PEER 1 Networks Reports Fourth Quarter and Year-End Results for Fiscal 2009

VANCOUVER, Sept. 24 /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, 2009. All amounts are stated in US dollars.

    
    Selected Financial Highlights comparing fiscal 2009 to 2008:

    -   Revenue increased 3.3% to $92.3 million from $89.35 million;
    -   Gross profit decreased 1.9% to $39.75 million from $40.51 million;
    -   Operating income decreased 16% to $12.33 million from $14.69 million;
    -   Normalized EBITDA decreased 1% to $27.85 million from $28.1 million;
    -   Net income decreased to $5.7 million from $7.1 million.

    Corporate highlights for fiscal 2009:

    -   Added 5,478 square feet of additional data center space at 151 Front
        Street in Toronto;
    -   Entered into a long term lease on a site in the Greater Toronto Area
        with a 41,000 square foot building that will be transformed into an
        energy efficient data center accommodating all of our core service
        offerings;
    -   Launched European expansion by opening an office and commissioning a
        data center in the United Kingdom;
    -   Hired industry veteran Dominic Monkhouse to lead European operations;
    -   Secured a credit agreement with National Bank Financial Group for a
        term and revolving credit facility of US$40 million in aggregate; and
    -   Expanded Herndon, Virginia data center by leasing 8,614 square feet
        of contiguous space that will increase capacity by approximately
        2,880 servers.
    

"Despite a very challenging economic environment for both PEER 1 and its customers this past year, we were able to execute on several initiatives designed to expand our service offerings and geographic reach," said Fabio M. Banducci, President and Chief Executive Officer of PEER 1. "As economic conditions improve, PEER 1 will be well positioned to better service our existing customers, grow in our traditional markets and expand into new geographic regions."

Fourth Quarter and Annual Financial Review

Revenues decreased to $22.5 million for the three months ended June 30, 2009, compared with $23.4 million for the same period in 2008. Foreign exchange effects accounted for $0.7 million of this decrease. For the year ended June 30, 2009, consolidated revenues increased to $92.3 million, compared with $89.4 million for the year ended June 30, 2008. When adjusted for the exchange rates in effect in the prior year period, revenue for the twelve months ended June 30, 2009 was $94.94 million. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue grew 6.26% for the twelve months ended June 30, 2009.

Hosting revenues decreased to $16.2 million for the three months ended June 30, 2009, from $16.4 million in the same period of the previous year. PEER 1's largest revenue segment was impacted by churn and customer right sizing. However, on a yearly basis, hosting revenues increased to $67.2 million for the year ended June 30, 2009, from $62 million for the previous year. This increase is directly attributable to organic growth.

For the three months ended June 30, 2009, colocation revenues decreased to $3.1 million, from $3.2 million for the three months ended June 30, 2008. For the year ended June 30, 2009, colocation revenues decreased to $12.1 million, from $12.6 million in the previous year. The decreases in revenue are attributable to the decreased value of the Canadian dollar against the US dollar offset in part by organic growth which will be constrained until the build out of phase one at the new Toronto area data center is completed. PEER 1's efforts to secure additional data center space are ongoing. The effect on revenue of the decrease in value of the Canadian dollar against the US dollar was $1.19 million for the twelve month periods ended June 30, 2009.

Bandwidth revenues decreased to $2.0 million for the three months ended June 30, 2009, compared with $2.5 million in the same period of the previous year. Annual bandwidth revenues decreased to $8.35 million for the year ended June 30, 2009, compared with $10.0 million for the year ended June 30, 2008. The decreases in revenue are primarily attributable to the decreased value of the Canadian dollar against the US dollar, pricing pressures as well as reduced overage charges as customers experienced lower bandwidth requirements due to the economic downturn. The effect on revenue of the decrease in value of the Canadian dollar against the US dollar was $1 million for the twelve month period ended June 30, 2009.

Cost of sales as a percentage of revenue increased to 58.9% for the three months ended June 30, 2009, from 52.7% for the three months ended June 30, 2008. For the year ended June 30, 2009, PEER 1's cost of sales as a percentage of revenue increased to 56.94%, from 54.66% for the year ended June 30, 2008. The increase in cost of sales as a percentage of revenue is attributable to increased costs including staffing and facilities rent during the fiscal years ended June 30, 2009 compared to the same period last year. Revenue increased 3.32% for the year ended June 30, 2009, compared to the year ended June 30, 2008 while cost of sales increased 7.63% in the same period.

