PEER 1 Hosting Reports Record Fiscal 2012 Third Quarter Results

VANCOUVER, May 9, 2012 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX:PIX), operating as PEER 1 Hosting (PEER 1 or the "Company"), a leading provider of online IT infrastructure, today announced its results for the three and nine months ended March 31, 2012.  All amounts are stated in US dollars unless otherwise noted.

Selected Financial Highlights Comparing the Quarters Ended March 31, 2012 and 2011

• Revenue increased 19% to $34.21 million from $28.73 million;
  
• Gross profit increased 23% to $13.24 million from $10.73 million;
• Operating profit increased 395% to $1.13 million from $0.23 million;
• Normalized EBITDA increased 33% to $8.9 million from $6.7 million; and
• Net income was $1.06 million compared to a net loss of $0.27 million.

Selected Highlights for the Third Quarter and Period Subsequent to Quarter-End

• Successful migration of servers and clients to PEER 1's new 57,800 square foot state-of-the-art datacenter in Portsmouth, UK where PEER 1 now offers scalable managed hosting, dedicated hosting, colocation, and cloud services in one of the greenest datacenters in the country;
  
  
• Entry into a lease for additional data center space in the Company's existing Los Angeles facility.  This additional space will allow the Company to offer up to approximately 3,000 servers of additional capacity to its high end managed and dedicated hosting customers that demand a West coast presence; and
  
  
• Naming of Magento, a leading eCommerce platform provider and division of X.commerce, Inc., an eBay Inc. (NASDAQ: EBAY) company, as the winner of the Company's 2011 Partner of the Year Award.

"During the quarter we successfully completed the migration of servers into POD A at our new flagship UK data centre and secured additional capacity on the U.S. west coast to support our continued growth," said Fabio Banducci, President and CEO of PEER 1 Hosting. "Our record financial results this quarter reflect the significant strategic investment we have made in expanding our infrastructure both in the North America and Europe over the last several quarters, which will help support additional growth in the future."

Financial Review for the Three and Nine Months Ended March 31, 2012 and 2011

Revenue increased to $34.21 million (19%) for the three months ended March 31, 2012 from $28.73 million for the three months ended March 31, 2011.  The increase in revenue is attributable to organic growth and partly offset by the effect of the decrease 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 March 31, 2012 increased to $34.34 million (20%). Revenue increased to $99.34 million (20%) for the nine months ended March 31, 2012 from $82.94 million for the nine months ended March 31, 2011.  The increase in revenue is 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 nine months ended March 31, 2012 increased to $99.17 million (20%).

Colocation revenue increased to $4.53 million and $13.36 million for the three and nine months ended March 31, 2012, respectively, compared with $4.20 million and $11.23 million for the three and nine months ended March 31, 2011, respectively.  The increase in colocation revenue is attributable to organic growth as well as the changes in the value of the Canadian dollar against the US dollar.  The effect on revenues from the changes in value of the Canadian dollar against the US dollar were ($0.07) million and $0.10 million for the three and nine months ended March 31, 2012, respectively.

Bandwidth revenue increased to $2.46 million and $7.11 million for the three and nine months ended March 31, 2012, respectively, compared with $2.21 million and $6.69 million for the three and nine months ended March 31, 2011, respectively. The increase in bandwidth revenue for the three and nine months ended March 31, 2012 is attributable to organic growth and the changes in value of the Canadian dollars against the US dollar partly offset by pricing pressures in the market.  The effect on revenue from the changes in value of the Canadian dollar against the US dollar were ($0.03) million and $0.05 million for the three and nine months ended March 31, 2012, respectively.

Hosting services revenues increased to $25.49 million and $73.91 million for the three and nine months ended March 31, 2012, respectively, from $20.66 million and $60.44 million for the three and nine months ended March 31, 2011, respectively.  The increase for the three and nine months ended March 31, 2012 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 $9.39 million and $26.16 million of revenue for the three and nine months ended March 31, 2012, respectively, compared with $6.97 million and $18.51 million of revenue for the three and nine months ended March 31, 2011, respectively. These changes are related to organic growth, unfavorable foreign exchanges effects of $0.10 million for the three months ended March 31, 2012, and favourable foreign exchange effects of $0.16 million for the nine months ended March 31, 2012.

