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Press release from CNW Group

PEER 1 Hosting Reports Fiscal 2012 First Quarter Results

Wednesday, November 09, 2011

PEER 1 Hosting Reports Fiscal 2012 First Quarter Results16:00 EST Wednesday, November 09, 2011VANCOUVER, Nov. 9, 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 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 2010Revenue 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; andNet loss was $1.31 million down from net income of $1.04 million.Selected Highlights for First Quarter and Period Subsequent to Quarter-EndPartnered with Magento Inc, the fastest growing retail eCommerce platform provider, to bring a new optimized Managed Hosting solution to online retailers;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™; andLaunched 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 2010Revenue 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.PEER 1 Hosting had 120,662,262 common shares issued and outstanding as at September 30, 2011.EBITDA Reconcilation       (unaudited - prepared by management)       (in $ thousands)     Three Months Ended      30-Sep-1130-Sep-10        Net Profit                      (1,307)                1,039        Income tax expense                         (432)                   561        Interest expense                       1,528                   373        Amortization - licences, fixed assets anddeferred network costs                       5,703                4,397        Stock based compensation                          346                1,367        Loss (gain) on disposal of assets                           48                   (16)        Foreign exchange loss                       1,992               (1,699)        EBITDA                       7,878                6,022        Normalized EBITDA                       7,878                6,022Conference CallPEER 1 Hosting will hold a conference call on Wednesday, November 9, 2011 at 5:30pm Eastern Time (ET), to discuss the results for the first 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 (647) 427-7450 or 1-888-231-8191. The conference call will be archived for replay until November 16, 2011, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 24916473 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=3731640Please 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 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 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 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 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 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.Condensed Interim Consolidated Statement of Financial Position (Unaudited)(in thousands of United States dollars)                                      Sept 30,2011     June 30,2011      July 1,2010                          Assets                         Current:                           Cash and cash equivalents        $  3,487  $  7,803  $   2,321 Trade and other receivables           5,281     6,447      3,249 Current tax asset           30     1,189      96 Prepaid expenses           3,189     1,448      1,610 Income tax receivable           2,171     2,874      1,192Total current assets           14,158     19,761      8,468Non-current:                           Other assets        $  2,329  $  2,353  $   2,738 Deferred tax assets           2,130     1,817      1,277 Property and equipment           92,461     87,697      53,717 Equipment under finance lease            569     724      986 Intangible assets           6,983     6,636      5,921Total non-current assets           104,472     99,227      64,639Total assets        $  118,630  $  118,988  $   73,107                          Liabilities                         Current:                            Trade and other payables           10,469     9,944      9,115 Loans and borrowings           6,503     5,008      3,000 Derivatives           452     250      170 Income tax payable           -     -      569 Obligations under finance lease           141     237      376 Deferred revenue           2,790     2,561      2,210Total current liabilities        $  20,355  $  18,000  $   15,440Non-current:                          Loans and borrowings           49,389     53,062      16,404 Derivatives           1,470     875      171 Deferred tax liability           964     1,660      640 Obligations under finance lease           2,351     11      232 Deferred revenue           852     791      740Total non-current liabilities           55,026     56,399      18,187Total liabilities        $  75,381  $  74,399  $   33,627                          Equity                           Issued capital        $  28,326  $  28,221  $   27,631 Share-based payments reserve           10,226     9,985      6,804 Warrants           -     -      86 Accumulated other comprehensive income           11     391      - Retained earnings           4,686     5,993      4,961Total equity         $  43,249  $  44,589  $   39,482Total liabilities and equity        $  118,630  $  118,988  $   73,107                          PEER 1 NETWORK ENTERPRISES, INC.Condensed Interim Consolidated Statement of Comprehensive Income (Unaudited)(in thousands of United States dollars, except per share amounts)                    Three months endedSept 30        2011    2010              Revenue             Colocation services     $         8,382  $           7,093Hosting services             23,129            19,235              31,511            26,328Cost of sales             18,781            16,286Gross profit             12,730            10,042Administration expenses               4,950              4,656Sales and marketing expenses               4,754              3,950Other operating