For the three months ended June 30, 2009, total operating expenses decreased to $6.8 million, from $7.2 million for the corresponding period in 2008. Operating expenses as a percentage of revenue were 30% for the three months ended June 30, 2009, compared with 30.9% for the three months ended June 30, 2008. Total operating expenses for 2009 increased to $27.4 million from $25.8 million for the year ended June 30, 2008. As a percentage of revenue, operating expenses increased to 29.7% for the year ended June 30, 2009, compared with 28.9% for the year ended June 30, 2008.

Normalized EBITDA for the quarter ended June 30, 2009 decreased to $6.5 million, compared with $7.8 million in the fourth quarter of 2008. For the year ended June 30, 2009, normalized EBITDA decreased to $27.8 million, compared with $28.1 million in fiscal 2008.

Net income for the three months ended June 30, 2009 decreased to $0.6 million, from $1.7 million for the corresponding period in 2008. For the year ended June 30, 2009, net income decreased to $5.7 million, from $7.1 million in 2008.

As at June 30, 2009, the Company had cash and cash equivalents of $15.74 million compared to $11.03 million as at June 30, 2008. The current portion of the Company's notes payable as at June 30, 2009 was $2.25 million.

The Company had working capital of $4.77 million at June 30, 2009 compared to a working capital deficit of $1.54 million as at the end of June 30, 2008. The Company anticipates current liquidity and cash generated from operations to be sufficient to fund existing operations for the foreseeable future.

Subsequent Events

On August 31, 2009, PEER 1 announced changes to the board of directors in connection with Clairvest completing the purchase of 20,538,470 shares of PEER 1 from Celerity Partners on August 28, 2009. Mark Benham of Celerity Partners has resigned from the board of directors. Ken Rotman and Mitch Green have been appointed to the board as representatives of Clairvest. The appointment of Messrs. Rotman and Green is pursuant to an agreement between Clairvest and PEER 1's other major shareholders.

On July 30, 2009, PEER 1 announced that it had completed Type I examination in conformity with the American Institute of Certified Public Accountants (AICPA) Statement on Auditing Standards No. 70 (SAS 70) for Service Organizations.

Completion of the SAS 70 Type I audit indicates the successful examination of PEER 1's processes, controls at the Miami and Atlanta data centers, by the independent accounting and auditing firm Deloitte & Touche LLP. The formal examination entailed obtaining reasonable assurance that PEER 1's properly described, documented and implemented controls were relevant to the user organization's internal controls as they relate to their audited financial statements, and that such controls had been put in place as of May 30, 2009.

    
    EBITDA Reconciliation

    EBITDA Reconciliation
    (unaudited - prepared
     by management)
    (in $ thousands)        Three Months Ended         Twelve Months Ended
                       -----------------------------------------------------
                         30-Jun-09     30-Jun-08     30-Jun-09     30-Jun-08

    Net Profit                 577         1,734         5,722         7,064

    Income tax expense       1,046         1,451         4,661         5,237

    Interest expense           928           570         2,194         2,267
    Amortization -
     licences, fixed
     assets and
     deferred network
     costs                   3,498         3,028        13,243        11,048

    Stock based
     compensation              456           273         2,282         1,453

    Loss (gain) on
     disposal of assets        (26)            2           (47)          (12)

    Amortization of
     deferred gain             (19)          (20)          (79)          (79)

    Foreign exchange
     loss (gain)                 2           126          (130)          367
    -------------------------------------------------------------------------
    EBITDA                   6,462         7,164        27,846        27,345

    Provision for
     sales / use tax             -           624             -           624
    Integration costs            -             -             -            93
    -------------------------------------------------------------------------
    Normalized EBITDA        6,462         7,788        27,846        28,062
    

Conference Call

PEER 1 will be holding a conference call today, Thursday, September 24th, 2009 at 5:30 p.m. Eastern Daylight Time (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) 644-3426 or 1-800-731-5319. Please connect approximately 15 minutes prior to the beginning of the call. The conference call will be archived for replay until Thursday, October 1st, at midnight. To access the archived conference call, dial (416) 640-1917 or 1-877-289-8525 and enter the reservation number: 4160650 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=2809620

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 16 data centers located in 13 cities across North America and the United Kingdom. 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.

