PEER 1 Reports Fiscal 2009 Second Quarter Results



    VANCOUVER, Feb. 11 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX: PIX), a
leading provider of online IT hosting, today announced the results for the
three and six months ended December 31, 2008. All amounts are stated in US
dollars.
    Selected financial highlights comparing the quarters ended December 31,
2008 and 2007:

    
    -   Revenue increased 6.4% to $23.6 million from $22.2 million;
    -   Gross profit increased 6.4% to $10.8 million from $10.1 million;
    -   Operating income decreased 5.2% to $3.7 million from $3.9 million;
    -   EBITDA increased by 11.1% to $7.6 million from $6.9 million;
    -   EBITDA margin increased to 32.2% compared with 30.9%; and
    -   Net income increased by 6.5% to $2.01 million compared with
        $1.88 million.

    Operational highlights:

    -   5,478 square feet of additional data center space at 151 Front Street
        in Toronto became operational during the quarter representing 120
        normalized cabinet equivalents;
    -   The PEER 1 Partner Network, an integrated referral and reseller
        program that offers revenue incentives to web developers, system
        integrators and IT consultants who refer business, was launched on
        October 2, 2008. Since then, more than 50 partners have joined the
        program;
    -   On October 15, 2008 the Company entered into a partnership agreement
        with Absolute Performance to enhance IT systems monitoring solutions
        across its core business segments;
    -   PEER 1's backup services, utilizing IBM's Tivoli Storage Manager
        software, expanded on October 21, 2008 to include ServerBeach and co-
        location customers. PEER 1 now offers enhanced hosting backup
        services across all of its hosting product lines; and
    -   Effective October 1, 2008, the Company fixed for a period of 12
        months, the LIBOR Rate (as defined in the Loan and Security Agreement
        ("LSA") with Fortress Credit Opportunities 1 LP) at a rate of 3.84%.
        As at today's date, the interest rate accruing on the Company's loan
        balance is 6.84%.
    

    "Continued growth in the managed and dedicated hosting segment was offset
by the impact of decreased co-location services revenues due to the declining
value of the Canadian dollar over the quarter," said Fabio Banducci, President
and CEO of PEER 1. "While the current economic environment presents challenges
for all businesses, the fundamentals of the online IT hosting industry remain
relatively stable, and we continue to see healthy demand for all of PEER 1's
core service offerings."

