PEER 1 Hosting Reports Fiscal 2012 First Quarter Results

Wednesday, November 9th, 2011

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 months ended September 30, 2011.  All amounts are stated in US dollars unless otherwise noted.

Selected Financial Highlights Comparing the Quarters Ended September 30, 2011 and 2010

  • Revenue increased 19.69% to $31.51 million from $26.33 million;
  • Gross profit increased 26.76% to $12.73 million from $10.04 million;
  • Operating income increased 643.67% to $1.82 million from $0.25 million;
  • Normalized EBITDA was $7.88 million, up from $6.02 million; and
  • Net loss was $1.31 million down from net income of $1.04 million.

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

  • Partnered with Magento Inc, the fastest growing retail eCommerce platform provider, to bring a new optimised Managed Hosting solution to online retailers;
  • Opened new 57,800 square foot green datacentre in Portsmouth, UK offering scalable managed hosting, dedicated hosting and colocation services in one of the greenest datacentres 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.
  • "Much of our effort in the first quarter was focused on the launch of new facilities and products, which we rolled out subsequent to quarter end, reinforcing our commitment to the EMEA region and making cloud computing more accessible," said Fabio Banducci, President and CEO of PEER 1 Hosting. "Our previous investments in infrastructure, particularly in our state of the art Toronto data centre, as well as our ability to capture and service new bandwidth intensive initiatives for key customers, drove strong improvements in revenue and earnings over the prior year period."

Financial Review for the Three Months Ended September 30, 2011 and 2010

Revenue increased 19.69% to $31.51 million for the three months ended September 30, 2011 from $26.33 million for the three months ended September 30, 2010.  The increase in revenue is 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 September 30, 2011 was $31.16 million. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 18.36% for the three months ended September 30, 2011.

Colocation revenue increased to $4.47 million for the three months ended September 30, 2011 compared with $3.48 million for the three months ended September 30, 2010.  The increase in colocation revenue is attributable to organic growth as well as the increase in the value of the Canadian dollar against the US dollar.  The effect on revenue from the increase in value of the Canadian dollar against the US dollar was $0.2 million for the three months ended September 30, 2011.

Bandwidth revenue increased to $2.33 million for the three months ended September 30, 2011 compared with $2.19 million for the three months ended September 30, 2010. The increase in bandwidth revenue for the three months ended September 30, 2011 is primarily attributable to organic growth and the increase in value of the Canadian dollars against the US dollar partly offset by pricing pressures in the market.  The effect on revenue from the increase in value of the Canadian dollar against the US dollar was $0.11 million for the three months ended September 30, 2011.

Hosting Services revenues increased to $23.13 million for the three months ended September 30, 2011 from $19.24 million for the three months ended September 30, 2010.  The increase for the three months ended September 30, 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 $8.31 million of revenue for the three months ended September 30, 2011 compared with $5.48 million of revenue for the three months ended September 30, 2010. This change is primarily related to organic growth and favorable foreign exchange effects of $0.33 million for the three months ended September 30, 2011.

Cost of sales increased by $2.5 million for the three months ended September 30, 2011 from $16.29 million for the three months ended September 30, 2010.  During the three months ended September 30, 2011, the Company incurred costs $1.34 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 59.6% for the three months ended September 30, 2011 from 61.86% for the three months ended September 30, 2010.

The increase in cost of sales for the three months ended September 30, 2011 compared to the same period in the prior year is primarily due to increased depreciation costs of $1.05 million, increased rent costs of $0.33 million, increased power costs of $0.29 million, increased software license costs of $0.50 million, increased bandwidth costs of $0.02 million, and increased repair and maintenance of $0.16 million.

Total operating expenses increased by $1.11 million to $10.91 million for the three months ended September 30, 2011 from $9.8 million for the three months ended September 30, 2010.  Operating expenses as a percentage of revenue decreased to 34.62% for the three months ended September 30, 2011 from 37.21% for the three months ended September 30, 2010.  The increase in operating expenses for the three months ended September 30, 2011 is largely attributable to $0.81 million higher staff and training cost, increased commission expenses of $0.19 million, increased amortization expense of $0.26 million, increased bad debt expense of $0.19 million, in part offset by lower stock based compensation of $1.02 million.  Total operating expenses for the three months ended September 30, 2011 are comprised of $4.75 million (2011: $3.95 million) sales and marketing expenses, $4.95 million (2011: $4.66 million) general and administrative expenses, and $1.2 million (2011: $1.19 million) in expenses for technology and customer relations.During the three months ended September 30, 2011, the company incurred expenses of $1.20 million related to its United Kingdom operations which are included in operating expenses, $0.40 million of which are categorized as general and administrative expenses and $0.80 million of which are categorized as selling and marketing expenses.

Normalized EBITDA was $7.88 million for the three months ended September 30, 2011, compared with $6.02 million in the prior year period.

Net loss for the first quarter ended September 30, 2011 was $1.31 million, compared with a net income of $1.04 million for the same period in 2010.

The Company had working capital deficit of $6.2 million at September 30, 2011 compared to a working capital deficit of $1.76 million as at June 30, 2011.  The increased in working capital deficit is primarily due to expenditure related to the UK expansion.  As at September 30, 2011, the Company had available $18.15 million under its $75 million credit facilities.

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