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Press release from CNW Group

PEER 1 Hosting Reports Fiscal 2012 Second Quarter Results

Wednesday, February 08, 2012

PEER 1 Hosting Reports Fiscal 2012 Second Quarter Results16:00 EST Wednesday, February 08, 2012VANCOUVER, Feb. 8, 2012 /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 six months ended December 31, 2011.  All amounts are stated in US dollars unless otherwise noted.Selected Financial Highlights Comparing the Quarters Ended December 31, 2011 and 2010Revenue increased 20.56% to $33.62 million from $27.89 million;Gross profit increased 23.37% to $13.48 million from $10.90 million;Operating profit decreased 38.23% to $0.53 million from $0.86 million;Normalized EBITDA was $8.6 million, up from $6.4 million; andNet loss was $0.25 million compared to net income of $0.74 million.Selected Highlights for Second Quarter and Period Subsequent to Quarter-EndOpened 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."Our key achievement in the second quarter was the commissioning of our new flagship UK data centre and we rapidly worked to migrate servers and clients to our new facility, with the goal of aligning our cost structures across international operating regions," said Fabio Banducci, President and CEO of PEER 1 Hosting. "We continue to see meaningful improvements in revenues as new facilities are completed and opened to customer deployments. Our growing portfolio of state of the art data centres will provide a strong backbone for additional growth in the quarters ahead."Financial Review for the Three and Six Months Ended December 31, 2011 and 2010Revenue increased to $33.62 million (20.56%) for the three months ended December 31, 2011 from $27.88 million for the three months ended December 31, 2010. Revenue increased to $65.13 million (20.13%) for the six months ended December 31, 2011 from $54.21 million for the six months ended December 31, 2010.  The increases in revenue are 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 December 31, 2011 was $33.68 million and $64.84 million for the six month period. Taking into account the effect of the differing exchange rates between the Canadian and US dollars for the comparative period, revenue increased by 20.79% and 19.59 % for the three and six-month periods ended December 31, 2011.Colocation revenue increased to $4.31 million and $8.82 million for the three and six months ended December 31, 2011, respectively, compared with $3.55 million and $7.03 million for the three and six months ended December 31, 2010.  The increase in colocation revenue is attributable to organic growth as well as the change in the value of the Canadian dollar against the US dollar.  The effect on revenue from the change in value of the Canadian dollar against the US dollar was ($0.04) million and $0.16 million for the three and six months ended December 31, 2011, respectively.Bandwidth revenue increased to $2.32 million and $4.65 million for the three and six months ended December 31, 2011, respectively, compared with $2.28 million and $4.48 million for the three and six months ended December 31, 2010. The increase in bandwidth revenue for the three and six months ended December 31, 2011 is primarily attributable to organic growth and the change in value of the Canadian dollars against the US dollar.  The effect on revenue from the change in value of the Canadian dollar against the US dollar was ($0.02) million and $0.09 million for the three and six months ended December 31, 2011, respectively.Hosting Services revenues increased to $25.29 million and $48.42 million for the three and six months ended December 31, 2011, respectively, from $20.54 million and $39.78 million for the three and six months ended December 31, 2010.  The increase for the three and six months ended December 31, 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 $8.46 million and $16.77 million of revenue for the three and six months ended December 31, 2011, respectively, compared with $6.06 million and $11.54 million of revenue for the three and six months ended December 31, 2010. This change is primarily related to organic growth partly offset by unfavourable foreign exchange effects of $0.06 million for the three months ended December 31, 2011, and organic growth and favourable foreign exchange effects of $0.27 million for the three and six months ended December 31, 2011.Cost of sales increased by $3.20 million for the three months ended December 31, 2011 from $17.0 million for the three months ended December 31, 2010.  During the three months ended December 31, 2011 and December 31, 2010, respectively, the Company incurred costs of $1.96 million and $1.05 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 60.0% for the three months ended December 31, 2011 from 60.91% for the three months ended December 31, 2010.  Cost of sales increased by $5.68 million for the six months ended December 31, 2011 from $33.27 million for the six months ended December 31, 2010.  During the six months ended December 31, 2011 and December 31, 2010, respectively, the Company incurred costs of $3.30 million and $1.88 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 59.81% for the three months ended December 31, 2011 from 61.37% for the three months ended December 31, 2010.The increase in cost of sales for the three months ended December 31, 2011 compared to the same period in the prior year is primarily due to increased depreciation costs of $1.33 million, increased labor cost of $0.49 million, increased rent costs of $0.34 million, increased power costs of $0.06 million, increased software license costs of $0.56 million, increased bandwidth costs of $0.15 million, and increased repair and maintenance of $0.14 million.The increase in cost of sales for the six months ended December 31, 2011 compared to the same period in the prior year is primarily due to increased depreciation costs of $2.38 million, increased rent costs of $0.66 million, increased labor costs of $0.60 million, increased power costs of $0.35 million, increased software license costs of $1.06 million, increased bandwidth costs of $0.16 million, and increased repair and maintenance of $0.30 million.Operating expenses increased to $12.92 million for the three months ended December 31, 2011 from $10.04 million for the three months ended December 31, 2010.  Operating expenses as a percentage of revenue increased to 38.42% for the three months ended December 31, 2011 from 36.0% for the three months ended December 31, 2010.  