    
                       PEER 1 NETWORK ENTERPRISES, INC.
                         Consolidated Balance Sheet
                                June 30, 2009
                   (in thousands of United States dollars)

                                                          2009          2008
    -------------------------------------------------------------------------
    Assets
    Current:
      Cash and cash equivalents                   $     15,744  $     11,026
      Accounts receivable                                3,449         4,051
      Future income tax asset                              237           104
      Prepaid expenses                                   1,130           801
    -------------------------------------------------------------------------
                                                        20,560        15,982
    Other assets                                         2,692         3,075
    Future income tax asset                              1,042         1,841
    Property and equipment                              36,856        33,818
    Equipment under capital lease                        1,013         1,267
    Goodwill                                             1,715         1,715
    Intangible assets                                    2,552         2,500
    -------------------------------------------------------------------------
                                                  $     66,430  $     60,198
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current:
      Accounts payable and accrued liabilities    $     7,936   $      8,810
      Deferred revenue                                  2,886          3,553
      Current portion of deferred gain                     79             79
      Current portion of deferred lease
       inducements                                        138            134
      Current portion of derivative liabilities            89              -
      Current portion of notes payable                  2,250          3,286
      Current portion of obligations under
       capital lease                                      211            226
      Income taxes payable                              2,200          1,435
    -------------------------------------------------------------------------
                                                       15,789         17,523
    Deferred gain                                         493            571
    Deferred lease inducements                            664            739
    Derivative liabilities                                179              -
    Notes payable                                      12,303         12,008
    Obligation under capital lease                        363            655
    -------------------------------------------------------------------------
                                                       29,791         31,496
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Shareholders' equity                               36,639         28,702
    -------------------------------------------------------------------------
                                                  $    66,430   $     60,198
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                       PEER 1 NETWORK ENTERPRISES, INC.
               Consolidated Statements of Shareholders' Equity
                       For the Year Ended June 30, 2009
       (in thousands of United States dollars except number of shares)

                                            2009                        2008
    -------------------------------------------------------------------------
                            Number        Amount        Number        Amount
    -------------------------------------------------------------------------
    SHARE CAPITAL
    Common shares
      Balance at
       beginning of
       year            118,504,368  $     26,539   115,994,291  $     25,254
      Stock options
       exercised           131,670            70       572,577           296
      Warrants
       exercised           678,285           341     1,937,500           989
    -------------------------------------------------------------------------
      Balance at end
       of year         119,314,323        26,950   118,504,368        26,539
    -------------------------------------------------------------------------

    Warrants
      Balance at
       beginning of
       year              3,139,904           678     5,077,404           917
      Warrants
       expired/exercised  (678,285)         (185)   (1,937,500)         (239)
    -------------------------------------------------------------------------
      Balance at end
       of year           2,461,619           493     3,139,904           678
    -------------------------------------------------------------------------
    Total - share capital                 27,443                      27,217
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    CONTRIBUTED SURPLUS
      Balance at
       beginning of
       year                                2,509                       1,092
      Stock-based
       compensation                        2,282                       1,453
      Options
       exercised and
       shares distributed
       under the stock
       option plan                           (25)                        (36)
    -------------------------------------------------------------------------
    Balance at end of year                 4,766                       2,509
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    RETAINED EARNINGS
      Balance at
       beginning of year                  (1,013)                     (8,077)
      Net income                           5,722                       7,064
    -------------------------------------------------------------------------
    Balance at end of year                 4,709                      (1,013)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
      Balance at
       beginning of year                     (11)                        (11)
      Other
       comprehensive
       income                               (268)                          -
    -------------------------------------------------------------------------
    Balance at end of year                  (279)                        (11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total - shareholders' equity      $   36,639                  $   28,702
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                       PEER 1 NETWORK ENTERPRISES, INC.
                     Consolidated Statement of Operations
                       For the Year Ended June 30, 2009
      (in thousands of United States dollars, except per share amounts)

