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Press release from CNW Group

PEER 1 Hosting Reports Fourth Quarter and Year End Results for Fiscal 2011

Wednesday, September 21, 2011

PEER 1 Hosting Reports Fourth Quarter and Year End Results for Fiscal 201116:00 EDT Wednesday, September 21, 2011VANCOUVER, Sept. 21, 2011 /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 12 months ended June 30, 2011.  All amounts are stated in US dollars unless otherwise noted.Selected Financial Highlights Comparing the Years Ended June 30, 2011 and 2010Revenue increased 15.21% to $112.82 million from $97.92 million;Gross profit increased 10.59% to $43.25 million from $39.1 million;Operating income decreased 44.51% to $4.13 million from $7.44 million;Normalized EBITDA was $25.68 million, up from $24.07 million; andNet loss was $1.09 million down from net income of $2.24 million.Selected Highlights for Fiscal 2011Signed multi-year colocation agreement with Capgemini Canada Inc., a member of the Capgemini Group, a leading global provider of consulting, technology and outsourcing services;Accelerated build out of US$40 million flagship data centre in Toronto, Ontario, equipped to offer all three hosting solutions - colocation, dedicated hosting and managed hosting - under one roof; commissioned PODs B and C turning POD B over to Capgemini Canada and opening POD C to customer deployments;Participation in the VMware Service Provider Program to offer customers Private Cloud solutions allowing Peer 1 Hosting customers to divide one physical server into multiple smaller virtual servers, all running on the same hardware;Announced IBM Canada a PEER 1 Hosting platinum level colocation reseller;Entered into a credit agreement with a syndicate of lenders for a $45 million non-revolving term facility and a $30 million revolving credit facility that can be increased by another $25 million (bringing the total potential credit available to $100 million) at the Company's request; andEntered into a long term lease agreement in the United Kingdom with plans to build out an approximately 50,000 square foot green data center facility at a site located in Portsmouth, England allowing the Company to improve capacity in the European market and more closely align its UK cost structure with that of its North American operations."In fiscal 2011 we further expanded our multi-year investment in strategic infrastructure designed to drive future growth across multiple operating geographies and each core service offering," said Fabio Banducci, President and CEO of PEER 1 Hosting.  "As we complete this phase of investment, we expect to begin realizing solid improvements in both revenue and margins as we drive higher utilization at these new, state of the art facilities."Financial Review for the Three and 12 Months Ended June 30, 2011 and 2010Revenue increased to $29.88 million for the three months ended June 30, 2011 from $25.59 million for the three months ended June 30, 2010. The increase is primarily attributable to organic growth and the increase in value of the Canadian dollar against the US dollar. The increase in revenue for the three months ended June 30, 2011 compared to the three months ended June 30, 2010 as a result of the increase in value of Canadian dollar denominated sales totaled $0.32 million. When adjusted for the exchange rates in effect in the prior year period, revenue for the three months ended June 30, 2011 was $29.55 million. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 15.5% for the three months ended June 30, 2011. Revenue increased to $112.82 million (15.21%) for the year ended June 30, 2011 from $97.92 million for the year ended June 30, 2010.  The increase in annual revenue is primarily attributable to the factors listed above as well as the VIA Hosting Services, Inc ("VIA") acquisition. When adjusted for the exchange rates in effect during the period, revenue for the year ended June 30, 2011 was $111.56 million. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 13.92% for the year ended June 30, 2011.Colocation revenues increased to 4.28 million in the three months ended June 30, 2011 from $3.49 million for the three months ended June 30, 2010. Colocation revenue increased to $15.5 million for the year ended June 30, 2011 compared with $13.56 million for the year ended June 30, 2010. The growth is primarily attributable to the increase in value of the Canadian dollar against the US dollar and organic growth. The effect on revenue of the increase in value of the Canadian dollar against the US dollar was $0.21 million for the three month period ended June 30, 2011 and $0.81 million for the year ended June 30, 2011, for Colocation and Services revenue.Bandwidth revenues decreased slightly to $2.23 million for the three months ended June 30, 2011 compared with $2.26 million for the three months ended June 30, 2010.  Bandwidth revenue increased to $8.91 million for the year ended June 30, 2011 compared with $8.67 million for the year ended June 30, 2010. The changes in revenue are primarily attributable to pricing pressure in the market partly offset by the increased value of the Canadian dollar against the US dollar. The effect on revenue of the increase in value of the Canadian dollar against the US dollar was $0.12 million for the three months ended June 30, 2011 and $0.45 million for the year ended June 30, 2011.Hosting Services revenues increased to $21.69 million for the three months ended June 30, 2011 from $18.45 million for the three months ended June 30, 2010 due to organic growth. Hosting Services revenues increased to $82.13 million for the year ended June 30, 2011 from $70.17 million for the year ended June 30, 2010.  