Cost of sales increased by $2.98 million for the three months ended March 31, 2012 from $18.00 million for the three months ended March 31, 2011.  During the three months ended March 31, 2012 and March 31, 2011, respectively, the Company incurred costs $1.96 million and $1.25 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 61% for the three months ended March 31, 2012, from 63% for the three months ended March 31, 2011.  Cost of sales increased by $8.66 million for the nine months ended March 31, 2012 from $51.27 million for the nine months ended March 31, 2011.  During the nine months ended March 31, 2012 and March 31, 2011, respectively, the Company incurred costs of $5.26 million and $3.13 million related to its operations in the United Kingdom.  Cost of sales as a percentage of revenue decreased to 60% for the nine months ended March 31, 2012 from 62% for the nine months ended March 31, 2011.

The increase in cost of sales for the three months ended March 31, 2012 compared with the same period in the prior year is primarily due to increased depreciation costs of $1.86 million, increased labor cost of $0.38 million, increased power costs of $0.20 million, increased software license costs of $0.27 million, increased bandwidth costs of $0.29 million, and increased repair and maintenance of $0.02 million.

The increase in cost of sales for the nine months ended March 31, 2012 compared with the same period in the prior year is primarily due to increased depreciation costs of $4.25 million, increased rent costs of $0.62 million, increased labor costs of $0.99 million, increased power costs of $0.55 million, increased software license costs of $1.33 million, increased bandwidth costs of $0.45 million, and increased repair and maintenance of $0.32 million.

Operating expenses increased to $12.11 million for the three months ended March 31, 2012 from $10.50 million for the three months ended March 31, 2011.  Operating expenses as a percentage of revenue decreased to 35% for the three months ended March 31, 2012 from 37% for the three months ended March 31, 2011.  The increase in operating expenses for the three months ended March 31, 2012 is largely attributable to $0.94 million higher staff and training cost, and increased bonus expenses of $0.32 million.  Total operating expenses for the three months ended March 31, 2012 is comprised of $5.60 million (2011: $4.74 million) sales and marketing expenses, $5.13 million (2011: $4.49 million) general and administrative expenses, and $1.37 million (2011: $1.27 million) in other operating expenses for technology and customer relations. During the three months ended March 31, 2012 and March 31, 2011, respectively, the Company incurred expenses of $1.60 million and $0.97 million related to its United Kingdom operations which are included in operating expenses, $0.44 million and $0.33 million of which are categorized as general and administrative expenses, and $1.10 million and $0.63 million of which are categorized as selling and marketing expenses.

Operating expenses increased to $35.93 million for the nine months ended March 31, 2012 from $30.34 million for the nine months ended March 31, 2011.  Operating expenses as a percentage of revenue decreased to 36% for the nine months ended March 31, 2012 compared with 37% for the nine months ended March 31, 2011.  The increase in operating expenses for the nine months ended March 31, 2012 is largely attributable to $2.66 million higher staff and training cost, increased commission expenses of $0.51 million, increased amortization expense of $0.57 million, increased bonus expenses of $0.89 million, increased bad debt expense of $0.33 million, in part offset by lower stock based compensation of $0.16 million.  Total operating expenses for the nine months ended March 31, 2012 are comprised of $15.41 million (2011: $12.67 million) sales and marketing expenses, $16.73 million (2011: $14 million) general and administrative expenses, and $3.79 million (2011: $3.67 million) in other operating expenses for technology and customer relations. During the nine months ended March 31, 2012 and March 31, 2011, respectively, the company incurred expenses of $4.13 and $2.57 million related to its United Kingdom operations which are included in operating expenses, $1.24 million and $0.98 million of which are categorized as general and administrative expenses, and $2.78 million and $1.57 million of which are categorized as selling and marketing expenses.

Normalized EBITDA was $8.94 million for the three months ended March 31, 2012, compared with $6.71 million in the prior year period.

Net income for the third quarter ended March 31, 2012 was $1.06 million, compared to a net loss of $0.27 million for the same period in 2011.

The Company had a working capital deficit of $10.22 million as at March 31, 2012 compared to a working capital of $0.44 million as at June 30, 2011.  The increase in working capital deficit is primarily due to the use of cash to fund the UK expansion and the increase in trade payables primarily due to timing.  As at March 31, 2012, the Company had $12.29 million available under its $75.00 million credit facilities.  In addition, the Company also has a $25.00 million accordion feature available that is subject to syndicate approval.

PEER 1 Hosting had 124,315,167 common shares issued and outstanding as at March 31, 2012.

