PEER 1 Hosting Reports Fiscal 2012 First Quarter Results

VANCOUVER, Nov. 9, 2011 /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 months ended September 30, 2011.  All amounts are stated in US dollars unless otherwise noted.

Selected Financial Highlights Comparing the Quarters Ended September 30, 2011 and 2010

  • Revenue increased 19.69% to $31.51 million from $26.33 million;

  • Gross profit increased 26.76% to $12.73 million from $10.04 million;

  • Operating income increased 643.67% to $1.82 million from $0.25 million;

  • Normalized EBITDA was $7.88 million, up from $6.02 million; and

  • Net loss was $1.31 million down from net income of $1.04 million.

Selected Highlights for First Quarter and Period Subsequent to Quarter-End

  • Partnered with Magento Inc, the fastest growing retail eCommerce platform provider, to bring a new optimized Managed Hosting solution to online retailers;

  • Opened new 57,800 square foot green datacenter in Portsmouth, UK offering scalable managed hosting, dedicated hosting and colocation services in one of the greenest datacenters in the country. Within easy reach of London, the center has 11MVA of available power, room for 20,000 servers, and provides a direct connection to PEER 1 Hosting's 10Gb FastFiber Network™; and

  • Launched public cloud division Zunicore and Zunicore Cloud Hosting product focused on the business professional and offering users a high degree of control and flexibility through customizable resource pools, hands-free auto-scaling, and transparent pricing.

"Much of our effort in the first quarter was focused on the launch of new facilities and products, which we rolled out subsequent to quarter end, reinforcing our commitment to the EMEA region and making cloud computing more accessible," said Fabio Banducci, President and CEO of PEER 1 Hosting. "Our previous investments in infrastructure, particularly in our state of the art Toronto data centre, as well as our ability to capture and service new bandwidth intensive initiatives for key customers, drove strong improvements in revenue and earnings over the prior year period."

Financial Review for the Three Months Ended September 30, 2011 and 2010

Revenue increased 19.69% to $31.51 million for the three months ended September 30, 2011 from $26.33 million for the three months ended September 30, 2010.  The increase in revenue is primarily attributable to organic growth and the effect of the increase in value of the Canadian dollar against the US dollar. When adjusted for the exchange rates in effect during the period, revenue for the three months ended September 30, 2011 was $31.16 million. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 18.36% for the three months ended September 30, 2011.

Colocation revenue increased to $4.47 million for the three months ended September 30, 2011 compared with $3.48 million for the three months ended September 30, 2010.  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 $0.2 million for the three months ended September 30, 2011.

Bandwidth revenue increased to $2.33 million for the three months ended September 30, 2011 compared with $2.19 million for the three months ended September 30, 2010. The increase in bandwidth revenue for the three months ended September 30, 2011 is primarily attributable to organic growth and the increase in value of the Canadian dollars against the US dollar 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 $0.11 million for the three months ended September 30, 2011.

Hosting Services revenues increased to $23.13 million for the three months ended September 30, 2011 from $19.24 million for the three months ended September 30, 2010.  The increase for the three months ended September 30, 2011 is attributable to organic growth. 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 $8.31 million of revenue for the three months ended September 30, 2011 compared with $5.48 million of revenue for the three months ended September 30, 2010. This change is primarily related to organic growth and favorable foreign exchange effects of $0.33 million for the three months ended September 30, 2011.

Cost of sales increased by $2.5 million for the three months ended September 30, 2011 from $16.29 million for the three months ended September 30, 2010.  During the three months ended September 30, 2011, the Company incurred costs $1.34 million related to its operations in the United Kingdom, which are included in cost of sales.  Cost of sales as a percentage of revenue decreased to 59.6% for the three months ended September 30, 2011 from 61.86% for the three months ended September 30, 2010.

The increase in cost of sales for the three months ended September 30, 2011 compared to the same period in the prior year is primarily due to increased depreciation costs of $1.05 million, increased rent costs of $0.33 million, increased power costs of $0.29 million, increased software license costs of $0.50 million, increased bandwidth costs of $0.02 million, and increased repair and maintenance of $0.16 million.

Total operating expenses increased by $1.11 million to $10.91 million for the three months ended September 30, 2011 from $9.8 million for the three months ended September 30, 2010.  Operating expenses as a percentage of revenue decreased to 34.62% for the three months ended September 30, 2011 from 37.21% for the three months ended September 30, 2010.  The increase in operating expenses for the three months ended September 30, 2011 is largely attributable to $0.81 million higher staff and training cost, increased commission expenses of $0.19 million, increased amortization expense of $0.26 million, increased bad debt expense of $0.19 million, in part offset by lower stock based compensation of $1.02 million.  Total operating expenses for the three months ended September 30, 2011 are comprised of $4.75 million (2011: $3.95 million) sales and marketing expenses, $4.95 million (2011: $4.66 million) general and administrative expenses, and $1.2 million (2011: $1.19 million) in expenses for technology and customer relations. During the three months ended September 30, 2011, the company incurred expenses of $1.20 million related to its United Kingdom operations which are included in operating expenses, $0.40 million of which are categorized as general and administrative expenses and $0.80 million of which are categorized as selling and marketing expenses.