The increase for the year ended June 30, 2011 is attributable to organic growth, and additional revenue from the VIA acquisition of approximately $2 million for the year ended June 30, 2011. 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 $26.03 million of revenue for the year ended June 30, 2011 compared with $20.15 million of revenue for the year ended June 30, 2010. This change is primarily related to organic growth and favorable foreign exchange effects of $1.26 million for the year ended June 30, 2011. The foreign exchange effects on revenue largely provide a natural hedge which offset exchange effects on expenses incurred in Canadian operations.Consolidated cost of sales increased to $18.48 million for the three months ended June 30, 2011 from $16.15 million for the three months ended June 30, 2010. Cost of sales as a percentage of revenue decreased to 61.85% for the three months ended June 30, 2011 from 63.12% for the three months ended June 30, 2010.  During the three months ended June 30, 2011, the Company incurred costs $1.23 million related to its UK expansion which are included in cost of sales.The increase in cost of sales compared to the same period in the prior year is primarily due to increased depreciation costs of $1.23 million, increased power costs of $0.44 million, increased software license costs of $0.42 million, and increased rent costs of $0.36 million, partly offset by lower staff cost of $0.35 million. Revenue increased 16.77% for the three months ended June 30, 2011, compared with the three months ended June 30, 2010 while cost of sales increased 14.42% in the same period.Cost of sales increased by $10.75 million for the year ended June 30, 2011 from $58.82 million for the year ended June 30, 2010.  During the year ended June 30, 2011, the Company incurred costs $4.36 million related to its further expansion in the United Kingdom, which are included in cost of sales.  Cost of sales as a percentage of revenue increased to 61.67% for the year ended June 30, 2011 from 60.07% for the year ended June 30, 2010.The increase in cost of sales for the year ended June 30, 2011 compared to the same period in the prior year is primarily due to increased depreciation costs of 4.58 million, increased rent costs of $2 million, increased power costs of $1.92 million, increased software license costs of $1.07 million, increased bandwidth costs of $0.71 million, and increased repair and maintenance of $0.29 million.The increase in total operating expenses for the three months ended June 30, 2011 is primarily due to higher staff and training costs of $0.87 million, higher amortization expense of $0.29 million, higher sales commissions of $0.18 million, higher expense for professional services of $0.12 million, partly offset by lower travel expense of $0.16 million, and lower bad debt expense of $0.01 million. Total operating expense for the quarter ended June 30, 2011 is comprised of $4.52 million (2010: $3.88 million) sales and marketing expenses, $4.41 million (2010: $4.11 million) general and administrative expenses, and $1.22 million (2010: $0.91 million) expenses in Technology and Customer relations. During the three months ended June 30, 2011, the company incurred expenses of $1.03 million related to its UK expansion which are included in operating expenses, $0.28 million of which are categorized as general and administrative expenses and $0.74 million of which are categorized as selling and advertising expenses.Total operating expenses increased by $7.45 million to $39.11 million for the year ended June 30, 2011 from $31.66 million for the year ended June 30, 2010.  Operating expenses as a percentage of revenue increased to 34.67% for the year ended June 30, 2011 from 32.33% for the year ended June 30, 2010.  The increase in operating expenses for the year ended June 30, 2011 is largely attributable to $3.93 million higher staff and training cost, $1.16 million higher advertising expenses, increased commission expenses of $1.08 million, increased professional services of $0.65 million, increased amortization expense of $0.47 million, increased office expenses of $0.27 million, increased rent of $0.21 million, increased property tax of $0.12 million, higher insurance expenses of $0.03 million, in part offset by lower bad debt expense of $0.16 million, lower travel expenses of $0.14 million, and lower stock based compensation of $0.13 million. Total operating expense for the year ended June 30, 2011 is comprised of $17.2 million (2010: $13.17 million) sales and marketing expenses, $17.03 million (2010: $15.42 million) general and administrative expenses, and $4.89 million (2010: $3.07 million) in expenses for technology and customer relations. During the year ended June 30, 2011, the company incurred expenses of $3.6 million related to its United Kingdom operations which are included in operating expenses, $1.26 million of which are categorized as general and administrative expenses and $2.31 million of which are categorized as selling and marketing expenses.Income tax expense consists of:              2011      2010   Current tax expense          $  742   $  3,839   Future tax expense (recovery)             1,329      (646)            $  2,071   $  3,193 The decrease of $3.1 million in current tax expense during the year ended June 30, 2011 was primarily the result of a change in U.S. tax law which allowed for accelerated depreciation of certain assets for tax purposes.  The effect of this change was to decrease U.S. taxes for the year and accordingly it reduced current tax expense.  