EBITDA Reconciliation
(unaudited - prepared by management)
(in $ thousands)						Three Months Ended
						31-Mar-12	31-Mar-11
Net Profit						1,062	(272)
Income tax expense						241	(12)
Interest expense						643	1,090
Amortization - licences, fixed assets and deferred network costs						7,293	5,391
EBITDA						9,239	6,197
Stock based compensation						520	553
Foreign exchange gain						(636)	(567)
Gain on disposal of assets						(60)	(8)
Reverse of sales tax provisions						(122)	-
Service Level Arrangement Credit						-	161
Commission - One time						-	375
Normalized EBITDA						8,941	6,711

Conference Call

PEER 1 Hosting will hold a conference call on Wednesday, May 9, 2012 at 5:30pm Eastern Time (ET), to discuss the results for the third 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 Wednesday May 16, 2012, at midnight. To access the archived conference call, dial [phone] or 1-855-859-2056 and enter the reservation number 76257835 followed by the number sign.

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

http://www.newswire.ca/en/webcast/detail/962463/1032231

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 is one of the world's leading IT hosting providers. The company is built on two obsessions: Ping & People. Ping, represents its commitment to best-in-breed technology, founded on a high performance 10Gbps FastFiber Network™ connected by 18 state-of-the-art datacenters, 22 points-of-presence and 10 colocation facilities throughout North America and Europe.  People, represents its commitment to delivering outstanding customer service to its more than 10,000 customers worldwide, backed by a 100 percent uptime guarantee and 24x7x365 FirstCall Support™. Info-Tech Research Group recently named PEER 1 Hosting as a "Champion" in its Canadian colocation and managed services Vendor Landscape report, recognizing the company's strength in product offerings and enterprise strategy in the global IT marketplace. PEER 1 Hosting's portfolio includes Managed Hosting, Dedicated Servers under the ServerBeach brand, Colocation and Cloud Services under the Zunicore brand. Founded in 1999, the company is headquartered 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)

														March 31, 2012							June 30, 2011
ASSETS
Current assets
Cash and cash equivalents											$			4,966			$				7,803
Trade and other receivables														6,999							6,447
Prepaid expenses														2,628							1,448
Income tax receivable														294							2,874
														14,887							18,572
Non-current assets
Other assets														2,708							2,353
Deferred tax assets														3,176							1,818
Property, plant and equipment														98,522							87,697
Equipment under finance lease														2,700							724
Intangible assets														8,029							6,636
														115,135							99,228
Total assets														130,022							117,800
LIABILITIES AND EQUITY
Current liabilities
Trade and other payables														13,492							9,944
Loans and borrowings														6,110							5,008
Derivatives														444							250
Income tax payable														1,029							-
Deferred lease inducement														345							136
Obligations under finance lease														844							237
Deferred revenue														2,847							2,561
														25,111							18,136
Non-current liabilities
Loans and borrowings														52,418							53,062
Derivatives														1,220							875
Deferred tax liability														1,016							1,354
Obligations under finance lease														1,600							11
Deferred lease inducement														704							655
														56,958							55,957
Total liabilities														82,069							74,093
EQUITY
Issued capital														32,360							28,221
Share-based payments reserve														10,182							9,985
Warrants														-							-
Accumulated other comprehensive income														(88)							(492)
Retained earnings														5,499							5,993
Total equity														47,953							43,707
Total liabilities and equity														130,022							117,800

CONDENSED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

(unaudited, expressed in thousands of United States dollars)

				Three months ended March 31				Nine months ended  March 31
				2012	2011			2012	2011
Revenue
Colocation services				$          8,724	$          8,067			$        25,434	$        22,501
Hosting Services				25,489	20,662			73,907	60,442
				34,213	28,729			99,341	82,943
Cost of sales				20,976	18,001			59,928	51,272
Gross profit				13,237	10,728			39,413	31,671
Administration expenses				5,131	4,491			16,731	13,998
Sales and marketing expenses				5,604	4,742			15,409	12,671
Other operating expenses				1,374	1,267			3,793	3,670
Operating profit before other items				1,128	228			3,480	1,332
Finance income				-	(3)			(7)	(17)
Gain on disposal of property, plant and equipment				(60)	(8)			(23)	(36)
Loss on legal settlement				-	-			-	24
Foreign exchange loss (gain)				(636)	(567)			778	(2,856)
Finance expense				643	1,090			2,916	1,939
Other non-operating income				(122)	-			(122)	-
Profit (loss) before income taxes				1,303	(284)			(62)	2,278
Income taxes expense (recovery)				241	(12)			432	775
Profit (loss) for the period				1,062	(272)			(494)	1,503
Other comprehensive income (loss)
Foreign currency translation gain (loss)				1,401	1,169			(1,763)	3,253
Unrealized gain (loss) on net investment in subsidiaries				(178)	(950)			2,167	(3,612)
Other comprehensive income (loss) for the period, net of tax				1,223	219			404	(359)
Total comprehensive income (loss) for the period				2,285	(53)			(90)	1,144
Profit (loss) attributable to common shares				1,062	(272)			(494)	1,503
Total comprehensive income (loss) attributable to common shares				2,285	(53)			(90)	1,144
Earnings (loss) per share
Basic				0.01	(0.00)			(0.00)	0.01
Diluted				0.01	(0.00)			(0.00)	0.01
Weighted average number of common shares outstanding
Basic				124,028,252	120,042,547			122,044,055	119,938,894
Diluted				129,969,421	120,042,547			122,044,055	124,242,766

