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Press release from CNW Group

PEER 1 Hosting Reports Record Fiscal 2012 Third Quarter Results

Wednesday, May 09, 2012

PEER 1 Hosting Reports Record Fiscal 2012 Third Quarter Results16:00 EDT Wednesday, May 09, 2012VANCOUVER, May 9, 2012 /CNW/ - PEER 1 Network Enterprises, Inc. (TSX:PIX), operating as PEER 1 Hosting (PEER 1 or the "Company"), a leading provider of online IT infrastructure, today announced its results for the three and nine months ended March 31, 2012.  All amounts are stated in US dollars unless otherwise noted.Selected Financial Highlights Comparing the Quarters Ended March 31, 2012 and 2011Revenue increased 19% to $34.21 million from $28.73 million;Gross profit increased 23% to $13.24 million from $10.73 million;Operating profit increased 395% to $1.13 million from $0.23 million;Normalized EBITDA increased 33% to $8.9 million from $6.7 million; andNet income was $1.06 million compared to a net loss of $0.27 million.Selected Highlights for the Third Quarter and Period Subsequent to Quarter-EndSuccessful migration of servers and clients to PEER 1's new 57,800 square foot state-of-the-art datacenter in Portsmouth, UK where PEER 1 now offers scalable managed hosting, dedicated hosting, colocation, and cloud services in one of the greenest datacenters in the country;Entry into a lease for additional data center space in the Company's existing Los Angeles facility.  This additional space will allow the Company to offer up to approximately 3,000 servers of additional capacity to its high end managed and dedicated hosting customers that demand a West coast presence; andNaming of Magento, a leading eCommerce platform provider and division of X.commerce, Inc., an eBay Inc. (NASDAQ: EBAY) company, as the winner of the Company's 2011 Partner of the Year Award."During the quarter we successfully completed the migration of servers into POD A at our new flagship UK data centre and secured additional capacity on the U.S. west coast to support our continued growth," said Fabio Banducci, President and CEO of PEER 1 Hosting. "Our record financial results this quarter reflect the significant strategic investment we have made in expanding our infrastructure both in the North America and Europe over the last several quarters, which will help support additional growth in the future."Financial Review for the Three and Nine Months Ended March 31, 2012 and 2011Revenue increased to $34.21 million (19%) for the three months ended March 31, 2012 from $28.73 million for the three months ended March 31, 2011.  The increase in revenue is attributable to organic growth and partly offset by the effect of the decrease 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 March 31, 2012 increased to $34.34 million (20%). Revenue increased to $99.34 million (20%) for the nine months ended March 31, 2012 from $82.94 million for the nine months ended March 31, 2011.  The increase in revenue is 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 nine months ended March 31, 2012 increased to $99.17 million (20%).Colocation revenue increased to $4.53 million and $13.36 million for the three and nine months ended March 31, 2012, respectively, compared with $4.20 million and $11.23 million for the three and nine months ended March 31, 2011, respectively.  The increase in colocation revenue is attributable to organic growth as well as the changes in the value of the Canadian dollar against the US dollar.  The effect on revenues from the changes in value of the Canadian dollar against the US dollar were ($0.07) million and $0.10 million for the three and nine months ended March 31, 2012, respectively.Bandwidth revenue increased to $2.46 million and $7.11 million for the three and nine months ended March 31, 2012, respectively, compared with $2.21 million and $6.69 million for the three and nine months ended March 31, 2011, respectively. The increase in bandwidth revenue for the three and nine months ended March 31, 2012 is attributable to organic growth and the changes in value of the Canadian dollars against the US dollar partly offset by pricing pressures in the market.  The effect on revenue from the changes in value of the Canadian dollar against the US dollar were ($0.03) million and $0.05 million for the three and nine months ended March 31, 2012, respectively.Hosting services revenues increased to $25.49 million and $73.91 million for the three and nine months ended March 31, 2012, respectively, from $20.66 million and $60.44 million for the three and nine months ended March 31, 2011, respectively.  The increase for the three and nine months ended March 31, 2012 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 $9.39 million and $26.16 million of revenue for the three and nine months ended March 31, 2012, respectively, compared with $6.97 million and $18.51 million of revenue for the three and nine months ended March 31, 2011, respectively. These changes are related to organic growth, unfavorable foreign exchanges effects of $0.10 million for the three months ended March 31, 2012, and favourable foreign exchange effects of $0.16 million for the nine months ended March 31, 2012.Cost of sales increased by $2.98 million for the three months ended March 31, 2012 from $18.00 million for the three months ended March 31, 2011.  