PEER 1 Reports Fiscal 2010 First Quarter Results

VANCOUVER, Nov. 12 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX:PIX), a leading provider of online IT infrastructure, today announced the results for the three months ended September 30, 2009. All amounts are stated in US dollars.

Selected financial highlights for the quarter ended September 30, 2009:

    
    -   Revenue decreased .55 % to $23.4 million from $23.5 million in the
        prior year period. On a sequential basis adjusted for changes in the
        exchange rate during the sequential quarter, total revenue increased
        2.6% from the fourth quarter of fiscal 2009;
    -   Gross profit decreased 7.7% to $9.7 million from $10.5 million in the
        prior year period;
    -   Operating income decreased 29.2% to $2.5 million from $3.5 million in
        the prior year period;
    -   Normalized EBITDA for the quarter was $6.5 million, down from
        $7.4 million in the prior year period but flat on a sequential basis
        when compared with the fourth quarter of fiscal 2009;
    -   Income before income taxes decreased 29.3% to $2.2 million from
        $3.11 million in the prior year period; and
    -   Net income decreased to $1.3 million from $1.7 million in the prior
        year period.

    Operational highlights for the first quarter:

    -   Launched an image backup and bare metal recovery (BMR) service for
        its managed hosting customers. The BMR functionality will be provided
        by software from Cristie Software and will be fully managed by PEER 1
        along with standard managed backup plans.
    -   Welcomed Ken Rotman and Mitch Green 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
    

"Our relatively stable results on a year over year basis reflect the strength of our existing business even as we operate through a period of reduced economic activity," said Fabio Banducci, President and CEO of PEER 1. "Modest growth on a sequential basis, coupled with an ongoing investment in our future growth, suggests PEER 1 is well positioned to benefit as overall economic conditions continue to improve in the quarters ahead."

First Quarter Review

Revenues decreased to $23.4 million for the three months ended September 30, 2009, compared with $23.5 million for the same period in 2008. The decrease in revenue is primarily attributable to the effect of the decline in the value of the Canadian dollar against the US dollar. When adjusted for the exchange rates in effect during the period, revenue for the three months ended September 30, 2009 was $23.62 million, an increase of .5%.

Hosting Services revenues decreased to $16.75 million for the three months ended September 30, 2009 compared with $16.79 million for the same period in 2008. The decrease is attributable to reduced customer demand for hosting services due to the economic downturn. Hosting Services revenues have not been materially impacted by foreign exchange effects as virtually all Hosting Services sales are currently denominated in US dollars.

Co-location revenues increased to $3.31 million for the three months ended September 30, 2009 compared with $3.14 million for the same period in 2008. The increase in revenue is attributable to organic growth which will be constrained until the build out of phase one at the new Toronto area data center is completed, partly offset by the decreased value of the Canadian dollar against the US dollar. PEER 1's efforts to secure additional data centre space are ongoing. The effect on revenue of the decrease in value of the Canadian dollar against the US dollar was $0.11 million for the three months ended September 30, 2009.

Bandwidth revenues decreased to $2.02 million for the three months ended September 30, 2009 compared with $2.38 million for the same period in 2008. The decreases in revenue are attributable to the decreased value of the Canadian dollar against the US dollar, pricing pressures, and 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 $0.1 million for the three months ended September 30, 2009.

Cost of sales increased $0.67 million to $13.71 million for the three months ended September 30, 2009 compared with $13.04 million for the same period in 2008. During the three months ended September 30, 2009, the Company incurred cost of $0.25 million related to its UK expansion which are included in cost of sales. The increase is due to increases in: staff costs of $0.23 million, depreciation costs of $0.36 million, software license costs of $0.15 million, power costs of $0.01 million, repairs and maintenance costs of $0.02 million, and rent costs of $0.37 million associated with data center expansion in Toronto (started October 2008) and Herndon (started January 2009), and partially offset by decreased costs of $0.48 million for bandwidth.