                                                          2009          2008
    -------------------------------------------------------------------------
    Revenue
      Co-location Services                        $     25,080  $     27,397
      Hosting Services                                  67,229        61,950
                                                  ------------- -------------
                                                        92,309        89,347

    Cost of revenue                                     52,560        48,835
    -------------------------------------------------------------------------
    Gross profit                                        39,749        40,512
    Operating expenses                                  27,419        25,824
    -------------------------------------------------------------------------
    Operating income before other items                 12,330        14,688
    -------------------------------------------------------------------------

    Other items:
      Interest income                                      (70)         (328)
      Integration costs                                      -            93
      Gain on disposal of property and equipment           (47)          (12)
      Foreign exchange loss (gain)                        (130)          367
      Interest expense - long term                       2,194         2,267
    -------------------------------------------------------------------------
                                                         1,947         2,387
    -------------------------------------------------------------------------
    Income before income taxes                          10,383        12,301
    Income tax expense                                   4,661         5,237
    -------------------------------------------------------------------------
    Net income                                    $      5,722  $      7,064

    Other comprehensive income:
      Change in unrealized fair value of
      derivatives designated as cash flow hedges          (268)            -
    -------------------------------------------------------------------------
    Comprehensive income                          $      5,454  $      7,064
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income attributable to:
      Common shares                               $      5,722  $      7,064
    Comprehensive income attributable to:
      Common shares                               $      5,454  $      7,064
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted earnings per share          $       0.05  $       0.06
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



                       PEER 1 NETWORK ENTERPRISES, INC.
                     Consolidated Statement of Cash Flows
                       For the Year Ended June 30, 2009
                   (in thousands of United States dollars)

                                                          2009          2008
    -------------------------------------------------------------------------
    Operating Activities:
      Net income                                  $      5,722  $      7,064
      Adjustments for non-cash items:
        Amortization of property and equipment          11,880         9,458
        Amortization of intangible assets                1,363         1,590
        Increase in accrued interest and accretion
         of convertible debt                                82            18
        Bad debt expense                                   650           494
        Gain on disposal of property and equipment         (47)          (12)
        Amortization of deferred gain                      (79)          (79)
        Amortization of deferred loan origination
         fees                                              774           648
        Future income tax expense                          655         2,040
        Stock-based compensation included in income
         for the year                                    2,282         1,453
        Decrease in deferred lease inducements             (71)         (236)

      Changes in non-cash working capital:
        Change in accounts receivable                      (47)         (122)
        Increase in prepaid expenses                      (329)         (112)
        Increase (decrease) in accounts payable
         and accrued liabilities                          (992)          341
        Increase in income taxes payable                   765           959
        Decrease in deferred revenue                      (667)         (683)
    -------------------------------------------------------------------------
    Cash flows from operating activities                21,941        22,821
    -------------------------------------------------------------------------
    Investing Activities:
      Investment in other assets                           (56)           78
      Acquisition of property and equipment            (14,451)      (17,017)
      Acquisition of intangible assets                  (1,511)         (975)
      Proceeds on disposition of equipment                  47            46
    -------------------------------------------------------------------------
    Cash flows used in investing activities            (15,971)      (17,868)
    -------------------------------------------------------------------------
    Financing Activities:
      Proceeds from notes payable                       15,000             -
      Repayments of notes payable                      (16,158)       (3,554)
      Payment of capital lease obligations                (199)          (91)
      Issuance of capital stock                            201         1,011
    -------------------------------------------------------------------------
    Cash flows used in financing activities             (1,156)       (2,634)
    -------------------------------------------------------------------------
    Foreign exchange gain (loss) on cash and
     cash equivalents                                      (96)          (47)
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents                4,814         2,319
    Cash and cash equivalents, beginning                11,026         8,754
    -------------------------------------------------------------------------
    Cash and cash equivalents, ending             $     15,744  $     11,026
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE PEER 1 Network Enterprises, Inc.

For further information: For further information: For investor enquiries please contact David Feick, Equicom Group, (403) 538-4787, dfeick@equicomgroup.com; For media inquiries please contact Marcela Peake, PEER 1, (604) 909-6428, mpeake@peer1.com

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PEER 1 Network Enterprises, Inc.

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