PEER 1 Reports Fiscal 2009 Third Quarter Results



    VANCOUVER, May 14 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX: PIX), a
global online IT hosting provider, today announced the results for the three
and nine months ended March 31, 2009. Unless otherwise noted, all amounts are
stated in US dollars.
    Selected financial data comparing the quarters ended March 31, 2009 and
2008:

    
    -   Revenue decreased 0.5% to $22.6 million from $22.8 million;
    -   Gross profit decreased 10.6% to $9.2 million from $10.3 million;
    -   Operating income decreased 36.5% to $2.6 million from $4.1 million;
    -   EBITDA decreased 13.9% to $6.4 million from $7.4 million;
    -   EBITDA margin decreased to 28.3% compared with 32.6%; and
    -   Net income decreased 35.8% to $1.4 million from $2.2 million.
    

    "We made significant progress on several strategic growth initiatives in
the quarter including the launch of the first phase of our UK expansion, and
the announcement of our new, multi-use data center in the greater Toronto
area," said Fabio Banducci, President and CEO of PEER 1. "However, our third
quarter results were weak and reflect the challenges a number of our customers
are having in the current economic environment. Overall, the level of our
sales activity and pipeline remain healthy, however, we did see increased
levels of churn during the quarter, particularly at the lower end of dedicated
hosting, as well as an increased number of hosting customers right sizing
their server deployments, resulting in less monthly recurring revenue from
these customers. We anticipate that these customers will expand their server
deployments again as economic conditions improve.
    "Results from this quarter also demonstrate the resiliency of PEER 1's
business model as cash and cash equivalents increased by $2.5 million to $12.0
million compared to the previous quarter. The Company exits the quarter with
record balance sheet strength and flexibility."

