PEER 1 Hosting Reports Fiscal 2012 Second Quarter Results

VANCOUVER, Feb. 8, 2012 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX:PIX), operating as PEER 1 Hosting, a leading provider of online IT infrastructure, today announced its results for the three and six months ended December 31, 2011.  All amounts are stated in US dollars unless otherwise noted.

Selected Financial Highlights Comparing the Quarters Ended December 31, 2011 and 2010

• Revenue increased 20.56% to $33.62 million from $27.89 million;
• Gross profit increased 23.37% to $13.48 million from $10.90 million;
• Operating profit decreased 38.23% to $0.53 million from $0.86 million;
• Normalized EBITDA was $8.6 million, up from $6.4 million; and
• Net loss was $0.25 million compared to net income of $0.74 million.

Selected Highlights for Second Quarter and Period Subsequent to Quarter-End

• Opened new 57,800 square foot green datacenter in Portsmouth, UK offering scalable managed hosting, dedicated hosting and colocation services in one of the greenest datacenters in the country. Within easy reach of London, the center has 11MVA of available power, room for 20,000 servers, and provides a direct connection to PEER 1 Hosting's 10Gb FastFiber Network™; and
• Launched public cloud division Zunicore and Zunicore Cloud Hosting product focused on the business professional and offering users a high degree of control and flexibility through customizable resource pools, hands-free auto-scaling, and transparent pricing.

"Our key achievement in the second quarter was the commissioning of our new flagship UK data centre and we rapidly worked to migrate servers and clients to our new facility, with the goal of aligning our cost structures across international operating regions," said Fabio Banducci, President and CEO of PEER 1 Hosting. "We continue to see meaningful improvements in revenues as new facilities are completed and opened to customer deployments. Our growing portfolio of state of the art data centres will provide a strong backbone for additional growth in the quarters ahead."

Financial Review for the Three and Six Months Ended December 31, 2011 and 2010

Revenue increased to $33.62 million (20.56%) for the three months ended December 31, 2011 from $27.88 million for the three months ended December 31, 2010. Revenue increased to $65.13 million (20.13%) for the six months ended December 31, 2011 from $54.21 million for the six months ended December 31, 2010.  The increases in revenue are primarily attributable to organic growth and the effect of the increase in 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 December 31, 2011 was $33.68 million and $64.84 million for the six month period. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 20.79% and 19.59 % for the three and six-month periods ended December 31, 2011.

Colocation revenue increased to $4.31 million and $8.82 million for the three and six months ended December 31, 2011, respectively, compared with $3.55 million and $7.03 million for the three and six months ended December 31, 2010.  The increase in colocation revenue is attributable to organic growth as well as the change in the value of the Canadian dollar against the US dollar.  The effect on revenue from the change in value of the Canadian dollar against the US dollar was ($0.04) million and $0.16 million for the three and six months ended December 31, 2011, respectively.

Bandwidth revenue increased to $2.32 million and $4.65 million for the three and six months ended December 31, 2011, respectively, compared with $2.28 million and $4.48 million for the three and six months ended December 31, 2010. The increase in bandwidth revenue for the three and six months ended December 31, 2011 is primarily attributable to organic growth and the change in value of the Canadian dollars against the US dollar.  The effect on revenue from the change in value of the Canadian dollar against the US dollar was ($0.02) million and $0.09 million for the three and six months ended December 31, 2011, respectively.

Hosting Services revenues increased to $25.29 million and $48.42 million for the three and six months ended December 31, 2011, respectively, from $20.54 million and $39.78 million for the three and six months ended December 31, 2010.  The increase for the three and six months ended December 31, 2011 is attributable to organic growth. Hosting Services revenues have not been materially impacted by foreign exchange effects as virtually all Hosting Services sales are currently denominated in US dollars.

PEER 1 Hosting's Canadian operations accounted for $8.46 million and $16.77 million of revenue for the three and six months ended December 31, 2011, respectively, compared with $6.06 million and $11.54 million of revenue for the three and six months ended December 31, 2010. This change is primarily related to organic growth partly offset by unfavourable foreign exchange effects of $0.06 million for the three months ended December 31, 2011, and organic growth and favourable foreign exchange effects of $0.27 million for the three and six months ended December 31, 2011.