This change in U.S. tax law also led to an increase in the temporary timing difference between depreciation for U.S. tax purposes and depreciation for accounting purposes.  This difference resulted in an increase to future tax expense during the year.For the year ended June 30, 2011, Income tax expense varies from the amount that would be computed by applying the Canadian combined statutory income tax rate of 26.88% to income before income taxes of $0.96 million due to differences between the statutory rates in effect in Canada and the Company's US and UK subsidiaries, in addition to the effect of $1.25 million from non-deductible for tax purposes permanent differences comprised of differences related to stock based compensation with a tax effect of $0.63 million and non-deductibility of certain building fabric expenditures made during the year in the UK with a tax effect of $0.6 million.Normalized EBITDA was $7.1 million for the three months ended June 30, 2011, compared with $4.9 million in the prior year period.Net income for the fourth quarter ended June 30, 2011 was $0.02 million, compared to a net loss of $0.37 million for the same period in 2010. Net loss for the year ended June 30, 2011 was $1.09 million, compared to net income of $2.24 million in 2010.The Company had working capital of $1.34 million at June 30, 2011 compared to a working capital deficit of $7.14 million as at June 30, 2010.  The increase in working capital is primarily due to additional drawdown on the credit facilities, partly offset by investments in property and equipment. The Company anticipates current liquidity and cash generated from operations to be sufficient to fund operations for the foreseeable future.  As at June 30, 2011, the Company had available $15.82 million under its $75 million credit facilities.PEER 1 Hosting had 120,647,028 common shares issued and outstanding as at September 19, 2011.EBITDA Reconciliation(unaudited - prepared by management)                 (in $ thousands)     Three Months Ended  Twelve Months Ended      30-Jun-1130-Jun-10  30-Jun-1130-Jun-10            Net Profit (loss)     18(371)  (1,109)2,241Income tax expense     507532  2,0713,193Interest expense     808351  2,7581,338Amortization - licences, fixed assets and deferrednetwork costs     5,4003,885  19,55714,509Stock based compensation     454499  2,0522,183Loss (gain) on disposal of assets     (9)(3)  (45)(74)Loss on Derivative     --  -111Amortization of deferred gain     (19)(19)  (78)(78)Foreign exchange loss (gain)     (85)40  447304EBITDA     7,0744,914  25,65323,727Gain - Insurance recovery     --  -(93)Settlement of legal claim     --  24440Normalized EBITDA     7,0744,914  25,67724,074Conference CallPEER 1 Hosting will hold a conference call Wednesday, September 21, 2011 at 5:30pm Eastern Time (ET), to discuss the results for fiscal 2011. 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 (647) 427-7450 or 1-888-231-8191. The conference call will be archived for replay until September 28, 2011, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number: 98617067 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=3654860Please 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-GAAP MeasuresPEER 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 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 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 HostingPEER 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 17 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 StatementsStatements 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.PEER 1 NETWORK ENTERPRISES, INC.Consolidated Balance SheetsAs at June 30, 2011 and 2010(in thousands of United States dollars)                         2011      2010Assets               Current:                Cash and cash equivalents     $ 7,803   $  2,321 Accounts receivable       6,447      3,249 Income tax receivable       2,875      623 Future income tax asset       1,188      97 Prepaid expenses       1,448      1,655        19,761      7,945Other assets       2,234      2,688Future income tax asset       -      1,900Property and equipment       84,333      53,237Equipment under capital lease       724      986Goodwill       2,363      2,363Intangible assets       4,179      3,527      $ 113,594   $  72,646Liabilities               Current:                Accounts payable and accrued liabilities     $ 9,943   $  9,114 Deferred revenue       2,530      2,216 Current portion of deferred gain       79      79 Current portion of deferred lease inducements       176      126 Current portion of derivative liabilities       250      170 Current portion of notes payable       5,008      3,000 Current portion of obligations under capital lease       237      376        18,223      15,081Future income tax liability       166      -Deferred gain       335      414Deferred lease inducements       541      557Derivative liabilities       875      170Notes payable       53,104      16,404Obligation under capital lease       11      232        73,255      32,858Shareholders' equity        40,339      39,788      $ 113,594   $  72,646                PEER 1 NETWORK ENTERPRISES, INC.Consolidated Statements of Shareholders' EquityFor the Years Ended June 30, 2011 and 2010(in thousands of United States dollars except number of shares)                       2011      2010   Number   Amount  Number   AmountSHARE CAPITAL              Common shares               Balance at beginning of year  119,721,834  $27,631  119,314,323  $26,950 Stock options exercised  210,903   213  