    Review of the Three and Six Months Ended December 31, 2008

    Revenue for the three and six months ended December 31, 2008 was $23.6
million and $47.1 million, increasing by 6.4% and 9.2%, respectively, compared
with the same periods of the prior year. However, when adjusted for the effect
of foreign exchange rates between the comparative periods, revenue grew 10.8%
and 11.4% for the three and six months ended December 31, 2008. On a
sequential basis, revenue for the second quarter of 2009 increased by 0.6%
compared with $23.5 million for first quarter, but increased by 3.6% when
adjusted for the difference in exchange rates between quarters. Overall, the
increase in revenue for the quarter can be attributed to organic growth
partially offset by the declining value of the Canadian dollar.
    Managed and dedicated hosting revenue for the three and six months ended
December 31, 2008 was $17.5 million and $34.3 million, increasing by 15.1% and
14.9%, respectively, over the same periods in the prior year. Compared with
revenue of $16.8 million for the first quarter of 2009, managed and dedicated
hosting revenues increased by a combined 4.3% in the second quarter. The
increase in managed and dedicated hosting revenues for the quarter can be
attributed to organic growth.
    Co-location revenue for the three and six months ended December 31, 2008
was $2.95 million and $6.10 million, decreasing by 9.3% and 1.0%,
respectively, compared with the same periods of the prior year. However, when
adjusted for the effect of foreign exchange rates between the comparative
periods, co-location revenue grew 4.3% and 6.0% for the three and six months
ended December 31, 2008. Co-location revenues in the second quarter of 2009
decreased by 6.0% compared with $3.14 million for the first quarter, but
increased by 4.0% when adjusted for the effect of foreign exchange. Increased
sales in the co-location segment for the quarter were more than offset by the
decrease in value of the Canadian dollar against the US dollar.
    Bandwidth revenue for the three and six months ended December 31, 2008
was $2.05 million and $4.43 million, decreasing by 19.4% and 9.2%,
respectively, compared with the same periods of the previous year. When
adjusted for the effect of foreign exchange, bandwidth revenue decreased by
4.4% and 1.8% for the three and six months ended December 31, 2008. On a
sequential basis, bandwidth revenues decreased by 14.0% compared with $2.38
million for the previous quarter, but decreased by 2.7% when adjusted for the
effect of foreign exchange.
    PEER 1's Canadian operations accounted for $4.23 million or 17.9% of the
Company's overall revenue for the three months ended December 31, 2008
compared with $5.16 million or 23.2% for the same period in the previous year.
For the six months ended December 31, 2008, PEER 1's Canadian operations
accounted for $9.16 million or 19.4% of the Company's overall revenue compared
with $9.75 million or 22.6% for the same period in the previous year.
    Cost of sales for the three months ended December 31, 2008 increased by
6.3% to $12.9 million compared with $12.1 million for the same period in the
previous year. This increase can be attributed to added server and network
equipment depreciation of $0.79 million and added rent expense in connection
with the Toronto expansion of $0.11 million. However, as a percentage of
revenue, cost of sales was 54.4% for both three month periods ended December
31, 2008 and 2007. For the six months ended December 31, 2008, cost of sales
increased by 7.6% to $25.9 million from $24.1 million for the same period in
the previous year. Cost of sales as a percentage of revenue decreased to 54.9%
for the six months ended December 31, 2008 from 55.8% for the six months ended
December 31, 2007. The decrease in cost of sales as a percentage of revenue
for the six month period ended December 31, 2008 can be attributed to certain
costs, including staffing and facilities rent, remaining relatively stable
while revenue continues to grow.
    Operating expenses for the three months ended December 31, 2008 increased
by 13.7% to $7.1 million from $6.2 million for the corresponding period in the
previous year. The increase in operating expenses for the three months ended
December 31, 2008 was primarily due to a $0.46 million increase in staff and
training costs, a $0.24 million increase in advertising and marketing
expenses, a $0.16 million increase in stock based compensation, and a $0.1
million increase in bad debt expenses. Operating expenses as a percentage of
revenue were 29.9% for the three months ended December 31, 2008, compared with
28.0% for the same period in 2007. For the six months ended December 31, 2008
operating expenses grew by 13.5% to $14.0 million compared with $12.4 million
for the same period in 2007. Operating expenses as a percentage of revenue
increased to 29.8% for the six months ended December 31, 2008 from 28.6% for
the same period in the previous year.
    EBITDA for the three months ended December 31, 2008 grew by 11.1% to $7.6
million, compared with $6.9 million for the three months ended December 31,
2007. On a sequential basis, EBITDA increased by 3.4% compared with $7.4
million for the first quarter of 2009. EBITDA margin for the three months
ended December 31, 2008 was 32.2%, compared with 30.9% for the corresponding
period in 2007, and 31.4% for the first quarter of 2009.
    Net income for the three months ended December 31, 2008 increased by 6.5%
to $2.01 million, compared with $1.88 million for the corresponding period in
2007. On a sequential basis, net income increased by 16.2% in the second
quarter compared with $1.73 million for the first quarter of 2009. Earnings
per share was $0.02 for the three months ended December 31, 2008 and December
31, 2007 and $0.01 for the three months ended September 30, 2008.
    As at December 31, 2008, PEER 1 had cash and cash equivalents of $9.6
million, compared with $8.2 million at September 30, 2008, and $11.0 million
at June 30, 2008.
    The Company had a working capital deficit of $1.0 million at December 31,
2008 compared with a working capital deficit of $1.54 million at the end of
June 30, 2008. The working capital deficit of $1.0 million at December 31,
2008 includes deferred revenue of $3.61 million and current portion of notes
payable of $3.30 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 119,294,323 common shares outstanding as at December 31, 2008.

    Subsequent Events

    Subsequent to December 31, 2008, the Company completed the previously
announced expansion of its Herndon, Virginia datacenter, that houses 8,500
square feet of contiguous datacentre space and can accommodate 2,880 servers.
The expansion was completed on time and on budget.