Cost of sales increased by $3.20 million for the three months ended December 31, 2011 from $17.0 million for the three months ended December 31, 2010.  During the three months ended December 31, 2011 and December 31, 2010, respectively, the Company incurred costs of $1.96 million and $1.05 million related to its operations in the United Kingdom, which are included in cost of sales.  Cost of sales as a percentage of revenue decreased to 60.0% for the three months ended December 31, 2011 from 60.91% for the three months ended December 31, 2010.  Cost of sales increased by $5.68 million for the six months ended December 31, 2011 from $33.27 million for the six months ended December 31, 2010.  During the six months ended December 31, 2011 and December 31, 2010, respectively, the Company incurred costs of $3.30 million and $1.88 million related to its operations in the United Kingdom, which are included in cost of sales.  Cost of sales as a percentage of revenue decreased to 59.81% for the three months ended December 31, 2011 from 61.37% for the three months ended December 31, 2010.

The increase in cost of sales for the three months ended December 31, 2011 compared to the same period in the prior year is primarily due to increased depreciation costs of $1.33 million, increased labor cost of $0.49 million, increased rent costs of $0.34 million, increased power costs of $0.06 million, increased software license costs of $0.56 million, increased bandwidth costs of $0.15 million, and increased repair and maintenance of $0.14 million.

The increase in cost of sales for the six months ended December 31, 2011 compared to the same period in the prior year is primarily due to increased depreciation costs of $2.38 million, increased rent costs of $0.66 million, increased labor costs of $0.60 million, increased power costs of $0.35 million, increased software license costs of $1.06 million, increased bandwidth costs of $0.16 million, and increased repair and maintenance of $0.30 million.

Operating expenses increased to $12.92 million for the three months ended December 31, 2011 from $10.04 million for the three months ended December 31, 2010.  Operating expenses as a percentage of revenue increased to 38.42% for the three months ended December 31, 2011 from 36.0% for the three months ended December 31, 2010.  The increase in operating expenses for the three months ended December 31, 2011 is largely attributable to $0.85 million higher staff and training cost, increased commission expenses of $0.38 million, increased amortization expense of $0.27 million, increased bad debt expense of $0.11 million, increased stock based compensation of $0.89 million.  Total operating expenses for the three months ended December 31, 2011 are comprised of $5.05 million (2010: $3.98 million) sales and marketing expenses, $6.65 million (2010: $4.85 million) general and administrative expenses, and $1.2 million (2010: $1.21 million) in other operating expenses for technology and customer relations. During the three months ended December 31, 2011 and December 31, 2010, respectively, the company incurred expenses of $1.32 and $0.84 million related to its United Kingdom operations which are included in operating expenses, $0.40 million and $0.40 million of which are categorized as general and administrative expenses and $0.88 million and $0.47 million of which are categorized as selling and marketing expenses.

Operating expenses increased to $23.82 million for the six months ended December 31, 2011 from $19.84 million for the six months ended December 31, 2010.  Operating expenses as a percentage of revenue were flat at 36.58% for the six months ended December 31, 2011 compared to 36.59% for the six months ended December 31, 2010.  The increase in operating expenses for the six months ended December 31, 2011 is largely attributable to $1.73 million higher staff and training cost, increased commission expenses of $0.57 million, increased amortization expense of $0.53 million, increased bad debt expense of $0.30 million, in part offset by lower stock based compensation of $0.13 million.  Total operating expenses for the six months ended December 31, 2011 are comprised of $9.80 million (2010: $7.93 million) sales and marketing expenses, $11.60 million (2010: $9.51 million) general and administrative expenses, and $2.42 million (2010: $2.40 million) in other operating expenses for technology and customer relations. During the six months ended December 31, 2011 and December 31, 2010, respectively, the company incurred expenses of $2.52 million and $1.60 million related to its United Kingdom operations which are included in operating expenses, $0.80 million and $0.65 million of which are categorized as general and administrative expenses and $1.68 million and $0.94 million of which are categorized as selling and marketing expenses.

Normalized EBITDA was $8.6 million for the three months ended December 31, 2011, compared with $6.40 million in the prior year period.

Net loss for the second quarter ended December 31, 2011 was $0.25 million, compared with net income of $0.74 million for the same period in 2010.

The Company had working capital deficit of $7.3 million at December 31, 2011 compared to working capital of $0.44 million as at June 30, 2011.  The increased in working capital deficit is primarily due to expenditure related to the UK expansion.  As at December 31, 2011, the Company had available $12.34 million under its $75 million credit facilities.

PEER 1 Hosting had 123,879,665 common shares issued and outstanding as at December 31, 2011.

EBITDA Reconcilation
(unaudited - prepared by management)
(in $ thousands)	Three Months Ended
	31-Dec-11	31-Dec-10
Net Profit (loss)	(249)	736
Income tax expense	623	226
Interest expense	745	474
Amortization - licences, fixed assets and deferred network costs	6,166	4,564
Stock based compensation	1,875	982
Loss (gain) on disposal of assets	(10)	(12)
Foreign exchange loss	(578)	(590)
EBITDA	8,572	6,380
Settlement of legal claim	-	24
Normalized EBITDA	8,572	6,404

Conference Call

PEER 1 Hosting will hold a conference call on Wednesday, February 8, 2012 at 5:30pm Eastern Time (ET), to discuss the results for the second quarter of fiscal 2012. 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 [phone] or 1-888-231-8191. The conference call will be archived for replay until February 15, 2012, at midnight. To access the archived conference call, dial [phone] or 1-855-859-2056 and enter the reservation number 48533328 followed by the number sign.