The increase in operating expenses for the three months ended December 31, 2011 is largely attributable to $0.85 million higher staff and training cost, increased commission expenses of $0.38 million, increased amortization expense of $0.27 million, increased bad debt expense of $0.11 million, increased stock based compensation of $0.89 million.  Total operating expenses for the three months ended December 31, 2011 are comprised of $5.05 million (2010: $3.98 million) sales and marketing expenses, $6.65 million (2010: $4.85 million) general and administrative expenses, and $1.2 million (2010: $1.21 million) in other operating expenses for technology and customer relations. During the three months ended December 31, 2011 and December 31, 2010, respectively, the company incurred expenses of $1.32 and $0.84 million related to its United Kingdom operations which are included in operating expenses, $0.40 million and $0.40 million of which are categorized as general and administrative expenses and $0.88 million and $0.47 million of which are categorized as selling and marketing expenses.Operating expenses increased to $23.82 million for the six months ended December 31, 2011 from $19.84 million for the six months ended December 31, 2010.  Operating expenses as a percentage of revenue were flat at 36.58% for the six months ended December 31, 2011 compared to 36.59% for the six months ended December 31, 2010.  The increase in operating expenses for the six months ended December 31, 2011 is largely attributable to $1.73 million higher staff and training cost, increased commission expenses of $0.57 million, increased amortization expense of $0.53 million, increased bad debt expense of $0.30 million, in part offset by lower stock based compensation of $0.13 million.  Total operating expenses for the six months ended December 31, 2011 are comprised of $9.80 million (2010: $7.93 million) sales and marketing expenses, $11.60 million (2010: $9.51 million) general and administrative expenses, and $2.42 million (2010: $2.40 million) in other operating expenses for technology and customer relations. During the six months ended December 31, 2011 and December 31, 2010, respectively, the company incurred expenses of $2.52 million and $1.60 million related to its United Kingdom operations which are included in operating expenses, $0.80 million and $0.65 million of which are categorized as general and administrative expenses and $1.68 million and $0.94 million of which are categorized as selling and marketing expenses.Normalized EBITDA was $8.6 million for the three months ended December 31, 2011, compared with $6.40 million in the prior year period.Net loss for the second quarter ended December 31, 2011 was $0.25 million, compared with net income of $0.74 million for the same period in 2010.The Company had working capital deficit of $7.3 million at December 31, 2011 compared to working capital of $0.44 million as at June 30, 2011.  The increased in working capital deficit is primarily due to expenditure related to the UK expansion.  As at December 31, 2011, the Company had available $12.34 million under its $75 million credit facilities.PEER 1 Hosting had 123,879,665 common shares issued and outstanding as at December 31, 2011.EBITDA Reconcilation  (unaudited - prepared by management)  (in $ thousands)Three Months Ended 31-Dec-1131-Dec-10   Net Profit (loss)                 (249)                 736Income tax expense                    623                 226Interest expense                    745                 474Amortization - licences, fixed assets and deferred network costs                6,166              4,564Stock based compensation                1,875                 982Loss (gain) on disposal of assets                      (10)                   (12)Foreign exchange loss                  (578)               (590)EBITDA                  8,572              6,380Settlement of legal claim                         -                   24Normalized EBITDA                  8,572              6,404Conference CallPEER 1 Hosting will hold a conference call on Wednesday, February 8, 2012 at 5:30pm Eastern Time (ET), to discuss the results for the second 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 February 15, 2012, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 48533328 followed by the number sign.A live audio webcast of the conference call will be available at:http://www.newswire.ca/en/webcast/detail/912953/974405Please 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.CONDENSED INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION(unaudited, expressed in thousands of United States dollars) December 31,2011June 30,2011ASSETS  Current assets  Cash and cash equivalents$            6,303$            7,803Trade and other receivables              6,783              6,447Prepaid expenses              2,863              1,448Income tax receivable              1,900              2,874             17,849            18,572Non-current assets  Other assets              2,760              2,353Deferred tax assets              2,549              1,818Property and equipment            96,390            87,697Equipment under finance lease               2,973                 724Intangible assets              7,549              6,636             112,221              99,228Total assets            130,070            117,800   LIABILITIES AND EQUITY  Current liabilities  Trade and other payables            14,632               9,944Loans and borrowing              6,319               5,008Derivatives                 472                  250Income tax payable                     -                      -Deferred lease inducement                 251                  136Obligations under finance lease                 802                  237Deferred Revenue              2,630               2,561             25,106             18,136Non-current liabilities  Loans and borrowings            53,823             53,062Derivatives              1,415                  875Deferred tax liability              1,472               1,354Obligations under finance lease              1,805                    11Deferred lease inducement                 732                  655             59,247             55,957Total liabilities            84,353             74,093   EQUITY  Issued capital            31,524             28,221Share-based payments