422,011   278 Warrants exercised  833,333   422  1,628,286   781 Purchase of shares for cancellation pursuantto normal course issuer bid  (189,500)   (44)  (1,642,786)   (378) Balance at end of year  120,576,570   28,222  119,721,834   27,631               CONTRIBUTED SURPLUS               Balance at beginning of year      6,804      4,766 Stock-based compensation      2,052      2,183 Stock options exercised      (107)      (145) Balance at end of year      8,749      6,804               Warrants                Balance at beginning of year  833,333   86  2,461,619   493 Warrants exercised  (833,333)   (86)  (1,628,286)   (407)Balance at end of year  -   -  833,333   86RETAINED EARNINGS               Balance at beginning of year      5,619      4,709 Net income (loss)      (1,109)      2,241 Purchase of shares for cancellation pursuantto normal course issuer bid      (211)      (1,331)Balance at end of year      4,299      5,619ACCUMULATED OTHER COMPREHENSIVE INCOME               Balance at beginning of period      (352)      (279) Other comprehensive loss      (579)      (73)Balance at end of year      (931)      (352)Total - shareholders' equity     $40,339     $39,788                PEER 1 NETWORK ENTERPRISES, INC.Consolidated Statement of Operations and ComprehensiveLossFor the Years Ended June 30, 2011 and 2010(in thousands of United States dollars, except per share amounts)                      2011   2010Revenue             Colocation services      $30,684  $27,751 Hosting services       82,134   70,172        112,818   97,923Cost of revenue       69,572   58,819Gross profit       43,246   39,104Operating expenses       39,117   31,663Operating income before other items       4,129   7,441Other items:             Interest income       (17)   (19) Gain on insurance recovery       -   (93) Gain on disposal of property and equipment       (45)   (74) Settlement of legal claim       24   440 Loss on derivative       -   111 Foreign exchange loss       447   304 Interest expense - long term       2,758   1,338        3,167   2,007Income before income taxes       962   5,434Future income tax expense (recovery)       1,329   (646)Current income tax expense       742   3,839Income tax expense       2,071   3,193Net income (loss)      $(1,109)  $2,241Other comprehensive income:             Change in unrealized fair value of derivatives designatedas cash flow hedges       (579)   (73)Comprehensive income (loss)      $(1,688)  $2,168             Net income (loss) attributable to:             Common shares      $(1,109)  $2,241Comprehensive income (loss) attributable to:             Common shares       (1,688)   2,168Basic and diluted earnings (loss) per share      $(0.01)  $0.02Weighted average number of shares outstanding:             Basic       120,095,064   120,685,262 Diluted       120,095,064   124,462,399              PEER 1 NETWORK ENTERPRISES, INC.Consolidated Statement of Cash FlowsFor the Years Ended June 30, 2011 and 2010(in thousands of United States dollars)                        2011       2010Operating Activities:                Net income (loss)   $  (1,109)    $  2,241 Adjustments for non-cash items:                 Amortization of property and equipment      18,830       13,857  Amortization of intangible assets       727       652  Ineffective portion of cash flow hedge      283       -  Bad debt expense      426       583  Gain on disposal of property and equipment      (45)       (74)  Gain on insurance recovery      -       (93)  Amortization of deferred gain      (78)       (78)  Amortization of deferred loan origination fees      474       250  Future income tax expense (recovery)      1,329       (646)  Stock-based compensation included in income      2,052       2,183  Increase (decrease) in deferred lease inducements      35       (119) Changes in non-cash working capital:                 Increase in accounts receivable      (3,623)       (30)  Decrease (increase) in prepaid expenses      204       (464)  Increase (decrease) in accounts payable and accrued liabilities       (487)       1,145  Decrease in income taxes payable      (2,252)       (2,822)  Increase (decrease) in deferred revenue      313       (951)Cash flows from operating activities      17,079       15,634Investing Activities:                 Acquisition of subsidiary, net of cash acquired      -       (534)  Investment in other assets      (592)       (133)  Acquisition of property and equipment      (48,372)       (30,257)  Acquisition of intangible assets      (1,367)       (1,627)  Proceeds on disposition of equipment       55       74Cash flows used in investing activities      (50,276)       (32,477)Financing Activities:                 Proceeds from notes payable issued      74,171       7,000  Repayments of notes payable      (35,921)       (2,250)  Payment of capital lease obligations      (389)       (278)  Payment of derivative liabilities      (283)       -  Issuance of capital stock      442       506  Purchase of shares for cancellation pursuant to normal courseissuer bid      (255)       (1,710)Cash flows from financing activities      37,765       3,268Foreign exchange gain on cash and cash equivalents      914       152Increase (decrease) in cash and cash equivalents      5,482       (13,423)Cash and cash equivalents, beginning      2,321       15,744Cash and cash equivalents, ending   $  7,803    $  2,321  For further information: For investor inquiries please contact: David Feick The Equicom Group +1 (403) 218-2839 dfeick@equicomgroup.com For media inquiries please contact: Marcela Peake PEER 1 Hosting +1 (604) 909-6428 mpeake@peer1.com