Cost of sales as a percentage of revenue increased to 58.66% for the three months ended September 30, 2009 compared with 55.46% for the same period in 2008. The increase is attributable to increased costs including staffing, power, depreciation and facilities rent during the three months ended September 30, 2009 compared to the same period last year. Revenue decreased 0.55% for the three months ended September 30, 2009, compared with the three months ended September 30, 2008 while cost of sales increased 5.18% in the same period.

Total operating expenses increased $0.22 million to $7.19 million for the three months ended September 30, 2009 compared with $6.97 million for the same period in 2008. During the three months ended September 30, 2009, the Company incurred cost of $0.61 million related to its UK expansion which are included in operating expenses. Operating expenses as a percentage of revenue increased to 30.74% for the three months ended September 30, 2009 from 29.64% for the three months ended September 30, 2008. The increase is attributable to $0.78 million higher staff and training cost, $0.05 million higher bonus expense, $0.08 million higher amortization, $0.02 million in increased bad debt expense, increased commission expenses of $0.08 million and, offset in part by lower stock based compensation of $0.24 million, $0.38 million lower legal and other professional service expenses and $0.24 million lower advertising expenses. The increase in bad debt expense reflects a higher estimated expense for doubtful accounts that is based on management's review of specific customer payment history, the age of the accounts receivable and collection trends. The Company will continue to monitor receivables and bad debts given the recent economic downturn.

Normalized EBITDA for the three months ended September 30, 2009 decreased to $6.5 million, compared with $7.4 million in the same period in 2008.

Net income for the three months ended September 30, 2009 decreased to $1.3 million, from $1.7 million for the same period in 2008. On a sequential basis, net income increased by $0.7 million. Earnings per share were $0.01 for the quarters ended September 30, 2009, and September 30, 2008.

On September 30, 2009, the Company had cash and cash equivalents of $11.75 million compared with $15.74 million on June 30, 2009. The current portion of the Company's notes payable on September 30, 2009 was $3.0 million.

The Company had working capital of $1.3 million on September 30, 2009 compared with a working capital of $4.77 million on June 30, 2009. The Company anticipates current liquidity and cash generated from operations to be sufficient to fund operations for the foreseeable future.

The Company has 121,219,911 common shares issued and outstanding on November 12, 2009.

Subsequent Events

Subsequent events to September 30, 2009:

On October 9, 2009, PEER 1 announced a partnership with Alert Logic, Inc., in which PEER 1 will provide integrated IT-compliant intrusion detection and log management services for its e-commerce customers using Alert Logic's cloud-based IT compliance and security solutions. By partnering with Alert Logic, PEER 1 can ensure IT compliance for Managed Hosting customers who subscribe to the service, without the customer having to invest in security infrastructure or monitoring resources. Alert Logic will provide its Threat Manager and Log Manager solutions to address intrusion detection, vulnerability scanning and log management requirements within PCI DSS (Payment Card Industry Data Security Standard).

    
    EBITDA Reconciliation (Calendar)

    EBITDA Reconcilation
    (unaudited - prepared by management)
    (in $ thousands)
                                                        Three Months Ended
                                                      ----------------------
                                                      30-Sep-09    30-Sep-08

    Net Profit                                            1,267        1,726
    Income tax expense                                      927        1,385
    Interest expense                                        313          424
    Amortization - licences, fixed assets and
     deferred network costs                               3,474        3,044
    Stock based compensation                                562          805
    Loss (gain) on disposal of assets                       (12)          (3)
    Amortization of deferred gain                           (19)         (20)
    Foreign exchange loss                                    80            7
    -------------------------------------------------------------------------
    EBITDA                                                6,592        7,368

    Gain - insurance recovery                               (93)           -
    -------------------------------------------------------------------------
    Normalized EBITDA                                     6,499        7,368
    

Conference Call

PEER 1 will hold a conference call today, Thursday, November 12, 2009 at 5:30 p.m. EST, to discuss the results of the first quarter of fiscal 2010. 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 416-644-3431 or 800-733-7560. Please connect approximately 15 minutes prior to the beginning of the call. The conference call will be archived for replay until Thursday, November 19, 2009, at midnight. To access the archived conference call, dial 416-640-1917 or 877-289-8525 and enter the reservation number: 4181713 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=2883100