    
    EBITDA Reconciliation
    (unaudited - prepared by management)
    (in $ thousands)                                    Three Months Ended
                                                     ------------------------
                                                      31-Dec-08    31-Dec-07

    Net Profit                                            2,005        1,882
    Income tax expense                                    1,388        1,385
    Interest expense                                        437          586
    Amortization of preferred share discount                  -            -
    Amortization - licenses, fixed assets and
     deferred network costs                               3,328        2,429
    Stock based compensation                                587          429
    Loss (gain) on disposal of assets                       (18)           7
    Amortization of deferred gain                           (20)         (20)
    Foreign exchange loss (gain)                            (91)         157
    -------------------------------------------------------------------------
    EBITDA                                                7,616        6,855
    EBITDA margin                                         32.2%        30.9%
    

    Conference Call

    PEER 1 will hold a conference call today, Wednesday, February 11, 2009 at
5:30 p.m. Eastern Standard Time (EST), to discuss the results of the second
quarter of fiscal 2009. 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) 644-3414 or
1-800-732-9303. Please connect approximately 15 minutes prior to the beginning
of the call. The conference call will be archived for replay until Wednesday,
February 18, 2009, at midnight. To access the archived conference call, dial
(416) 640-1917 or 1-877-289-8525 and enter the reservation number: 21293319
followed by the number sign.
    A live audio webcast of the conference call will be available at:
    www.newswire.ca/en/webcast/viewEvent.cgi?eventID=2511080
    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 hosting 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 state-of-the-art 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.


    
                       Peer 1 Network Enterprises, Inc.
                         Consolidated Balance Sheet
                              December 31, 2008
                     (unaudited - prepared by management)
                   (in thousands of United States Dollars)

                                                    December 31,     June 30,
                                                           2008         2008
                                                            US$          US$

    Assets
    Current:
    Cash and cash equivalents                              9,576      11,026
    Accounts receivable (note 8 & note 11b)                4,938       4,051
    Future income tax asset                                   94         104
    Prepaid expenses                                       1,014         801
                                                   --------------------------
                                                          15,622      15,982
    Other assets                                           3,044       3,075
    Future income tax asset                                1,599       1,841
    Property, plant and equipment                         37,369      33,818
    Equipment under capital lease                          1,140       1,267
    Goodwill                                               1,715       1,715
    Intangible assets                                      2,571       2,500
                                                   --------------------------
                                                          63,060      60,198
                                                   --------------------------
                                                   --------------------------

    Liabilities
    Current:
    Accounts payable and accrued liabilities               7,573       8,810
    Deferred revenue (note 8)                              3,614       3,553
    Current portion of deferred gain                          79          79
    Current portion of deferred lease inducements            133         134
    Current portion of notes payable (note 4)              3,297       3,286
    Current portion of obligations under capital lease       196         226
    Income taxes payable                                   1,734       1,435
                                                   --------------------------
                                                          16,626      17,523
    Deferred gain                                            532         571
    Deferred lease inducements                               741         739
    Notes payable (note 4)                                10,693      12,008
    Obligations under Capital Lease                          449         655
                                                   --------------------------
                                                          29,041      31,496
                                                   --------------------------
    Shareholders' Equity
    Capital stock (note 5b)                               26,940      26,539
    Warrants (note 5c)                                       493         678
    Contributed Surplus (note 5d)                          3,879       2,509
    Retained Earnings (Deficit)                            2,718      (1,013)
    Accumulated other comprehensive loss                     (11)        (11)
                                                   --------------------------
                                                          34,019      28,702
                                                   --------------------------
                                                          63,060      60,198
                                                   --------------------------



                       Peer 1 Network Enterprises, Inc.
         Consolidated Statement of Operations, Comprehensive Income
                       and Retained Earnings (Deficit)
                     Six Months Ended December 31, 2008
                     (unaudited - prepared by management)
      (in thousands of United States Dollars, except per share amounts)

                         Three Months  Three Months  Six Months   Six Months
                                Ended        Ended        Ended        Ended
                          December 31, December 31, December 31, December 31,
                                 2008         2007         2008         2007
                                  US$          US$          US$          US$

    Revenue:
      Co-location Services      6,124        7,006       12,839       13,332
      Dedicated Hosting
       Services                17,515       15,218       34,305       29,851
                          ---------------------------------------------------
                               23,639       22,224       47,144       43,183


    Cost of Sales              12,866       12,099       25,902       24,082
                          ---------------------------------------------------
    Gross Profit               10,773       10,125       21,242       19,101
    Operating expenses          7,069        6,216       14,035       12,367
                          ---------------------------------------------------
    Operating Income
     before other items         3,704        3,909        7,207        6,734
    Other Items:
    Interest Income
                                  (17)        (108)         (54)        (226)
    Integration costs               -            -            -           93
    (Gain)/loss on
     disposal of fixed
     assets                       (18)           7          (20)          (7)
    Foreign exchange
    (gain)/loss                   (91)         157          (84)         256
    Interest expense -
     long term                    437          586          861        1,204
                          ---------------------------------------------------
    Income before income
     taxes                      3,393        3,267        6,504        5,414
                          ---------------------------------------------------
    Future income tax expense
     (recovery)                   (52)         663          237          990
    Current Income tax expense  1,440          722        2,536        1,296
                          ---------------------------------------------------
    Income tax expense          1,388        1,385        2,773        2,286
                          ---------------------------------------------------
    Net income and
     comprehensive income       2,005        1,882        3,731        3,128
    Retained Earnings
     (Deficit), beginning
     of period                    713       (6,831)      (1,013)      (8,077)
                          ---------------------------------------------------
    Retained Earnings
     (Deficit), end of
     period                     2,718       (4,949)       2,718       (4,949)
                          ---------------------------------------------------
                          ---------------------------------------------------

