493
  Warrants exercised       (833,333)        (86) -              -   (833,333) (86) (1,628,286) (407)
  Balance at end of period - - 833,333            86   -              -        833,333            86
RETAINED EARNINGS                  
  Balance at beginning of period          5,592          6,862             5,619           4,709
  Net income   (1, 311)             459     (1,127)           2,612
  Purchase of shares for cancellation pursuant to normal course issuer bid               -                 -     (211)                  -
  Balance at end of period         4,281          7,321             4,281           7,321
ACCUMULATED OTHER COMPREHENSIVE INCOME                  
  Balance at beginning of period           (11)   (315)     (352)   (279)
  Other comprehensive income (loss)          (528)   (38)     (187)   (74)
  Balance at end of period          (539)   (353)     (539)   (353)
  Total - shareholders' equity   $   40,232     $    41,333     $    40,232   $    41,333

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Statement of Operations
For the Three and Nine Months Ended March 31, 2011
(in thousands of United States dollars, except per share amounts)

  Three months ended   Nine months ended
  March 31,
2011
March 31,
2010
  March 31,
2011
March 31,
2010
Revenue          
  Colocation Services $              8,067 $              7,143   $           22,501 $            20,616
  Hosting Services              20,662              17,923                60,442              51,721
               28,729              25,066                82,943              72,337
Cost of revenue              17,906              14,852                51,094              42,670
Gross profit              10,823              10,214                31,849              29,667
Operating expenses              10,401                8,047                28,959              22,761
Operating income before other items                    422                2,167                  2,890                6,906
Other items:          
   Interest income (3) (2)   (17) (8)
   Gain on insurance recovery                       -                      -                        - (93)
  Gain on disposal of property and equipment (8) (29)   (36) (71)
   Loss on legal settlement                      440                      24                   440
   Loss on derivative                       -                  111                        -                    111
   Foreign exchange loss                   325                    75                    531                   264
   Interest expense - long term                   721                  338                 1,950                   987
                 1,035                   933                 2,452                1,630
Income before income taxes (613)                1,234                    438                5,276
Future income tax recovery (35) (212)   (883) (712)
Current income tax expense                   733                  987                  2,448                3,376
Income tax expense                   698                   775                  1,565                2,664
Net income (loss) $            (1,311) $                 459   $            (1,127) $              2,612
Other comprehensive income:          
  Change in unrealized fair value of derivatives designated as cash flow hedges (528) (38)   (187) (74)
Comprehensive income $           (1,839) $                 421   $(1,314) $             2,538
             
Net income (loss) attributable to:          
   Common shares $            (1,311) $                 459   $            (1,127) $             2,612
Comprehensive income attributable to:          
   Common shares (1,839)                   421   (1,314)               2,538
Basic and diluted earnings (loss) per share $              (0.01) $               0.00   $             (0.01) $             0.02
Weighted average number of shares outstanding:          
  Basic   120,042,547 121,274,770   119,938,894 120,653,339
  Diluted   120,042,547 124,338,272   119,938,894 124,316,811

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Statement of Cash Flows
For the Three and Nine Months Ended March 31, 2011
(in thousands of United States dollars)

  Three months ended   Nine months ended
  March 31,
2011
March 31,
2010
  March 31,
2011
March 31,
2010
Operating Activities:          
  Net income (loss) $     (1,311) $           459    $     (1,127)                               $        2,612
  Adjustments for non-cash items:          
    Amortization of property and equipment          5,042          3,560           13,685        10,055
    Amortization of intangible assets              246               82               472            569
    Ineffective portion of cash flow hedge                   -               283                -
    Bad debt expense               89             174               271             388
    Gain on disposal of property and equipment (8) (29)   (36) (71)
    Gain on insurance                -                -                  - (93)
    Amortization of deferred gain (20) (20)   (59) (59)
    Amortization of deferred loan origination fees               61               74              408             191
    Future income tax recovery (35) (212)   (883) (712)
    Stock-based compensation included in income              482             620           1,598          1,684
    Decrease in deferred lease inducements (18) (37)   (54) (110)
  Changes in non-cash working capital:          
    Increase in accounts receivable (193)             405   (1,941) (458)
    Decrease (increase) in prepaid expenses            894 (81)   (763) (657)
    Increase in accounts payable and accrued liabilities              669             490              287          1,147
    Increase (decrease) in income taxes payable          1,216               54   (465) (2,122)
    Decrease (increase) in deferred revenue             476 (314)              491 (200)
Cash flows from operating activities          7,590           5,225          12,167        12,164
Investing Activities:          
    Acquisition of subsidiary, net of cash acquired                 - (534)                  - (534)
    Investment in other assets               45 (135)   (625) (362)
    Acquisition of property and equipment (10,973) (9,390)   (31,228) (22,992)
    Acquisition of intangible assets (507) (389)   (1,064) (1,325)
    Proceeds on disposition of equipment                18               29                 46               71
Cash flows used in investing activities (11,417) (10,419)   (32,871) (25,142)
Financing Activities:          
    Proceeds from notes payable        25,035         2,000          74,172         2,000
    Repayments of notes payable (1,000) (750)   (32,726) (1,500)
    Payment of capital lease obligations (94) (66)   (291) (178)
    Payment of derivative liabilities (283)     (283)  
    Issuance of capital stock            352                9              415            471
    Purchase of shares for cancellation pursuant to normal course issuer bid                -                 -   (255)                -
Cash flows from (used in) financing activities       24,010          1,193          41,032             793
Foreign exchange gain (loss) on cash and cash equivalents            804               75              854             137
Increase (decrease) in cash and cash equivalents       20,987 (3,926)          21,182 (12,048)
Cash and cash equivalents, beginning         2,516          7,622            2,321       15,744
Cash and cash equivalents, ending $      23,503 $        3,696   $      23,503 $       3,696
Supplemental Disclosure of Cash Flow Information          

 

SOURCE Peer 1 Network Enterprises, Inc.

For further information:

For investor inquiries please contact:

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

For media inquiries please contact:

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

Profil de l'entreprise

Peer 1 Network Enterprises, Inc.

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