    Review of the Three and Nine Months Ended March 31, 2009

    Revenue for the three and nine months ended March 31, 2009 was $22.6
million and $69.8 million, decreasing by 0.5% and increasing by 5.8%
respectively, compared with the same periods of the prior year. However, when
adjusted for the effect of foreign exchange between the comparative periods,
revenue grew 3.9% and 8.8% for the three and nine months ended March 31, 2009.
On a sequential basis, revenue for the third quarter of 2009 decreased by 4.2%
compared with $23.6 million for the second quarter. Overall, on a
year-over-year basis, the decrease in revenue for this quarter is primarily
attributable to the decreased value of the Canadian dollar against the US
dollar for Canadian denominated sales.
    Managed and dedicated hosting revenue for the three and nine months ended
March 31, 2009 was $16.7 million and $51.0 million, increasing by 6.4% and
12.0% respectively, over the same periods in the prior year. The increase in
dedicated hosting revenues for the three and nine month periods can be
attributed to organic growth. On a sequential basis, dedicated and managed
hosting services revenue for the third quarter decreased by 4.6%, compared
with $17.5 million in the second quarter, as churn increased during the
quarter and a number of customers right sized their deployments in response to
economic conditions. However, while the monthly recurring revenue from certain
customers decreased, they remain PEER 1 customers, and as economic conditions
improve, management anticipates that these customers will return to their
previous spending levels. Managed and dedicated hosting revenues are not
impacted by foreign exchange effects, as all sales are denominated in US
dollars.
    Co-location revenue decreased to $2.9 million and $9.0 million for the
three and nine months ended March 31, 2009, decreasing by 8.5% and 3.5%
respectively, compared with the same periods of the prior year. The decreases
in revenue are attributable to the decreased value of the Canadian dollar
against the US dollar; partially offset by organic growth, which will be
constrained until the build out of phase one at the new Toronto area data
center is completed. When adjusted for the effect of foreign exchange between
the comparative periods, co-location revenue grew by 5.6% and 5.9%
respectively for the three and nine month periods ended March 31, 2009. On a
sequential basis, co-location revenue for the third quarter of 2009 decreased
by 1.6% compared with $3.0 million in the second quarter.
    Bandwidth revenue for the three and nine months ended March 31, 2009 was
$1.9 million and $6.3 million, decreasing by 26.3% and 15.1% respectively,
compared with the same periods of the previous year. When adjusted for the
effect of foreign exchange between the comparative periods, bandwidth revenue
decreased by 11.3% and 5.2% respectively for the three and nine month periods
ended March 31, 2009. On a sequential basis, bandwidth revenue for the third
quarter of 2009 decreased by 6.8% compared with $2.0 million in the second
quarter.
    PEER 1's Canadian operations accounted for $4.1 million, or 17.9%, of the
Company's overall revenue for the three months ended March 31, 2009 compared
with $5.2 million, or 22.8%, for the same period in the previous year. For the
nine months ended March 31, 2009, PEER 1's Canadian operations accounted for
$13.2 million, or 18.9%, of the Company's overall revenue compared with $14.9
million, or 22.7%, for the same period in the previous year. These changes are
primarily related to unfavorable foreign exchange effects of $1.0 million and
$1.9 million respectively for the three and nine months ended March 31, 2009.
    Cost of sales for the three months ended March 31, 2009 increased by 7.8%
to $13.4 million compared with $12.4 million for the same period in the
previous year. As a percentage of revenue, cost of sales was 59.2% for the
three months ended March 31, 2009, and 54.6% for the three months ended March
31, 2008. For the nine months ended March 31, 2009, cost of sales increased by
7.6% to $39.3 million from $36.5 million for the same period in the previous
year. Cost of sales as a percentage of revenue increased to 56.3% for the nine
months ended March 31, 2009 from 55.4% for the nine months ended March 31,
2008.
    Operating expenses for the three months ended March 31, 2009 increased by
6.5% to $6.6 million compared with $6.2 million for the corresponding period
in the previous year. Operating expenses as a percentage of revenue were 29.3%
for the three months ended March 31, 2009, compared with 27.4% for the same
period in 2008. For the nine months ended March 31, 2009, operating expenses
grew by 11.1% to $20.7 million compared with $18.6 million for the same period
in 2008. Operating expenses as a percentage of revenue increased to 29.6% for
the nine months ended March 31, 2009 from 28.2% for the same period in the
previous year.
    Investments made during the quarter to support future growth included
$100,000 related to data center expansion, $223,000 related to the UK
expansion, and $500,000 related to the full impact of head count increases to
support product development, IT, marketing and sales. These ongoing
investments are vital to positioning PEER 1 for growth once economic
conditions improve.
    As a result of decreased revenue, and the investments in growth described
above, EBITDA for the three months ended March 31, 2009 decreased by 13.9% to
$6.4 million, compared with $7.4 million for the three months ended March 31,
2008. On a sequential basis, EBITDA decreased by 16.0% compared with $7.6
million for the second quarter of 2009. EBITDA margin for the three months
ended March 31, 2009 was 28.3%, compared with 32.6% for the corresponding
period in 2008, and 32.2% for the second quarter of 2009.
    Net income for the three months ended March 31, 2009 decreased 35.8% to
$1.4 million, compared with $2.2 million for the corresponding period in 2008.
On a sequential basis, net income decreased by 29.5% in the third quarter
compared with $2.0 million for the second quarter of 2009. Earnings per share
was $0.01 for the third quarter of 2009, compared with $0.02 for the third
quarter of 2008, and $0.02 for the second quarter of 2009.
    As at March 31, 2009, PEER 1 had cash and cash equivalents of $12.0
million, compared with $9.6 million at December 31, 2008, and $11.0 million at
June 30, 2008.
    The Company had positive working capital of $1.4 million at March 31,
2009, compared with a working capital deficit of $1.0 million at December 31,
2008, and a deficit of $1.5 million at the end of June 30, 2008. The positive
working capital of $1.4 million at March 31, 2009 includes deferred revenue of
$3.4 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 119,294,323 common shares outstanding as at March 31, 2009.

    Subsequent Events

    On April 27, 2009, the Company announced that it had opened its European
office and brought its new UK data center online, naming industry veteran
Dominic Monkhouse as managing director. The UK data center strengthens the
Company's presence in Europe alongside existing London and Amsterdam network
Points-of-Presence (PoPs). The data center offers managed and dedicated
hosting services to PEER 1 and ServerBeach customers and has capacity for an
initial 1,500 servers.
    On May 12, 2009, the Company announced that it had secured a location for
a 41,000 square foot green data center in the Toronto area. The first of four
planned stages is scheduled for completion in early 2010, and will include
7,500 square feet of data center space, and 8,000 square feet of office and
staging area at an estimated capital cost of U.S. $10 million. The facility,
which will be built out over the next several years, will have a total
capacity for approximately 700 normal cabinet equivalents (NCE) for
co-location and 9,000 servers for managed and dedicated hosting, with the
flexibility to alter the mix of these core services based on future customer
demand. The new facility will implement some of the most efficient products
and technologies on the market, including the use of a local well for primary
water supply with redundant connection to the city water system to reduce
overall carbon footprint and provide lower energy consumption.

