Hostopia Reports 42% Rise in Operating Income on Record Third Quarter Revenue



    MISSISSAUGA, ON and FT. LAUDERDALE, FL, Feb. 11 /CNW/ - Hostopia.com Inc.
(TSX: H), a leading provider of web services that enable small and
medium-sized businesses to establish and maintain an Internet presence, today
reported its unaudited financial results for the third quarter ended
December 31, 2007. All figures are in U.S. dollars unless otherwise stated.

    Highlights

    
    -  Q3 revenue increased 29.8% year over year; 7.1% sequentially from Q2
    -  31st consecutive quarter of increasing revenue
    -  17th consecutive quarter of positive operating income
    -  Announced the launch of new Nexthaus mobile data synchronization
       applications
    -  Closed 9 new customer contracts for web services, templates and mobile
       sync services
    -  Added 8,000 end users
    

    "We are pleased with our continued sequential revenue growth and the
demonstrated earnings leverage our increased revenues bring," said Colin
Campbell, Hostopia's CEO. "The Company showed strong revenue growth driven by
the record 28,000 end user accounts we migrated onto our platform in the
previous quarter and the net addition of a further 8,000 end users this
quarter. The large end user increase year to date, combined with our backlog
of website and email migrations, should result in a further improvement in our
operating results over the remainder of the year."

    Financial Results for the Third Quarter of Fiscal 2008

    Revenues increased 29.8% to $7.3 million in the three months ended
December 31, 2007, compared to the same period last year. This was the 31st
consecutive quarter of higher revenues. Sequential revenue growth of 7.1% in
the third quarter was primarily due to the migration of 28,000 end users onto
the Hostopia platform in the previous quarter as well as the net addition of
8,000 end users this quarter. Two website template license contracts also
contributed to the sequential revenue growth.
    Gross profit of $6.3 million increased by $1.4 million compared to last
year. Income before interest and income taxes was $643,000 up $189,000,
compared to the third quarter of last year. This 42% increase in income before
interest and income taxes was tempered by the $1.2 million increase in
operating expenses resulting primarily from: (1) personnel costs associated
with two new start-up units within Hostopia: Website Experts (website creation
services) and the Nexthaus mobile syncing service, (2) higher amortization
expenses related to the acquisition of licensed technology and Nexthaus'
intellectual property, (3) increased operating costs and sales commissions
related to the large end user migrations in the second quarter, and (4) the
effect of the appreciation of the Canadian dollar on our Canadian dollar
denominated expenses.
    Income before income taxes of $950,000 was $320,000 higher than the same
period last year because of improved operating profitability as well as
$131,000 higher net interest income. As revenues continue to grow over the
remainder of the year, both from our existing and expanding customer base as
well as our expanded product offerings, we expect our income before interest
and taxes will continue to improve.
    Net income of $615,000 was $242,000 higher than the same quarter last
year. Basic and diluted net income per common share were both $0.05 this
quarter compared to $0.05 for basic and $0.04 for diluted net income per
common share in the third quarter of last year. Net income per share was
little changed as higher net income was offset by the increase in weighted
average shares outstanding related to the Company's public offering of
4.83 million shares in the third quarter of last year and the exercise of
516,000 stock options this year.
    "Telecoms today are looking to expand into the high-growth web services
industry," said Mr. Campbell. "Hostopia is uniquely positioned to assist
telecoms in this market with its comprehensive suite of value-add services
that support small businesses who want to earn additional revenue using the
Internet. New and planned additions to our suite of services include Website
Experts, Mobile Sync and digital fax to e-mail. All of these services will
support future revenue growth.
    Mr. Campbell continued, "In addition we are looking to accelerate our
growth through acquisitions that fully meet our strict investment criteria. We
are committed to creating value for our shareholders in the coming quarters
through both internal and external investment."

    About Hostopia.com Inc.

