PEER 1 Networks Reports Fourth Quarter and Year-End Results



    Annual Normalized EBITDA Increases by 41% to $28 Million

    VANCOUVER, Sept. 25 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX: PIX),
a leading provider of online IT infrastructure, today announced the results
for the three and twelve months ended June 30, 2008. All amounts are stated in
US dollars.

    Selected Financial Highlights for the year ended June 30, 2008:

    
    -   Revenue increased 20.6% to $89.3 million, compared with $74.1 million
        in the prior year;
    -   Gross profit increased 42.1% to $40.5 million, compared with
        $28.5 million in the prior year;
    -   Operating income increased 99.8% to $14.7 million, compared with
        $7.4 million in the prior year;
    -   Normalized EBITDA increased 40.8% to $28.1 million, compared with
        $19.9 million in the prior year;
    -   Normalized EBITDA margin increased to 31.4% compared with 26.9% in
        the prior year; and
    -   Net income increased by 94.5% to $7.1 million, compared with
        $3.6 million in the prior year.

    Operational highlights:
    -   The Company entered into an agreement to lease 5,478 square feet of
        additional data center space at 151 Front Street in Toronto.
        Occupancy is scheduled to commence in October 2008; and
    -   PEER 1 quadrupled its network backbone capacity through a
        comprehensive standardized network upgrade.
    

    "We are passionate about enabling our customers to realize the limitless
potential of the Internet. The dedication of our employees, coupled with award
winning service, are responsible for the exceptional growth PEER 1 experienced
in 2008," said Fabio Banducci, President and Chief Executive Officer of
PEER 1. "We have been busy expanding the capacity of our business and network
to meet the needs of our present and future customers."

    Fourth Quarter and Annual Financial Review

    Revenues increased by 18.0% to $23.4 million for the three months ended
June 30, 2008, compared with $19.8 million for the same period in 2007.
Foreign exchange effects accounted for $0.5 million of this increase. For the
year ended June 30, 2008, consolidated revenues increased by 20.6% to
$89.3 million, compared with $74.1 million for the year ended June 30, 2007.
For the year ended June 30, 2008, the increase in revenue attributable to
currency fluctuations was $2.6 million. Organic growth, after removing the
effects of foreign exchange, was 15.4% for the quarter ended June 30th, 2008
compared with the same period in 2007, and 17.1% for fiscal 2008 compared with
2007.
    Growth was consistent throughout the year in dedicated hosting, PEER 1's
largest revenue segment. Dedicated hosting revenues increased by 17.7% to
$16.4 million for the three months ended June 30, 2008, from $13.9 million in
the same period of the previous year. Dedicated hosting revenues increased by
17.6% to $62.0 million for the year ended June 30, 2008, from $52.7 million
for the previous year.
    For the three months ended June 30, 2008, co-location revenues increased
by 21.1 % to $3.2 million, from $2.7 million for the three months ended
June 30, 2007. For the year ended June 30, 2008, co-location revenues
increased by 27% to $12.6 million, from $9.9 million in the previous year.
Compared to the rest of the year, the pace of growth in the co-location
segment was slower in the fourth quarter of 2008, as a result of demand
outstripping capacity in the Toronto and Vancouver markets. This constraint
will be somewhat alleviated by a datacenter expansion at 151 Front Street in
Toronto that will be available in October 2008.
    Bandwidth revenues increased by 8.9% to $2.5 million for the three months
ended June 30, 2008, compared with $2.3 million in the same period of the
previous year. Annual bandwidth revenues increased by 17.4% to $10.0 million
for the year ended June 30, 2008, compared with $8.5 million for the year
ended June 30, 2007.
    Cost of sales as a percentage of revenue decreased to 52.7% for the three
months ended June 30, 2008, from 59.9% for the three months ended June 30,
2007. For the year ended June 30, 2008, PEER 1's cost of sales as a percentage
of revenue decreased to 54.7%, from 61.5% for the year ended June 30, 2007.
The decrease in cost of sales as a percentage of revenue can be attributed to
costs remaining relatively stable, while revenue grew during the three and
twelve month periods ended June 30, 2008.
    For the three months ended June 30, 2008, total operating expenses
increased by 11.6% to $7.2 million, from $6.5 million for the corresponding
period in 2007. Operating expenses as a percentage of revenue were 30.9% for
the three months ended June 30, 2008, compared with 32.6% for the three months
ended June 30, 2007. Total operating expenses for 2008 increased by 22.1% to
$25.8 million from $21.2 million for the year ended June 30, 2007. As a
percentage of revenue, operating expenses increased to 28.9% for the year
ended June 30, 2008, compared with 28.6% for the year ended June 30, 2007 as a
result of higher stock based compensation in fiscal 2008.
    Normalized EBITDA for the quarter ended June 30, 2008 grew by 39.5% to
$7.8 million, compared with $5.6 million in the fourth quarter of 2007.
Normalized EBITDA margin for the three months ended June 30, 2008 was 33.3%,
compared with 28.2% for the corresponding period in 2007. For the year ended
June 30, 2008, normalized EBITDA grew by 40.8% to $28.1 million, compared with
$19.9 million in fiscal 2007. Normalized EBITDA margin for the year ended June
 30, 2008 was 31.4%, compared with 26.9% in the previous year.
    Net income for the three months ended June 30, 2008 decreased to
$1.7 million, from $2.3 million for the corresponding period in 2007. The
relative decrease in net income between the fourth quarters of 2008 and 2007
can be attributed to the recognition of future tax benefits in the fourth
quarter of 2007 that was partially offset by an increase in operating income
in the fourth quarter of 2008. For the year ended June 30, 2008, net income
increased by 94.5% to $7.1 million, from $3.6 million in 2007.
    As at June 30, 2008, PEER 1 had cash and cash equivalents of
$11.0 million, compared with $8.8 million as at June 30, 2007. The Company had
a working capital deficit of $1.3 million at June 30, 2008, compared with a
working capital deficit of $1.3 million as at the end of June 30, 2007. The
working capital deficit of $1.3 million at June 30, 2008 includes deferred
revenue of $4.2 million and current portion of notes payable of $3.3 million.
The Company anticipates current liquidity and cash generated from operations
to be sufficient to fund existing operations for the foreseeable future.
PEER 1 had 118.5 million common shares outstanding as at June 30, 2008.