A live audio webcast of the conference call will be available at:

http://www.newswire.ca/en/webcast/detail/912953/974405

Please connect at least 10 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-IFRS Measures
PEER 1 Hosting reports EBITDA because it is a key measure used by management to evaluate the Company's performance. PEER 1 Hosting believes that EBITDA is useful supplemental information, as it provides an indication of the results generated by PEER 1 Hosting's main business activities prior to taking into consideration how those activities are financed and expensed. EBITDA is not a recognized measure under IFRS, and accordingly investors are cautioned that EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with IFRS as an indicator of financial performance of PEER 1 Hosting, or as a measure of the company's liquidity and cash flows. PEER 1 Hosting'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 Hosting's EBITDA calculations.

About PEER 1 Hosting
PEER 1 Hosting 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 Hosting offers a reliable high performance Internet network supporting scalable managed hosting, dedicated hosting through the ServerBeach brand, and colocation solutions. Backed by its 100 percent uptime guarantee and 24x7x365 FirstCall Support™, PEER 1 Hosting ensures customers' online presence is always fast, always available. Since 1999, PEER 1 Hosting has grown to include 18 state-of-the-art data centers and points-of-presence throughout North America and Europe. The company's headquarters are in Vancouver, Canada, with European operations headquartered in Southampton, UK.  PEER 1 Hosting shares are traded on the TSX under the symbol PIX. For more information visit: www.peer1.com or www.peer1hosting.co.uk.

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 Hosting's public filings with securities regulatory authorities.

CONDENSED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION

(unaudited, expressed in thousands of United States dollars)

	December 31, 2011	June 30, 2011
ASSETS
Current assets
Cash and cash equivalents	$            6,303	$            7,803
Trade and other receivables	6,783	6,447
Prepaid expenses	2,863	1,448
Income tax receivable	1,900	2,874
	17,849	18,572
Non-current assets
Other assets	2,760	2,353
Deferred tax assets	2,549	1,818
Property and equipment	96,390	87,697
Equipment under finance lease	2,973	724
Intangible assets	7,549	6,636
	112,221	99,228
Total assets	130,070	117,800
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables	14,632	9,944
Loans and borrowing	6,319	5,008
Derivatives	472	250
Income tax payable	-	-
Deferred lease inducement	251	136
Obligations under finance lease	802	237
Deferred Revenue	2,630	2,561
	25,106	18,136
Non-current liabilities
Loans and borrowings	53,823	53,062
Derivatives	1,415	875
Deferred tax liability	1,472	1,354
Obligations under finance lease	1,805	11
Deferred lease inducement	732	655
	59,247	55,957
Total liabilities	84,353	74,093
EQUITY
Issued capital	31,524	28,221
Share-based payments reserve	10,184	9,985
Warrants	-	-
Accumulated other comprehensive income	(428)	(492)
Retained earnings	4,437	5,993
Total equity	45,717	43,707
Total liabilities and equity	130,070	117,800

CONDENSED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(unaudited, expressed in thousands of United States dollars)

	Three months ended December 31		Six months ended December  31
	2011	2010	2011	2010
Revenue
Colocation services	$         8,328	$       7,341	$       16,710	$       14,433
Hosting Services	25,289	20,544	48,418	39,780
	33,617	27,885	65,128	54,213
Cost of sales	20,170	16,985	38,951	33,271
Gross profit	13,447	10,900	26,177	20,942
Administration expenses	6,650	4,851	11,601	9,506
Sales and marketing expenses	5,050	3,979	9,804	7,928
Other operating expenses	1,217	1,211	2,419	2,403
Operating profit before other items	530	859	2,353	1,105
Finance income	-	-	(6)	(13)
Gain on disposal of property and equipment	(10)	(12)	38	(28)
Loss on legal settlement	-	24	-	24
Foreign exchange loss (gain)	(579)	(590)	1,413	(2,289)
Finance expense	745	475	2,273	849
Profit (loss) before income taxes	374	962	(1,365)	2,562
Income taxes	623	226	191	787
Profit (loss) for the period	(249)	736	(1,556)	1,775
Other comprehensive income (loss)
Foreign currency translation gain (loss)	1,526	(1,573)	(2,489)	2,084
Unrealized gain (loss) on net investment in subsidiaries	(1,965)	(117)	2,553	(2,663)
Other comprehensive income (loss) for the period, net of tax	(439)	(1,690)	64	(579)
Total comprehensive income (loss) for the period	(688)	(954)	(1,492)	1,196
Profit (loss) attributable to common shares	(249)	736	(1,556)	1,775
Total comprehensive income (loss) attributable to common shares	(688)	(954)	(1,492)	1,196
Earnings (loss) per share
Basic	(0.00)	0.01	(0.01)	0.01
Diluted	(0.00)	0.01	(0.01)	0.01
Weighted average number of common shares outstanding
Basic	121,519,993	119,612,118	123,393,295	119,683,351
Diluted	121,519,993	124,270,679	123,393,295	123,403,279