    Hostopia is a leading provider of web services that enable small and
medium-sized businesses to establish and maintain an Internet presence. The
company's customers are communication services providers, including
telecommunication carriers, cable companies, internet service providers,
domain registrars, and web hosting service providers. Hostopia's customers
purchase its web services on a wholesale basis and resell these services under
their own brands to small and medium-sized businesses. The company provides
customers with the technology, infrastructure, and support services to enable
them to offer web services, while saving them research and development as well
as capital and operating costs typically associated with the design,
development, and delivery of web services.

    Forward-Looking Statements

    This news release includes certain "forward-looking statements" and
forward-looking information that are subject to risks, uncertainties and by
the forward-looking statements. These forward-looking statements and
forward-looking information include, but are not limited to, plans,
objectives, expectations and intentions, growth trends and other statements
contained in this press release that are not historical facts and statements
identified by words such as "expects," "anticipates," "intends," "plans,"
"believes," "seeks," "estimates" or words of similar meaning. These other
factors that could cause actual results or outcomes to differ materially from
those contemplated statements are based on our current beliefs or expectations
and there are a number of important factors that could cause the actual
results or outcomes to differ materially from those indicated by these
forward-looking statements, including without limitation, our ability to
maintain our sales efficiency, our ability to maintain our existing, and
develop new, strategic relationships, the number of our net end-user
additions, our monthly customer turnover and our ability to successfully
integrate recently acquired businesses and operations and those risks set
forth or referenced under the caption "Risk Factors" in Hostopia's Form 10-K
for the year ended March 31, 2007. This filing is available on web sites
maintained by the Securities and Exchange Commission at www.sec.gov and SEDAR
at www.sedar.com. Readers are cautioned not to place undue reliance on
forward-looking statements as actual future results and events could differ
materially from that expressed in the forward-looking statements. Hostopia
does not undertake any obligation to update any forward-looking statements
contained in this document as a result of new information, future events or
otherwise.

    -------------------------------------------------------------------------
    Conference Call Information

    Hostopia will hold its third quarter conference call on Monday,
    February 11, 2008 at 5:15 p.m. EST. Colin Campbell, Chief Executive
    Officer and Michael Mugan, Chief Financial Officer, will discuss
    financial results and performance for the three months ended December 31,
    2007.

    To access the call, please dial 416-644-3415 or 1-800-732-9307.

    A replay of the conference call will be available as of 7:15 p.m. EST,
    Monday February 11, 2008 until midnight, Monday, February 18, 2008. To
    access the replay, call 416-640-1917 or 1-877-289-8525, followed by
    passcode 21260486, followed by the number sign.

    To listen to live Webcast of the call please enter 
http://www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2146100 in your web
browser
    -------------------------------------------------------------------------



    
                              Hostopia.com Inc.
                         Consolidated Balance Sheets
                         (Expressed in U.S. dollars)

                                                   December 31,    March 31,
                                                       2007          2007
                                                   ------------  ------------
                                                   (Unaudited)
    Assets
    Current assets:
      Cash and cash equivalents                    $26,016,795   $27,367,667
      Trade accounts receivable, net of
       allowance for doubtful accounts of
       $224,953; (March 31, 2007 - $114,755)         3,100,073     1,320,422
      Deferred tax assets                              166,000       117,000
      Prepaid expenses                                 393,550       377,242
      Income taxes recoverable                       1,341,741             -
                                                   ------------  ------------
      Total current assets                          31,018,159    29,182,331
                                                   ------------  ------------

      Property and equipment, net of accumulated
       amortization of $6,678,020; (March 31,
       2007 - $5,163,911)                            3,571,417     2,922,677
    Other assets                                        65,074        60,997
    Intangible assets, net of accumulated
     amortization of $2,519,945; (March 31, 2007
     - $1,594,348)                                   2,414,837     1,690,284
    Deferred tax assets                              1,289,000     1,101,000
                                                   ------------  ------------
    Total assets                                   $38,358,487   $34,957,289
                                                   ------------  ------------
                                                   ------------  ------------