    Capacity and Utilization Update

    Prior to June 30, 2008, PEER 1 entered into an agreement securing
5,478 square feet of additional data center space at 151 Front Street in
Toronto that will increase the Company's capacity by 120 cabinet equivalents.
The cost of converting this to data center space is expected to be $2.5
million. Occupancy is scheduled for October 2008.
    Subsequent to June 30, 2008, on September 5, 2008, the Company entered
into an agreement to expand the existing leased data center facility in
Herndon, Virginia, adding 8,614 square feet of contiguous space that will
increase the Company's capacity by approximately 2880 servers. Due to the fact
that this space was formerly used as a data center, the costs of converting
the space for PEER 1 are substantially lower, and are expected to be
approximately $1.6 million. The additional space is scheduled to be made
available to customers commencing in the first quarter of calendar year 2009.

    
    As at August 2008              Total Capacity     Current Utilization (%)

    Hosting (servers)                  31,000                   63%
    Co-location (NCE's)                 1,600                   81%
    

    The capacity numbers include the incremental capacity that 151 Front
Street and Virginia will add when complete.
    The Company continues to seek additional data center space in Vancouver
and Toronto to address the growing need for co-location services in these two
markets, as well as to locate dedicated hosting services in the Canadian
marketplace.

    Subsequent Events

    In July 2008, an electrical fire in a BC Hydro underground vault led to a
power outage in downtown Vancouver that interrupted power at the Company's
data center facility. As a result of the related service interruption, the
company issued credits in the amount of $93,000 to affected customers. The
Company has completed a full review of the event and the fail safe measures
needed to mitigate these circumstances in the future. This review can be found
at http://www.peer1.com/forums/.

    
    EBITDA Reconciliation

    (unaudited - prepared by
     management)
    (in $ thousands)               Twelve Months Ended   Three Months Ended
                                 --------------------------------------------
                                  30-Jun-08  30-Jun-07  30-Jun-08  30-Jun-07

    Net Profit                        7,064      3,631      1,734      2,303
    Income tax expense                5,237     (2,678)     1,451     (2,918)
    Interest expense                  2,179      3,223        548        702
    Interest accretion on notes
     payable                             88        209         22         45
    Amortization of preferred share
     discount                             -      1,361          -        241
    Amortization - licenses,
     fixed assets and deferred
     network costs                   11,048     10,945      3,028      2,954
    Stock based compensation          1,453        449        273        133
    Loss (gain) on disposal of
     assets                             (12)       138          2         10
    Amortization of deferred gain       (79)       (59)       (20)       (20)
    Foreign exchange loss (gain)        367        (33)       126         (9)
    -------------------------------------------------------------------------
    EBITDA                           27,345     17,186      7,164      3,441
    EBITDA margin                     30.31%     23.19%     30.63%     17.35%