Normalized EBITDA was $7.88 million for the three months ended September 30, 2011, compared with $6.02 million in the prior year period.

Net loss for the first quarter ended September 30, 2011 was $1.31 million, compared with a net income of $1.04 million for the same period in 2010.

The Company had working capital deficit of $6.2 million at September 30, 2011 compared to a working capital deficit of $1.76 million as at June 30, 2011.  The increased in working capital deficit is primarily due to expenditure related to the UK expansion.  As at September 30, 2011, the Company had available $18.15 million under its $75 million credit facilities.

PEER 1 Hosting had 120,662,262 common shares issued and outstanding as at September 30, 2011.

EBITDA Reconcilation              
(unaudited - prepared by management)              
(in $ thousands)           Three Months Ended
            30-Sep-11 30-Sep-10
               
Net Profit                            (1,307)                 1,039
               
Income tax expense                               (432)                    561
               
Interest expense                             1,528                    373
               
Amortization - licences, fixed assets and
deferred network costs
                            5,703                 4,397
               
Stock based compensation                                346                 1,367
               
Loss (gain) on disposal of assets                                 48                    (16)
               
Foreign exchange loss                             1,992                (1,699)
               
EBITDA                             7,878                 6,022
               
Normalized EBITDA                             7,878                 6,022

Conference Call

PEER 1 Hosting will hold a conference call on Wednesday, November 9, 2011 at 5:30pm Eastern Time (ET), to discuss the results for the first quarter of fiscal 2012. 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. The conference call will be archived for replay until November 16, 2011, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 24916473 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=3731640

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-IFRS 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 IFRS, and accordingly investors are cautioned that EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with IFRS 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.
Condensed Interim Consolidated Statement of Financial Position (Unaudited)
(in thousands of United States dollars)
                                                   
                        Sept 30,
2011
          June 30,
2011
            July 1,
2010
                                                   
Assets                                                  
Current:                                                  
  Cash and cash equivalents                 $     3,487     $     7,803     $       2,321
  Trade and other receivables                       5,281           6,447             3,249
  Current tax asset                       30           1,189             96
  Prepaid expenses                       3,189           1,448             1,610
  Income tax receivable                       2,171           2,874             1,192
Total current assets                       14,158           19,761             8,468
Non-current:                                                  
  Other assets                 $     2,329     $     2,353     $       2,738
  Deferred tax assets                       2,130           1,817             1,277
  Property and equipment                       92,461           87,697             53,717
  Equipment under finance lease                        569           724             986
  Intangible assets                       6,983           6,636             5,921
Total non-current assets                       104,472           99,227             64,639
Total assets                 $     118,630     $     118,988     $       73,107
                                                   
Liabilities                                                  
Current:                                                   
  Trade and other payables                       10,469           9,944             9,115
  Loans and borrowings                       6,503           5,008             3,000
  Derivatives                       452           250             170
  Income tax payable                       -           -             569
  Obligations under finance lease                       141           237             376
  Deferred revenue                       2,790           2,561             2,210
Total current liabilities                 $     20,355     $     18,000     $       15,440
Non-current:                                                  
  Loans and borrowings                       49,389           53,062             16,404
  Derivatives                       1,470           875             171
  Deferred tax liability                       964           1,660             640
  Obligations under finance lease                       2,351           11             232
  Deferred revenue                       852           791             740
Total non-current liabilities                       55,026           56,399             18,187
Total liabilities                 $     75,381     $     74,399     $       33,627
                                                   
Equity                                                  
  Issued capital                 $     28,326     $     28,221     $       27,631
  Share-based payments reserve                       10,226           9,985             6,804
  Warrants                       -           -             86
  Accumulated other comprehensive income                       11           391             -
  Retained earnings                       4,686           5,993             4,961
Total equity                 $     43,249     $     44,589     $       39,482
Total liabilities and equity                 $     118,630     $     118,988     $       73,107
                                                   

PEER 1 NETWORK ENTERPRISES, INC.
Condensed Interim Consolidated Statement of Comprehensive Income (Unaudited)
(in thousands of United States dollars, except per share amounts)
                           
            Three months ended Sept 30
                2011         2010
                           
Revenue                          
Colocation services           $           8,382     $             7,093
Hosting services                     23,129                 19,235
                      31,511                 26,328
Cost of sales                     18,781                 16,286
Gross profit                     12,730                 10,042
Administration expenses                       4,950                   4,656
Sales and marketing expenses                       4,754                   3,950
Other operating expenses                       1,204                   1,191
Operating profit before other items                       1,822                      245
                           
Finance income               (6)         (13)
Gain on disposal of property and equipment                            48         (16)
Foreign exchange loss (gain)                       1,991         (1,699)
Finance expense                       1,528                      373
Profit (loss) before income taxes                       (1,739)                   1,600
                           