    
    EBITDA Reconciliation

    (unaudited - prepared by management)
    (in $ thousands)                                    Three Months Ended
                                                     ------------------------
                                                      31-Mar-09    31-Mar-08

    Net Profit                                            1,414        2,202
    Income tax expense                                      842        1,500
    Interest expense                                        405          493
    Amortization - licenses, fixed assets and
     deferred network costs                               3,373        2,881
    Stock based compensation                                434          399
    Loss (gain) on disposal of assets                         -           (7)
    Amortization of deferred gain                           (20)         (20)
    Foreign exchange loss (gain)                            (48)         (15)
    -------------------------------------------------------------------------
    EBITDA                                                6,400        7,433
    EBITDA margin                                        28.26%       32.64%
    


    Conference Call

    PEER 1 will hold a conference call today, Thursday, May 14, 2009 at 5:30
p.m. Eastern Daylight Time (EDT), to discuss the results of the third 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) 644-3417 or
1-800-732-6179. Please connect approximately 15 minutes prior to the beginning
of the call. The conference call will be archived for replay until Thursday,
May 21, 2009, at midnight. To access the archived conference call, dial (416)
640-1917 or 1-877-289-8525 and enter the reservation number: 21303393 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=2614920
    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.

    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
global 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 16 state-of-the-art data centers and points-of-presence
throughout North America and 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.

    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.

    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's
public filings with securities regulatory authorities.

    Financial tables to follow.


    
                      Peer 1 Network Enterprises, Inc.
                         Consolidated Balance Sheet
                               March 31, 2009
                    (unaudited - prepared by management)
                   (in thousands of United States Dollars)


                                                       March 31,     June 30,
                                                           2009         2008
                                                            US$          US$
    Assets
    Current:
    Cash and cash equivalents                            12,045       11,026
    Accounts receivable (note 8 & note 11b)               3,923        4,051
    Future income tax asset                                  94          104
    Prepaid expenses                                        831          801
                                                     ------------------------
                                                         16,893       15,982
    Other assets                                          3,033        3,075
    Future income tax asset                               1,453        1,841
    Property, plant and equipment                        36,262       33,818
    Equipment under capital lease                         1,076        1,267
    Goodwill                                              1,716        1,715
    Intangible assets                                     2,552        2,500
                                                     ------------------------
                                                         62,985       60,198
                                                     ------------------------
                                                     ------------------------

    Liabilities
    Current:
    Accounts payable and accrued liabilities              6,519        8,810
    Deferred revenue (note 8)                             3,378        3,553
    Current portion of deferred gain                         79           79
    Current portion of deferred lease inducements           142          134
    Current portion of notes payable (note 4)             3,287        3,286
    Current portion of obligations under capital lease      192          226
    Income taxes payable                                  1,902        1,435
                                                     ------------------------
                                                         15,499       17,523
    Deferred gain                                           512          571
    Deferred lease inducements                              696          739
    Notes payable (note 4)                               10,026       12,008
    Obligations under Capital Lease                         385          655
                                                     ------------------------
                                                         27,118       31,496
                                                     ------------------------

    Shareholders' Equity
    Capital stock (note 5b)                              26,940       26,539
    Warrants (note 5c)                                      493          678
    Contributed Surplus (note 5d)                         4,313        2,509
    Retained Earnings (Deficit)                           4,132       (1,013)
    Accumulated other comprehensive loss                    (11)         (11)
                                                     ------------------------
                                                         35,867       28,702
                                                     ------------------------
                                                         62,985       60,198
                                                     ------------------------
                                                     ------------------------



                      Peer 1 Network Enterprises, Inc.
       Consolidated Statement of Operations, Comprehensive Income and
                         Retained Earnings (Deficit)
                 Three and nine months ended March 31, 2009
                    (unaudited - prepared by management)
      (in thousands of United States Dollars, except per share amounts)


                             Three         Three          Nine          Nine
                      Months Ended  Months Ended  Months Ended  Months Ended
                        March 2009    March 2008    March 2009    March 2008
                               US$           US$           US$           US$
                      -------------------------------------------------------
    Revenue:
    Co-location
     Services                5,944         7,070        18,783        20,402
    Dedicated Hosting
     Services               16,705        15,702        51,009        45,553
                      -------------------------------------------------------
                            22,649        22,772        69,792        65,955


