VANCOUVER, BC – May 14, 2009 – 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:
http://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™, 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.
For media inquiries please contact Abigail Faylor, Weber Shandwick, +1-425-452-5497, afaylor@webershandwick.com; For investor inquiries please contact Thomas McMillan, Equicom Group, +1-403-536-5903, tmcmillan@equicomgroup.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