    Impairment of intangible assets       -      1,185          -      1,185
    Provision for sales / use tax       624        915        624        915
    Integration costs                    93        650          -         42
    -------------------------------------------------------------------------
    Normalized EBITDA                28,062     19,936      7,788      5,583
    Normalized EBITDA margin          31.41%     26.91%     33.29%     28.16%
    

    Conference Call

    PEER 1 will be holding a conference call today, Thursday, September 25,
2008 at 5:30 p.m. EDT, to discuss its fourth quarter and year-end results. 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 416-644-3415 or
800-733-7571 15 minutes prior to the beginning of the call to ensure
participation. The conference call will be archived for replay until Thursday,
October 2, 2008, at midnight. To access the archived conference call, dial
416-640-1917 or 877-289-8525 and enter the reservation number: 21282991
followed by the number sign.
    A live audio webcast of the conference call will be available at:
    http://newswire.ca/en/webcast/viewEvent.cgi?eventID=2405700
    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 reports EBITDA because it is a key measure used by management to
evaluate the Company's performance. PEER 1 believes that EBITDA is useful
supplemental information, as it provides an indication of the results
generated by PEER 1'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, or as a measure of the company's liquidity
and cash flows. PEER 1'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's EBITDA
calculations.

    About PEER 1

    PEER 1 believes in the limitless opportunity of the Internet, and the
business growth potential it provides for its more than 10,000 customers. As a
leading online IT infrastructure provider, PEER 1 offers a reliable high
performance Internet network, supporting scalable managed hosting, dedicated
hosting through the ServerBeach brand, and co-location solutions. Backed by
its 100 percent uptime guarantee and 24x7x365 FirstCall Support(TM), PEER 1
ensures customers' online presence is always fast, always available. Since
1999, PEER 1 has grown to include 15 data centers in North America, and
points-of-presence in Europe. The Company's headquarters are in Vancouver,
Canada and the stock is traded on the TSX under the symbol PIX. For more
information visit: www.peer1.com.



    
                         Consolidated Balance Sheet
                                June 30, 2008
                   (in thousands of United States dollars)

    Assets                                                   2008       2007
    -------------------------------------------------------------------------
    Current:
      Cash and cash equivalents                          $ 11,026   $  8,754
      Restricted cash                                         250        505
      Accounts receivable                                   4,704      4,424
      Future income tax asset                                 104      1,392
      Prepaid expenses                                        801        689
    -------------------------------------------------------------------------
                                                           16,885     15,764
    Other assets                                            2,825      4,079
    Future income tax asset                                 1,841      2,574
    Property and equipment                                 33,818     26,924
    Equipment under capital lease                           1,267          -
    Goodwill                                                1,715      1,715
    Intangible Assets (Note 8)                              2,500      3,030
    -------------------------------------------------------------------------
                                                         $ 60,851   $ 54,086
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    -------------------------------------------------------------------------
    Current:
      Accounts payable and accrued liabilities           $  8,810   $  8,754
      Deferred revenue                                      4,206      4,236
      Current portion of deferred gain                         79         79
      Current portion of deferred lease inducements           134        144
      Current portion of notes payable                      3,286      3,350
      Current portion of obligations under capital lease      226          -
      Income taxes payable                                  1,435        476
    -------------------------------------------------------------------------
                                                           18,176     17,039
    Deferred gain                                             571        650
    Deferred lease inducements                                739        965
    Notes payable                                          12,008     16,257
    Obligation under capital lease                            655          -
    -------------------------------------------------------------------------
                                                           32,149     34,911
    -------------------------------------------------------------------------
    Shareholders' Equity
    -------------------------------------------------------------------------
    Capital stock                                          26,539     25,254
    Warrants                                                  678        917
    Contributed surplus                                     2,509      1,092
    Deficit per consolidated statement of operations,
     comprehensive income and deficit                      (1,013)    (8,077)
    Accumulated other comprehensive loss                      (11)       (11)
    -------------------------------------------------------------------------
                                                           28,702     19,175
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
                                                         $ 60,851   $ 54,086
    -------------------------------------------------------------------------