    Earnings per Share:
      Basic                      0.02         0.02         0.03         0.03
      Diluted                    0.02         0.02         0.03         0.03

    Weighted average number
     of shares outstanding:
      Basic               119,268,381  118,353,404  118,983,859  118,038,149
      Diluted             124,016,730  122,262,053  124,205,739  122,745,906



                       Peer 1 Network Enterprises, Inc.
                     Consolidated Statement of Cash Flows
             For the three and six months ended December 31, 2008
                     (unaudited - prepared by management)
                   (in thousands of United States Dollars)

                         Three Months  Three Months  Six Months   Six Months
                                Ended        Ended        Ended        Ended
                             December     December  December 31,    December
                                 2008         2007         2008         2007
                                  US$          US$          US$          US$
    Cash flows from
     operating activities
      Net Income                2,005        1,882        3,731        3,128
      Amortization of
       property and equipment   2,990        2,032        5,644        4,354
      Amortization of
       intangible assets          338          397          728          786
      Increase in accrued
       interest and accretion
       on notes payable            37           (1)          55           19
      Bad debt expense            261          171          397          254
      Gain on disposal of
       property and equipment     (18)           9          (20)          (7)
      Amortization of
       deferred gain              (20)         (20)         (39)         (39)
      Amortization of
       deferred loan
       origination fees           117          153          240          299
      Future income tax expense   (52)         662          237          990
      Stock-based compensation
       included in income
       for period                 587          429        1,392          782
      Decrease in deferred
       lease inducements           37          (64)           1         (238)
                          ---------------------------------------------------
                                6,282        5,650       12,366       10,328
    Change in non-cash
     working capital items
      Increase in accounts
       receivable                 236        1,429       (1,285)       1,081
      Increase in prepaid
       expenses                  (114)      (1,122)        (213)      (1,036)
      Increase (decrease) in
       accounts payable and
       accrued liabilities        334         (865)      (1,176)        (677)
      Increase (decrease) in
       income taxes payable       961          (39)         179          549
      Increase (decrease) in
       deferred revenue            41       (1,330)          60       (1,193)
                          ---------------------------------------------------
                                7,740        3,723        9,931        9,052
                          ---------------------------------------------------

    Cash flows from investing
     activities
      Investment in other
       assets                      10          340           31          275
      Acquisition of property
       and equipment           (5,034)      (6,529)      (9,030)      (9,752)
      Investment in goodwill,
       licences and other
       intangibles               (496)        (297)        (895)        (469)
      Proceeds on disposition
       of equipment                18            8           20           26
                          ---------------------------------------------------
                               (5,502)      (6,478)      (9,874)      (9,920)
                          ---------------------------------------------------

    Cash flows from financing
     activities
      Repayment of notes
       payable                   (800)      (1,134)      (1,600)      (1,934)
      Payment of capital
       lease obligations          (47)                     (101)           -
      Issuance of capital stock    18          147          194        1,000
                          ---------------------------------------------------
                                 (829)        (987)      (1,507)        (934)
                          ---------------------------------------------------

    (Decrease) Increase in
     cash and cash
     equivalents                1,409       (3,742)      (1,450)      (1,802)
    Cash and cash equivalents -
     beginning of period        8,167       10,694       11,026        8,754
                          ---------------------------------------------------
    Cash and cash equivalents -
     end of period              9,576        6,952        9,576        6,952
                          ---------------------------------------------------
                          ---------------------------------------------------

    Supplemental cash flow
     information:
    Interest paid                 283          433          565          886
    Income tax paid               375          760        2,193          760
    Interest received              17          108           54          226
    Effect of acquistion of
     property and equipment
     in accounts payable and
     accrued liabilities       (1,156)      (2,487)          37          (82)
    





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, Equicom Group, (403)
536-5903, tmcmillan@equicomgroup.com

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