    Cost of Sales           13,404        12,431        39,306        36,513
                      -------------------------------------------------------
    Gross Profit             9,245        10,341        30,486        29,442
    Operating expenses       6,636         6,232        20,671        18,599
                      -------------------------------------------------------
    Operating Income
     before other items      2,609         4,109         9,815        10,843
    Other Items:
    Interest Income             (4)          (64)          (59)         (290)
    Integration costs            -             -             -            93
    Gain on disposal
     of fixed assets             -            (7)          (20)          (14)
    Foreign exchange
     (gain)/loss               (48)          (15)         (132)          241
    Interest expense -
     long term                 405           493         1,266         1,697
                      -------------------------------------------------------
    Income before
     income taxes            2,256         3,702         8,760         9,116
                      -------------------------------------------------------
    Future income tax
     expense                   144         1,066           381         2,056
    Current Income tax
     expense                   698           434         3,234         1,730
                      -------------------------------------------------------
    Income tax expense         842         1,500         3,615         3,786
                      -------------------------------------------------------
    Net income and
     comprehensive
     income                  1,414         2,202         5,145         5,330
    Retained Earnings
     (Deficit),
     beginning of period     2,718        (4,949)       (1,013)       (8,077)
                      -------------------------------------------------------
    Retained Earnings
     (Deficit), end of
     period                  4,132        (2,747)        4,132        (2,747)
                      -------------------------------------------------------
                      -------------------------------------------------------
    Earnings per Share:
      Basic                   0.01          0.02          0.04          0.05
      Diluted                 0.01          0.02          0.04          0.04

    Weighted average
     number of shares
     outstanding:
      Basic            119,294,323   118,467,691   119,085,836   118,180,288
      Diluted          123,755,886   122,455,914   124,073,826   121,696,386



                      Peer 1 Network Enterprises, Inc.
                    Consolidated Statement of Cash Flows
             For the three and Nine months ended March 31, 2009
                    (unaudited - prepared by management)
                   (in thousands of United States Dollars)


                             Three         Three          Nine          Nine
                      Months Ended  Months Ended  Months Ended  Months Ended
                        March 2009    March 2008    March 2009    March 2008
                               US$           US$           US$           US$

    Cash flows from
     operating activities
      Net Income             1,414         2,202         5,145         5,330
      Amortization of
       property and
       equipment             3,050         2,450         8,693         6,803
      Amortization of
       intangible assets       323           431         1,051         1,217
      Increase in
       accrued interest
       and accretion on
       notes payable            11           (17)           66             1
      Bad debt expense         198           125           595           379
      Gain on disposal
       of property and
       equipment                 -            (8)          (20)          (14)
      Amortization of
       deferred gain           (20)          (20)          (59)          (59)
      Amortization of
       deferred loan
       origination fees        110           117           350           415
      Future income tax
       expense                 144         1,066           381         2,056
      Stock-based
       compensation
       included in income
       for period              434           399         1,825         1,180
      Decrease in
       deferred lease
       inducements             (36)           37           (35)         (202)
      Foreign exchange
    translation adjustment       -           (40)            -           (40)
                      -------------------------------------------------------
                             5,628         6,742        17,992        17,066
    Change in non-cash
     working capital items
      (Increase) Decrease
       in accounts
       receivable              816          (169)         (466)          913
      (Increase) in
       prepaid expenses        183           610           (30)         (426)
      Increase (decrease)
       in accounts payable
       and accrued
       liabilities            (145)        1,448        (1,320)          771
      Increase (decrease)
       in income taxes
       payable                 150          (672)          329          (122)
      Increase (decrease)
       in deferred
       revenue                (236)           61          (176)       (1,132)
                      -------------------------------------------------------
                             6,396         8,020        16,329        17,070
                      -------------------------------------------------------

    Cash flows from
     investing activities
      Investment in other
       assets                   12            18            43           293
      Acquisition of
       property and
       equipment            (2,788)       (3,787)      (11,819)      (13,538)
      Investment in
       goodwill, licences
       and other
       intangibles            (304)            -        (1,200)         (469)
      Proceeds on
       disposition of
       equipment                 -            20            20            46
                      -------------------------------------------------------
                            (3,080)       (3,749)      (12,956)      (13,668)
                      -------------------------------------------------------

    Cash flows from
     financing activities
      Repayment of notes
       payable                (800)         (821)       (2,400)       (2,754)
      Payment of capital
       lease obligations       (47)          (36)         (148)          (36)
      Issuance of capital
       stock                     -             3           194         1,003
                      -------------------------------------------------------
                              (847)         (854)       (2,354)       (1,787)
                      -------------------------------------------------------

    (Decrease) Increase
     in cash and cash
     equivalents             2,469         3,417         1,019         1,615
    Cash and cash
     equivalents -
     beginning of period     9,576         6,952        11,026         8,754
                      -------------------------------------------------------
    Cash and cash
     equivalents - end of
     period                 12,045        10,369        12,045        10,369
                      -------------------------------------------------------
                      -------------------------------------------------------

    Supplemental cash
     flow information:
    Interest paid              284           394           849         1,280
    Income tax paid            534         1,084         2,726         1,844
    Interest received            4            64            59           290
    Effect of acquistion
     of property and
     equipment in
     accounts payable         (908)           74          (871)           (8)
    Non-cash
     transactions -
     fixed assets
     disposal trade in                       553                         553
    





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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