Income taxes               (432)                      561
Profit (loss) for the period               (1,307)                   1,039
                           
Other comprehensive income (loss):                          
  Foreign currency translation gain (loss)               (4,690)                   2,201
  Unrealized gain (loss) on  net investment in subsidiaries                       4,310         (1,090)
Other comprehensive income (loss) for the period, net of tax               (380)                   1,111
Total comprehensive income (loss) for the period           $   (1,687)     $             2,150
                           
Profit (loss) attributable to common shares           $   (1,307)     $             1,039
Total comprehensive income (loss) attributable to common shares               (1,687)                   2,150
                           
Earnings (loss) per share                          
  Basic           $   (0.01)     $               0.01
  Diluted           $   (0.01)     $               0.01
                           
Weighted average number of common shares outstanding                          
  Basic               120,633,144         119,733,661
  Diluted               120,633,144         120,321,757
                             

PEER 1 NETWORK ENTERPRISES, INC.
Condensed Interim Consolidated Statements of Changes in Equity (Unaudited)
(in thousands of United States dollars except number of shares)
                                                         
        Common
shares
    Share
capital
      Warrants     Share-based
payment
reserve
    Accumulated
other
comprehensive
income
      Retained
earnings
    Total
Balance at July 1, 2010       119,721,834   $     27,631   $   86   $ 6,804   $ -   $   4,961   $     39,482
Stock options exercised       47,285         47       -     (21)     -       -         26
Stock-based compensation                         -     1,367     -       -         1,367
Purchase of shares for
cancellation pursuant to
normal course issuer bid
      (189,500)         (44)       -           -       (211)         (255)
Transactions with owners       119,579,619         27,634       86     8,150     -       4,750         40,620
Profit for the period       -         -       -     -     -       1,039         1,039
Other comprehensive income (loss):                                                        
  Foreign currency translation gain       -         -       -     -     2,201       -         2,201
  Unrealized loss on net investment
in subsidiaries
      -         -       -     -     (1,090)       -         (1,090)
Total comprehensive income for
the period
                -       -     -     1,111       1,039         2,150
Balance at September 30, 2010       119,579,619         27,634       86     8,150     1,111       5,789         42,770
                                                         
Balance at July 1, 2011       120,576,370   $     28,221   $   -   $ 9,985   $ 391       5,993   $     44,590
Stock options exercised       85,889         105       -     (105)     -       -         -
Stock-based compensation       -         -       -     346     -       -         346
Transactions with owners       120,662,259         28,326       -     10,226     391       5,993         44,936
Loss for the period       -         -       -     -     -       (1,307)         (1,307)
Other comprehensive income (loss):                                                        
  Foreign currency translation loss       -         -       -     -     (4,690)       -         (4,690)
  Unrealized gain on net investment
in subsidiaries
      -         -       -     -     4,310       -         4,310
Total comprehensive loss for
the period
      -         -       -     -     (380)       (1,307)         (1,687)
Balance at September 30, 2011       120,662,259         28,326       -     10,226     11       4,686         43,249
                                                         

PEER 1 NETWORK ENTERPRISES, INC.
Consolidated Statement of Cash Flows (Unaudited)
(in thousands of United States dollars)
                       
            Three months ended September 30
              2011       2010
                       
Operating Activities:                      
  Net income (loss)           $ (1307)     $             1,039
  Adjustments for non-cash items:                      
    Depreciation of property and equipment                      5,432                   4,249
    Amortization of intangible assets                         272                      116
    Bad debt expense                         297                      112
    Gain on disposal of property and equipment                           48       (16)
    Amortization of deferred loan origination fees                           64                        56
    Future income tax expense             (303)       (379)
    Stock-based compensation                         346                   1,367
    Interest paid             (770)       (274)
    Income taxes refunded ( paid)                         276       (1,959)
    Net change in non-cash working capital                         971       (2,267)
Cash flows from operating activities                      5,326                  2,044
Investment Activities:                      
  Investment in other assets                           32                      157
  Acquisition of property and equipment             (10,717)       (5,216)
  Acquisition of intangible assets             (619)       (256)
  Proceeds on disposition of equipment                           29                        16
Cash flows used in investing activities             (11,275)       (5,299)
Financing Activities:                      
  Proceeds from notes payable                              -                   6,000
  Repayments of notes payable                              -       (750)
  Payment of finance lease obligations             (96)       (99)
  Purchase of shares for cancellation pursuant to normal course issuer bid                              -       (255)
  Issuance of capital stock                              -                        26
Cash flows from (used in) financing activities             (96)                   4,922
Foreign exchange gain (loss) on cash and cash equivalents                      1,729       (1,627)
Increase in cash and cash equivalents             (4,316)                       40
Cash and cash equivalents, beginning                      7,803                  2,321
Cash and cash equivalents, ending           $          3,487     $            2,361
Supplemental non-cash financing and investing disclosure:                      
Effect of acquisition of property and equipment in trade and other payables           $               31     $            1,440

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

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