    Liabilities and Stockholders' Equity
    Current liabilities:
      Accounts payable                             $   527,538   $   380,040
      Accrued liabilities                            1,265,939       705,229
      Payroll and other taxes payable                   36,930        34,956
      Income taxes payable                                   -       269,020
      Current portion of deferred lease
       inducements                                      79,900        79,900
      Deferred revenue                                 790,269       983,299
      Current portion of long-term liability                 -        72,000
                                                   ------------  ------------
      Total current liabilities                      2,700,576     2,524,444
    Deferred lease inducements                         182,261       237,035
    Long-term liability                                      -       292,957
                                                   ------------  ------------
    Total liabilities                                2,882,837     3,054,436
                                                   ------------  ------------

    Stockholders' equity:
      Capital stock
        Authorized:
          30,000,000 common shares, par value
          $0.0001
        Issued and outstanding
          11,613,411 common shares (March 31, 2007
          - 11,097,251 common shares)                  217,120       217,069
      Additional paid-in capital                    33,142,987    31,054,703
      Accumulated other comprehensive loss             (43,881)      (43,881)
      Retained earnings                              2,159,424       674,962
                                                   ------------  ------------
    Total stockholders' equity                      35,475,650    31,902,853
                                                   ------------  ------------
    Total liabilities and stockholders' equity     $38,358,487   $34,957,289
                                                   ------------  ------------
                                                   ------------  ------------



                              Hostopia.com Inc.
                    Consolidated Statements of Operations
                         (Expressed in U.S. dollars)
                                 (Unaudited)

                             Three months ended         Nine months ended
                                 December 31,              December 31,
                          ---------------------------------------------------
                              2007         2006         2007         2006
                          ------------ ------------ ------------ ------------
    Revenues
      Webhosting and
       applications
       services           $ 6,869,526  $ 5,433,707  $19,498,231  $16,059,489
      Other services          419,683      183,142      857,019      544,399
                          ------------ ------------ ------------ ------------
      Total revenues        7,289,209    5,616,849   20,355,250   16,603,888
                          ------------ ------------ ------------ ------------

    Cost of revenues
      Webhosting and
       applications
       services               894,180      624,834    2,477,510    1,825,514
      Other services           66,365       84,963      234,620      254,066
                          ------------ ------------ ------------ ------------
      Total cost of
       revenues               960,545      709,797    2,712,130    2,079,580
                          ------------ ------------ ------------ ------------
    Gross profit             6,328,664   4,907,052   17,643,120   14,524,308
                          ------------ ------------ ------------ ------------

    Expenses
      Sales and
       marketing(a)         1,498,140    1,259,359    4,352,426    3,606,616
      Research and
       development(a)       1,084,361      773,901    2,939,238    2,268,885
      Project
       management(a)          516,464      407,936    1,584,132    1,247,733
      Technical support(a)    985,118      781,916    2,863,250    2,255,123
      General and
       administrative(a)      737,299      541,285    1,971,248    1,363,966
      Amortization of
       intangible assets      326,204      201,219      916,878      543,264
      Amortization of
       property and
       equipment              537,827      487,310    1,514,109    1,338,253
                          ------------ ------------ ------------ ------------
                            5,685,413    4,452,926   16,141,281   12,623,840
                          ------------ ------------ ------------ ------------

    Income before the
     undernoted               643,251      454,126    1,501,839    1,900,468
                          ------------ ------------ ------------ ------------

    Interest income           306,864      180,327      954,829      220,026
    Interest (expense)              -       (4,206)      (4,206)     (12,618)
                          ------------ ------------ ------------ ------------
                              306,864      176,121      950,623      207,408
                          ------------ ------------ ------------ ------------

    Income before income
     taxes                    950,115      630,247    2,452,462    2,107,876
                          ------------ ------------ ------------ ------------

    Income taxes (recovery)
      Current                 283,000      343,000    1,205,000    1,090,000
      Deferred                 52,000      (86,000)    (237,000)    (274,000)
                          ------------ ------------ ------------ ------------
                              335,000      257,000      968,000      816,000
                          ------------ ------------ ------------ ------------
    Net income            $   615,115  $   373,247  $ 1,484,462  $ 1,291,876
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Net income per share
      Basic               $      0.05  $      0.05  $      0.13  $      0.23
      Diluted                    0.05         0.04         0.13         0.18
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    Weighted average
     number of common
     shares outstanding
      Basic                11,594,710    7,787,745   11,473,904    5,288,716
      Diluted              11,674,748    8,951,380   11,600,738    7,340,008
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------