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				170,303			173			-		(94)		-			-			79
	Warrants exercised				833,333			422			(86)		-		-			-			336
	Stock-based compensation				-			-			-		2,902		-			-			2,902
	Purchase of shares for cancellation pursuant to normal course issuer bid				(189,500)			(44)			-		-		-			(211)			(255)
Transactions with owners					120,535,970			28,182			-		9,612		-			4,750			42,544
	Profit for the period				-			-			-		-		-			1,503			1,503
	Other comprehensive income (loss):
		Foreign currency translation gain			-			-			-		-		3,253			-			3,253
Unrealized loss on net investment in subsidiaries					-			-			-		-		(3,612)			-			(3,612)
Total comprehensive income for the period					-			-			-		-		(359)			1,503			1,144
Balance at March 31, 2011					120,535,970			28,182			-		9,612		(359)			6,253			43,688
Balance at July 1, 2011					120,576,370			28,221			-		9,985		(492)			5,993			43,707
	Stock options exercised				3,738,797			4,139			-		(2,544)		-			-			1,595
	Stock-based compensation				-			-			-		2,741		-			-			2,741
Transactions with owners					124,315,167			32,360			-		10,182		(492)			5,993			48,043
	Loss for the period				-			-			-		-		-			(494)			(494)
	Other comprehensive income (loss):
		Foreign currency translation gain (loss)			-			-			-		-		(1,763)			-			(1,763)
Unrealized gain (loss) on net investment in subsidiaries					-			-			-		-		2,167			-			2,167
Total comprehensive income for the period															404			(494)			(90)
Balance at March 31, 2012					124,315,167			32,360			-		10,182		(88)			5,499			47,953

CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited, expressed in thousands of United States dollars)

				Nine months ended March 31
						2012				2011
Operating Activities
	Net income (loss)				$	(494)			$	1,503
Depreciation of property, plant and equipment						18,286				13,879
Amortization of intangible assets						877				472
Bad debt expense						575				271
Gain on disposal of property, plant and equipment						(23)				(36)
Amortization of deferred loan origination fees						194				408
Future income tax recovery						(1,665)				(1,672)
Stock-based compensation						2,741				2,902
Interest paid						(2,349)				(1,321)
Income taxes refunded (paid)						1,464				(2,768)
Net change in non-cash working capital						6,638				1,927
Cash flows from operating activities						26,244				15,565
Investment Activities
	Investment in other assets					(332)				(625)
	Acquisition of property, plant and equipment					(29,872)				(31,228)
	Acquisition of intangible assets					(2,025)				(1,064)
	Proceeds on disposition of equipment					130				46
Cash flows used in investing activities						(32,099)				(32,871)
Financing Activities
	Proceeds from loans and borrowings					7,510				74,172
	Repayments of loans and borrowings					(6,290)				(32,726)
	Payment of finance lease obligations					(349)				(291)
	Payment of derivative liabilities					-				(283)
	Purchase of shares for cancellation pursuant to normal course issuer bid					-				(255)
	Issuance of capital stock					1,583				415
Cash flow from financing activities						2,454				41,032
Foreign exchange gain (loss) on cash and cash equivalents						564				(2,543)
(Decrease) Increase in cash and cash equivalents,						(2,837)				21,182
Cash and cash equivalents, beginning ^(1)						7,803				2,321
Cash and cash equivalents, ending ^(1)						4,966				23,503
Supplemental non-cash financing and investing disclosure:
Effect of acquisition of property, plant and equipment in trade and other payables						(236)				111

(1)

Cash and cash equivalents consist of highly liquid money market instruments with original maturity of three months or less, which are readily convertible into a known amount of cash.

 

For investor inquiries please contact:
Nick Hurst
The Equicom Group
[phone]
[email protected] 

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