reserve            10,184               9,985Warrants                      -                      -Accumulated other comprehensive income(428)  (492)Retained earnings              4,437               5,993Total equity            45,717             43,707Total liabilities and equity          130,070           117,800CONDENSED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(unaudited, expressed in thousands of United States dollars) Three months endedDecember 31Six months endedDecember  31 2011201020112010Revenue    Colocation services$         8,328$       7,341$       16,710$       14,433Hosting Services         25,289         20,544         48,418         39,780          33,617         27,885         65,128         54,213Cost of sales         20,170         16,985         38,951         33,271Gross profit         13,447         10,900         26,177         20,942Administration expenses           6,650           4,851         11,601           9,506Sales and marketing expenses           5,050           3,979           9,804           7,928Other operating expenses           1,217           1,211           2,419           2,403Operating profit before other items              530               859           2,353           1,105     Finance income                   -                   -(6)(13)Gain on disposal of property and equipment(10)(12)                 38(28)Loss on legal settlement                   -                24                   -                24Foreign exchange loss (gain)(579)(590)           1,413(2,289)Finance expense              745              475           2,273              849Profit (loss) before income taxes              374              962(1,365)           2,562     Income taxes              623              226              191              787Profit (loss) for the period(249)              736(1,556)           1,775     Other comprehensive income (loss)    Foreign currency translation gain (loss)           1,526(1,573)(2,489)           2,084Unrealized gain (loss) on net investment in subsidiaries(1,965)(117)           2,553(2,663)Other comprehensive income (loss) for the period, net of tax(439)(1,690)                64(579)Total comprehensive income (loss) for the period(688)(954)(1,492)           1,196     Profit (loss) attributable to common shares(249)              736(1,556)           1,775Total comprehensive income (loss) attributable to common shares(688)(954)(1,492)           1,196     Earnings (loss) per share    Basic(0.00)             0.01(0.01)             0.01Diluted(0.00)             0.01(0.01)             0.01     Weighted average number of common shares outstanding    Basic121,519,993119,612,118123,393,295119,683,351Diluted121,519,993124,270,679123,393,295123,403,279CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY(unaudited, expressed in thousands of United States dollars) Share capital      NumberAmountWarrantsShare-basedpaymentsreserveAccumulatedothercomprehensiveincomeRetainedearningsTotal        Balance at July 1, 2010119,721,834$ 27,631$ 86$ 6,804$ -$ 4,961$ 39,482 Stock options exercised113,331106-(44)--62 Stock-based compensation---2,348--2,348 Purchase of shares for cancellation pursuantto normal course issuer bid(189,500)(44)---(211)(255)Transactions with owners119,645,66527,693869,108-4,75041,637 Profit for the period-----1,7751,775 Other comprehensive income (loss):         Foreign currency translation gain----2,084-2,084Unrealized loss on net investment in subsidiaries----(2,663)-(2,663)Total comprehensive income for the period----(579)1,7751,196Balance at December 31, 2010119,645,66527,693869,108(579)6,52542,833        Balance at July 1, 2011120,576,37028,221-9,985(492)5,99343,707 Stock options exercised3,303,2953,303-(2,022)--1,281 Stock-based compensation---2,221--2,221Transactions with owners123,879,66531,524-10,184(492)5,99347,209 Loss for the period-----(1,556)(1,556) Other comprehensive income (loss):         Foreign currency translation gain (loss)----2,553-2,553Unrealized loss on net investment in subsidiaries----(2,489)-(2,489)Total comprehensive income for the period----64(1,556)(1,492)Balance at December 31, 2011123,879,66531,524-10,184(428)4,43745,717CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited, expressed in thousands of United States dollars)  Six months ended December 31 20112010    Operating Activities    Net income (loss) $        (1,556) $          1,775    Depreciation of property and equipment              11,328             8,734Amortization of intangible assets                   542                226Bad debt expense                   481                182Gain on disposal of property and equipment                     38 (28)Amortization of deferred loan origination fees                   131              346Future income tax expense(653) (928)Stock-based compensation                2,221            2,348Interest paid         (1,565) (593)Income taxes refunded (paid)                 58 (3,293)Net change in non-cash working capital            3,757 (1,318)Cash flows from operating activities         14,782           7,451    Investment Activities    Investment in other assets              (398)            (670) Acquisition of property and equipment          (20,105)        (20,255) Acquisition of intangible assets           (1,482)             (557) Proceeds on disposition of equipment                41                   28Cash flows used in investing activities          (21,944)         (21,454)    Financing Activities    Proceeds from notes payable           4,971        49,193 Repayments of notes payable            (1,584)        (31,783) Payment of finance lease obligations               (182)            (197) Purchase of shares for cancellation pursuant to normal course issuer bid                  -            (255) Issuance of capital stock            1,270             63Cash flow from (used in) financing activities            4,475       17,021    Foreign exchange gain (loss) on cash and cash equivalents            1,187          (2,823)Increase in cash and cash equivalents, beginning            (1,500)             195Cash and cash equivalents, beginning            7,803          2,321Cash and cash equivalents, ending            6,303          2,516Supplemental non-cash financing and investing disclosure:   Effect of acquisition of property and equipment in trade and other payables            2,054          2,221 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