expenses               1,204              1,191Operating profit before other items               1,822                 245              Finance income       (6)    (13)Gain on disposal of property and equipment                    48    (16)Foreign exchange loss (gain)               1,991    (1,699)Finance expense               1,528                 373Profit (loss) before income taxes               (1,739)              1,600              Income taxes       (432)                 561Profit (loss) for the period       (1,307)              1,039              Other comprehensive income (loss):              Foreign currency translation gain (loss)       (4,690)              2,201 Unrealized gain (loss) on  net investment in subsidiaries               4,310    (1,090)Other comprehensive income (loss) for the period, net of tax       (380)              1,111Total comprehensive income (loss) for the period     $ (1,687)  $           2,150              Profit (loss) attributable to common shares     $ (1,307)  $           1,039Total comprehensive income (loss) attributable to common shares       (1,687)              2,150              Earnings (loss) per share              Basic     $ (0.01)  $             0.01 Diluted     $ (0.01)  $             0.01              Weighted average number of common shares outstanding              Basic       120,633,144    119,733,661 Diluted       120,633,144    120,321,757               PEER 1 NETWORK ENTERPRISES, INC.Condensed Interim Consolidated Statements of Changes in Equity (Unaudited)(in thousands of United States dollars except number of shares)                                 Commonshares  Sharecapital   Warrants  Share-basedpaymentreserve  Accumulatedothercomprehensiveincome   Retainedearnings  TotalBalance at July 1, 2010   119,721,834 $  27,631 $ 86 $6,804 $- $ 4,961 $  39,482Stock options exercised   47,285    47   -  (21)  -   -    26Stock-based compensation            -  1,367  -   -    1,367Purchase of shares forcancellation pursuant tonormal course issuer bid   (189,500)    (44)   -     -   (211)    (255)Transactions with owners   119,579,619    27,634   86  8,150  -   4,750    40,620Profit for the period   -    -   -  -  -   1,039    1,039Other comprehensive income (loss):                             Foreign currency translation gain   -    -   -  -  2,201   -    2,201 Unrealized loss on net investmentin subsidiaries   -    -   -  -  (1,090)   -    (1,090)Total comprehensive income forthe period        -   -  -  1,111   1,039    2,150Balance at September 30, 2010   119,579,619    27,634   86  8,150  1,111   5,789    42,770                             Balance at July 1, 2011   120,576,370 $  28,221 $ - $9,985 $391   5,993 $  44,590Stock options exercised   85,889    105   -  (105)  -   -    -Stock-based compensation   -    -   -  346  -   -    346Transactions with owners   120,662,259    28,326   -  10,226  391   5,993    44,936Loss for the period   -    -   -  -  -   (1,307)    (1,307)Other comprehensive income (loss):                             Foreign currency translation loss   -    -   -  -  (4,690)   -    (4,690) Unrealized gain on net investmentin subsidiaries   -    -   -  -  4,310   -    4,310Total comprehensive loss forthe period   -    -   -  -  (380)   (1,307)    (1,687)Balance at September 30, 2011   120,662,259    28,326   -  10,226  11   4,686    43,249                             PEER 1 NETWORK ENTERPRISES, INC.Consolidated Statement of Cash Flows (Unaudited)(in thousands of United States dollars)                  Three months ended September 30       2011   2010            Operating Activities:            Net income (loss)     $(1307)  $            1,039 Adjustments for non-cash items:             Depreciation of property and equipment               5,432               4,249  Amortization of intangible assets                  272                  116  Bad debt expense                  297                  112  Gain on disposal of property and equipment                    48   (16)  Amortization of deferred loan origination fees                    64                    56  Future income tax expense      (303)   (379)  Stock-based compensation                  346               1,367  Interest paid      (770)   (274)  Income taxes refunded ( paid)                  276   (1,959)  Net change in non-cash working capital                  971   (2,267)Cash flows from operating activities               5,326              2,044Investment Activities:            Investment in other assets                    32                  157 Acquisition of property and equipment      (10,717)   (5,216) Acquisition of intangible assets      (619)   (256) Proceeds on disposition of equipment                    29                    16Cash flows used in investing activities      (11,275)   (5,299)Financing Activities:            Proceeds from notes payable                       -               6,000 Repayments of notes payable                       -   (750) Payment of finance lease obligations      (96)   (99) Purchase of shares for cancellation pursuant to normal course issuer bid                       -   (255) Issuance of capital stock                       -                    26Cash flows from (used in) financing activities      (96)               4,922Foreign exchange gain (loss) on cash and cash equivalents               1,729   (1,627)Increase in cash and cash equivalents      (4,316)                   40Cash and cash equivalents, beginning               7,803              2,321Cash and cash equivalents, ending     $         3,487  $           2,361Supplemental non-cash financing and investing disclosure:            Effect of acquisition of property and equipment in trade and other payables     $              31  $           1,440For 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