              Consolidated Statement of Operations and Deficit
                      For the Year Ended June 30, 2008
      (in thousands of United States dollars, except per share amounts)

                                                             2008       2007
    -------------------------------------------------------------------------
    Revenue
      Co-location Services                                 27,397     21,401
      Dedicated Hosting Services                           61,950     52,696
                                                           ------     ------
                                                           89,347     74,097

    Cost of revenue                                        48,835     45,594
    -------------------------------------------------------------------------
    Gross profit                                           40,512     28,503
    Operating expenses                                     25,824     21,153
    -------------------------------------------------------------------------
    Operating Income before other items                    14,688      7,350
    -------------------------------------------------------------------------
    Other Items:
      Interest income                                        (328)      (336)
      Amortization of preferred share discount                  -      1,361
      Integration costs                                        93        650
      (Gain) Loss on disposal of property plant &
       equipment                                              (12)       138
      Foreign exchange loss (gain)                            367        (33)
      Impairment of intangible assets                           -      1,185
      Interest expense - long term                          2,267      3,432
    -------------------------------------------------------------------------
                                                            2,387      6,397
    -------------------------------------------------------------------------
    Income before income taxes                             12,301        953
    Income tax expense (recovery)                           5,237     (2,678)
    -------------------------------------------------------------------------
    Net Income and comprehensive income                     7,064      3,631
    Deficit, beginning                                      8,077     11,708
    -------------------------------------------------------------------------
    Deficit, ending                                      $  1,013   $  8,077
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted income per share                   $   0.06   $   0.04
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                    Consolidated Statement of Cash Flows
                      For the Year Ended June 30, 2008
                   (in thousands of United States dollars)
                                                             2008       2007
    -------------------------------------------------------------------------
    Operating Activities:
      Net Income                                         $  7,064   $  3,631
      Adjustments for -
        Amortization of preferred share discount                -      1,361
        Amortization of property and equipment              9,458      9,415
        Amortization of intangible assets                   1,590      1,530
        Increase in accrued interest and accretion of
         convertible debt                                      18        142
        Bad debt expense                                      494        628
        (Gain) Loss on disposal of property and equipment     (12)       138
        Impairment of intangible assets                         -      1,185
        Amortization of deferred gain                         (79)       (59)
        Amortization of deferred loan origination fees        648        946
        Future income tax expense (recovery)                2,040     (3,962)
        Stock-based compensation included in income for
         the year                                           1,453        449
        (Decrease) Increase in deferred lease inducements    (236)       602

      Changes in non-cash working capital -
        Decrease (Increase) in accounts receivable           (775)       189
        Decrease (Increase) in prepaid expenses              (112)        31
        Increase (Decrease) in accounts payable and
         accrued liabilities                                  341     (1,852)
        Increase in income taxes payable                      912         74
        (Decrease) Increase in deferred revenue               (30)       487
    -------------------------------------------------------------------------
    Cash flows from operating activities                   22,774     14,935
    -------------------------------------------------------------------------
    Investing Activities:
      Decrease in restricted cash                             255          -
      Investment in other assets                             (177)    (1,310)
      Acquisition of property and equipment               (17,017)   (11,165)
      Acquisition of intangible assets                       (975)    (1,017)
      Proceeds on disposition of equipment                     46         51
    -------------------------------------------------------------------------
    Cash flows used in investing activities               (17,868)   (13,441)
    -------------------------------------------------------------------------
    Financing Activities:
      Net Proceeds on sale leaseback                            -      1,750
      Repayments of notes payable                          (3,554)    (3,456)
      Proceeds from notes payable                               -      1,869
      Payment of capital lease obligations                    (91)         -
      Issuance of capital stock                             1,011      1,431
    -------------------------------------------------------------------------
    Cash flows (used in) from financing activities         (2,634)     1,594
    -------------------------------------------------------------------------
    Increase in Cash and Equivalents                        2,272      3,088
    Cash and Equivalents, beginning                         8,754      5,666
    -------------------------------------------------------------------------
    Cash and Cash Equivalents, ending                    $ 11,026   $  8,754
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    





For further information:

For further information: For media inquiries please contact: Abigail
Faylor, Weber Shandwick, (425) 452-5497, afaylor@webershandwick.com; For
investor inquiries please contact: Thomas McMillan, The Equicom Group, (403)
536-5903, tmcmillan@equicomgroup.com

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