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

(unaudited, expressed in thousands of United States dollars)

			Share capital
			Number	Amount	Warrants	Share-based payments reserve	Accumulated other comprehensive income	Retained earnings	Total
Balance at July 1, 2010			119,721,834	$ 27,631	$ 86	$ 6,804	$ -	$ 4,961	$ 39,482
	Stock options exercised		113,331	106	-	(44)	-	-	62
	Stock-based compensation		-	-	-	2,348	-	-	2,348
	Purchase of shares for cancellation pursuant to normal course issuer bid		(189,500)	(44)	-	-	-	(211)	(255)
Transactions with owners			119,645,665	27,693	86	9,108	-	4,750	41,637
	Profit for the period		-	-	-	-	-	1,775	1,775
	Other comprehensive income (loss):
		Foreign currency translation gain	-	-	-	-	2,084	-	2,084
Unrealized loss on net investment in subsidiaries			-	-	-	-	(2,663)	-	(2,663)
Total comprehensive income for the period			-	-	-	-	(579)	1,775	1,196
Balance at December 31, 2010			119,645,665	27,693	86	9,108	(579)	6,525	42,833
Balance at July 1, 2011			120,576,370	28,221	-	9,985	(492)	5,993	43,707
	Stock options exercised		3,303,295	3,303	-	(2,022)	-	-	1,281
	Stock-based compensation		-	-	-	2,221	-	-	2,221
Transactions with owners			123,879,665	31,524	-	10,184	(492)	5,993	47,209
	Loss for the period		-	-	-	-	-	(1,556)	(1,556)
	Other comprehensive income (loss):
		Foreign currency translation gain (loss)	-	-	-	-	2,553	-	2,553
Unrealized loss on net investment in subsidiaries			-	-	-	-	(2,489)	-	(2,489)
Total comprehensive income for the period			-	-	-	-	64	(1,556)	(1,492)
Balance at December 31, 2011			123,879,665	31,524	-	10,184	(428)	4,437	45,717

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited, expressed in thousands of United States dollars)

		Six months ended December 31
		2011	2010
Operating Activities
	Net income (loss)	$        (1,556)	$          1,775
Depreciation of property and equipment		11,328	8,734
Amortization of intangible assets		542	226
Bad debt expense		481	182
Gain on disposal of property and equipment		38	(28)
Amortization of deferred loan origination fees		131	346
Future income tax expense		(653)	(928)
Stock-based compensation		2,221	2,348
Interest paid		(1,565)	(593)
Income taxes refunded (paid)		58	(3,293)
Net change in non-cash working capital		3,757	(1,318)
Cash flows from operating activities		14,782	7,451
Investment Activities
	Investment in other assets	(398)	(670)
	Acquisition of property and equipment	(20,105)	(20,255)
	Acquisition of intangible assets	(1,482)	(557)
	Proceeds on disposition of equipment	41	28
Cash flows used in investing activities		(21,944)	(21,454)
Financing Activities
	Proceeds from notes payable	4,971	49,193
	Repayments of notes payable	(1,584)	(31,783)
	Payment of finance lease obligations	(182)	(197)
	Purchase of shares for cancellation pursuant to normal course issuer bid	-	(255)
	Issuance of capital stock	1,270	63
Cash flow from (used in) financing activities		4,475	17,021
Foreign exchange gain (loss) on cash and cash equivalents		1,187	(2,823)
Increase in cash and cash equivalents, beginning		(1,500)	195
Cash and cash equivalents, beginning		7,803	2,321
Cash and cash equivalents, ending		6,303	2,516
Supplemental non-cash financing and investing disclosure:
Effect of acquisition of property and equipment in trade and other payables		2,054	2,221

 

For investor inquiries please contact:
David Feick
The Equicom Group
[phone]
[email protected]

For media inquiries please contact:
Marcela Peake
PEER 1 Hosting
[phone]
[email protected]