    (a) Stock-based
     compensation is
     included in operating
     expenses as follows:
      Sales and marketing $    31,672  $    27,925  $    95,055  $    94,210
      Research and
       development             40,491        4,468       98,600       15,074
      Project management        3,944        2,467       13,014        8,322
      Technical support         3,321        3,723       10,549       12,561
      General and
       administrative          24,450        7,959       63,448       26,850
                          ------------ ------------ ------------ ------------
                             $103,878  $    46,542  $   280,666  $   157,017
                          ------------ ------------ ------------ ------------
                          ------------ ------------ ------------ ------------



                              Hostopia.com Inc.
                    Consolidated Statements of Cash Flows
                         (Expressed in U.S. dollars)
                                 (Unaudited)


                                                           Nine months
                                                       ended December 31,
                                                       2007          2006
                                                   ------------  ------------
    Cash flows from operating activities:
      Net income                                   $ 1,484,462   $ 1,291,876
      Items which do not involve cash:
        Amortization                                 2,439,706     1,881,517
        Stock-based compensation                       280,666       157,017
        Excess tax benefits from stock-based
         compensation                                 (350,000)            -
        Non-cash interest                                4,206        12,618
        Deferred income taxes                         (237,000)     (446,350)
        Deferred lease inducements                     (54,774)      (43,921)
      Change in operating assets and liabilities
        Trade accounts receivable                   (1,779,651)     (393,635)
        Prepaid expense                                (16,308)     (211,319)
        Accounts payable                               147,498       422,860
        Accrued liabilities                            560,710       214,340
        Payroll taxes and other taxes payable            1,974       (17,521)
        Income taxes payable                        (1,260,761)       13,000
        Deferred revenue                              (193,030)     (119,080)
                                                   ------------  ------------
      Cash flows from operating activities           1,027,698     2,761,402
                                                   ------------  ------------

    Cash flows from (used in) financing activities:
      Issue of common shares on exercise of stock
       options                                       1,422,811         1,799
      Issue of common shares on exercise of
       warrants                                                      192,000
      Issue of common shares on initial public
       offering                                                   21,965,578
      Refund of initial public offering expenses        34,858
      Repayment of long-term liabilities              (369,163)     (126,326)
      Excess tax benefits from stock-based
       compensation                                    350,000             -
                                                   ------------  ------------
      Cash flows from (used in) financing
       activities                                    1,438,506    22,033,051
                                                   ------------  ------------

    Cash flows from investing activities:
      Acquisition of property and equipment         (2,162,849)   (1,343,096)
      Acquisition of intellectual property          (1,650,150)     (793,175)
                                                   ------------  ------------
      Cash flows from investing activities          (3,812,999)   (2,136,271)
                                                   ------------  ------------
    Effect of currency translation on cash
     balances                                           (4,077)          (36)
                                                   ------------  ------------

    Increase (decrease) in cash and cash
     equivalents                                    (1,350,872)   22,658,146

    Cash and cash equivalents, beginning of
     period(1)                                      27,367,667     3,038,217
                                                   ------------  ------------
    Cash and cash equivalents, end of period       $26,016,795   $25,696,363
                                                   ------------  ------------
                                                   ------------  ------------

    Supplemental cash flow information:
      Interest paid                                $         -   $         -
      Income taxes paid                              1,900,428     1,249,350
                                                   ------------  ------------
                                                   ------------  ------------
    -----------------------------------
    (1) Cash and cash equivalents consists primarily of an amount invested
        in a highly rated money market mutual fund, as well as cash on
        deposit and bank certificates of deposit.
    

    %SEDAR: 00023928E




For further information:

For further information: Michael Mugan, Chief Financial Officer,
Hostopia.com Inc., Tel: (416) 883-6727; Gordie Campbell, Investor Relations,
Hostopia.com Inc., Tel: (877) 444-4116, Email: invest@hostopia.com

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