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 datacenters 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
                             September 30, 2009
                   (in thousands of United States dollars)

                                                  September 30,      June 30,
                                                          2009          2009
    -------------------------------------------------------------------------
    Assets
    Current:
      Cash and cash equivalents                    $    11,754   $    15,744
      Accounts receivable                                3,891         3,449
      Future income tax asset                              234           237
      Prepaid expenses                                   1,217         1,130
      Income taxes receivable                              223             -
    -------------------------------------------------------------------------
                                                        17,319        20,560
    Other assets                                         2,782         2,692
    Future income tax asset                              1,338         1,042
    Property and equipment                              41,409        36,856
    Equipment under capital lease                          963         1,013
    Goodwill                                             1,715         1,715
    Intangible assets                                    2,552         2,552
    -------------------------------------------------------------------------
                                                   $    68,078   $    66,430
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Liabilities
    Current:
      Accounts payable and accrued liabilities     $     9,474   $     7,936
      Deferred revenue                                   2,969         2,886
      Current portion of deferred gain                      79            79
      Current portion of deferred lease inducements        134           138
      Current portion of derivative liabilities            127            89
      Current portion of notes payable                   3,000         2,250
      Current portion of obligations under capital
       lease                                               233           211
      Income taxes payable                                   -         2,200
    -------------------------------------------------------------------------
                                                        16,016        15,789
    Deferred gain                                          473           493
    Deferred lease inducements                             632           664
    Derivative liabilities                                 223           179
    Notes payable                                       11,601        12,303
    Obligation under capital lease                         335           363
    -------------------------------------------------------------------------
                                                        29,280        29,791
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Shareholders' equity                                38,798        36,639
    -------------------------------------------------------------------------
                                                   $    68,078   $    66,430
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

                                           Three Months Ended
                          ---------------------------------------------------
                             September 30, 2009        September 30, 2008
    -------------------------------------------------------------------------
                               Number       Amount       Number       Amount
    -------------------------------------------------------------------------
    SHARE CAPITAL
    Common shares
      Balance at beginning
       of period          119,314,323  $    26,950  118,504,368  $    26,539
      Stock options
       exercised              113,375           59       70,004           31
      Warrants exercised    1,628,286          781      678,285          341
    -------------------------------------------------------------------------
      Balance at end of
       period             121,055,984       27,790  119,252,657       26,911
    -------------------------------------------------------------------------
    Warrants
      Balance at beginning
       of period            2,461,619          493    3,139,904          678
      Warrants expired/
       exercised           (1,628,286)        (407)    (678,285)        (185)
    -------------------------------------------------------------------------
      Balance at end of
       period                 833,333           86    2,461,619          493
    -------------------------------------------------------------------------
    Total - share
     capital              121,889,317       27,876  121,714,276       27,404
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    CONTRIBUTED SURPLUS
      Balance at beginning
       of period                             4,766                     2,509
      Stock-based
       compensation                            563                       805
      Options exercised
       and shares
       distributed under
       the stock option
       plan                                    (22)                      (11)
    -------------------------------------------------------------------------
    Balance at end of
     period                                  5,307                     3,303
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    RETAINED EARNINGS
      Balance at
       beginning of period                   4,709                    (1,013)
      Net income                             1,267                     1,726
    -------------------------------------------------------------------------
    Balance at end of
     period                                  5,976                       713
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    ACCUMULATED OTHER
     COMPREHENSIVE INCOME
      Balance at beginning
       of period                              (279)                      (11)
      Other comprehensive
       income                                  (82)                        -
    -------------------------------------------------------------------------
    Balance at end of
     period                                   (361)                      (11)
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Total - shareholders'
     equity                            $    38,798               $    31,409
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------



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

                                                       Three Months Ended
                                                  ---------------------------
                                                  September 30, September 30,
                                                          2009          2008
    -------------------------------------------------------------------------
    Revenue
      Colocation Services                          $     6,628   $     6,715
      Hosting Services                                  16,746        16,789
                                                  ------------- -------------
                                                        23,374        23,504

    Cost of revenue                                     13,711        13,036
    -------------------------------------------------------------------------
    Gross profit                                         9,663        10,468
    Operating expenses                                   7,185         6,967
    -------------------------------------------------------------------------
    Operating income before other items                  2,478         3,501
    -------------------------------------------------------------------------
    Other items:
      Interest income                                       (4)          (38)
      Gain on insurance recovery                           (93)            -
      Gain on disposal of property and equipment           (12)           (3)
      Foreign exchange loss                                 80             7
      Interest expense - long term                         313           424
    -------------------------------------------------------------------------
                                                           284           390
    -------------------------------------------------------------------------
    Income before income taxes                           2,194         3,111
    -------------------------------------------------------------------------
    Future income tax expense (recovery)                  (297)          289
    Current income tax expense                           1,224         1,096
    -------------------------------------------------------------------------
    Income tax expense                                     927         1,385
    -------------------------------------------------------------------------
    Net income                                     $     1,267   $     1,726
    Other comprehensive income:
      Change in unrealized fair value of derivatives
       designated as cash flow hedges                      (82)            -
    -------------------------------------------------------------------------
    Comprehensive income                           $     1,185   $     1,726
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Net income attributable to:
      Common shares                                $     1,267   $     1,726
    Comprehensive income attributable to:
      Common shares                                $     1,185   $         -
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    Basic and diluted earnings per share           $      0.01   $      0.01
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------

    Weighted average number of shares outstanding:
      Basic                                        119,508,564   118,703,525
      Diluted                                      123,296,839   123,344,996



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

                                                       Three Months Ended
                                                  ---------------------------
                                                  September 30, September 30,
                                                          2009          2008
    -------------------------------------------------------------------------
    Operating Activities:
      Net income                                   $     1,267   $     1,726
      Adjustments for non-cash items:
        Amortization of property and equipment           3,151         2,654
        Amortization of intangible assets                  323           390
        Increase in accrued interest and accretion
         of convertible debt                                 -            18
        Bad debt expense                                   158           136
        Gain on disposal of property and equipment         (12)           (3)
        Amortization of deferred gain                      (19)          (20)
        Gain on insurance                                  (93)            -
        Amortization of deferred loan origination
         fees                                               49           123
        Future income tax expense                         (297)          289
        Stock-based compensation included in income
         for the period                                    562           805
        Decrease in deferred lease inducements             (36)          (36)

      Changes in non-cash working capital:
        Increase accounts receivable                      (507)       (1,521)
        Increase in prepaid expenses                       (87)         (100)
        Decrease in accounts payable and accrued
         liabilities                                      (158)       (1,509)
        Decrease in income taxes payable                (2,423)         (821)
        Increase in deferred revenue                        84            19
    -------------------------------------------------------------------------
    Cash flows from operating activities                 1,962         2,150
    -------------------------------------------------------------------------
      Investing Activities:
      Investment in other assets                           (91)           22
      Acquisition of property and equipment             (5,958)       (3,997)
      Acquisition of intangible assets                    (324)         (399)
      Proceeds on disposition of equipment                  12             3
    -------------------------------------------------------------------------
    Cash flows used in investing activities             (6,361)       (4,371)
    -------------------------------------------------------------------------
    Financing Activities:
      Repayments of notes payable                            -          (800)
      Payment of capital lease obligations                 (55)          (54)
      Issuance of capital stock                            411           176
    -------------------------------------------------------------------------
      Cash flows from (used in) financing activities       356          (678)
    -------------------------------------------------------------------------
    Foreign exchange gain on cash and cash
     equivalents                                            53            40
    -------------------------------------------------------------------------
    Increase in cash and cash equivalents               (3,990)       (2,859)
    Cash and cash equivalents, beginning                15,744        11,026
    -------------------------------------------------------------------------
    Cash and cash equivalents, ending              $    11,754   $     8,167
    -------------------------------------------------------------------------
    -------------------------------------------------------------------------
    

SOURCE PEER 1 Network Enterprises, Inc.

For further information: For further information: David Feick, The Equicom Group, (403) 218-2839, 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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