During the three months ended March 31, 2012 and March 31, 2011, respectively, the Company incurred costs $1.96 million and $1.25 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 61% for the three months ended March 31, 2012, from 63% for the three months ended March 31, 2011.  Cost of sales increased by $8.66 million for the nine months ended March 31, 2012 from $51.27 million for the nine months ended March 31, 2011.  During the nine months ended March 31, 2012 and March 31, 2011, respectively, the Company incurred costs of $5.26 million and $3.13 million related to its operations in the United Kingdom.  Cost of sales as a percentage of revenue decreased to 60% for the nine months ended March 31, 2012 from 62% for the nine months ended March 31, 2011.The increase in cost of sales for the three months ended March 31, 2012 compared with the same period in the prior year is primarily due to increased depreciation costs of $1.86 million, increased labor cost of $0.38 million, increased power costs of $0.20 million, increased software license costs of $0.27 million, increased bandwidth costs of $0.29 million, and increased repair and maintenance of $0.02 million.The increase in cost of sales for the nine months ended March 31, 2012 compared with the same period in the prior year is primarily due to increased depreciation costs of $4.25 million, increased rent costs of $0.62 million, increased labor costs of $0.99 million, increased power costs of $0.55 million, increased software license costs of $1.33 million, increased bandwidth costs of $0.45 million, and increased repair and maintenance of $0.32 million.Operating expenses increased to $12.11 million for the three months ended March 31, 2012 from $10.50 million for the three months ended March 31, 2011.  Operating expenses as a percentage of revenue decreased to 35% for the three months ended March 31, 2012 from 37% for the three months ended March 31, 2011.  The increase in operating expenses for the three months ended March 31, 2012 is largely attributable to $0.94 million higher staff and training cost, and increased bonus expenses of $0.32 million.  Total operating expenses for the three months ended March 31, 2012 is comprised of $5.60 million (2011: $4.74 million) sales and marketing expenses, $5.13 million (2011: $4.49 million) general and administrative expenses, and $1.37 million (2011: $1.27 million) in other operating expenses for technology and customer relations. During the three months ended March 31, 2012 and March 31, 2011, respectively, the Company incurred expenses of $1.60 million and $0.97 million related to its United Kingdom operations which are included in operating expenses, $0.44 million and $0.33 million of which are categorized as general and administrative expenses, and $1.10 million and $0.63 million of which are categorized as selling and marketing expenses.Operating expenses increased to $35.93 million for the nine months ended March 31, 2012 from $30.34 million for the nine months ended March 31, 2011.  Operating expenses as a percentage of revenue decreased to 36% for the nine months ended March 31, 2012 compared with 37% for the nine months ended March 31, 2011.  The increase in operating expenses for the nine months ended March 31, 2012 is largely attributable to $2.66 million higher staff and training cost, increased commission expenses of $0.51 million, increased amortization expense of $0.57 million, increased bonus expenses of $0.89 million, increased bad debt expense of $0.33 million, in part offset by lower stock based compensation of $0.16 million.  Total operating expenses for the nine months ended March 31, 2012 are comprised of $15.41 million (2011: $12.67 million) sales and marketing expenses, $16.73 million (2011: $14 million) general and administrative expenses, and $3.79 million (2011: $3.67 million) in other operating expenses for technology and customer relations. During the nine months ended March 31, 2012 and March 31, 2011, respectively, the company incurred expenses of $4.13 and $2.57 million related to its United Kingdom operations which are included in operating expenses, $1.24 million and $0.98 million of which are categorized as general and administrative expenses, and $2.78 million and $1.57 million of which are categorized as selling and marketing expenses.Normalized EBITDA was $8.94 million for the three months ended March 31, 2012, compared with $6.71 million in the prior year period.Net income for the third quarter ended March 31, 2012 was $1.06 million, compared to a net loss of $0.27 million for the same period in 2011.The Company had a working capital deficit of $10.22 million as at March 31, 2012 compared to a working capital of $0.44 million as at June 30, 2011.  The increase in working capital deficit is primarily due to the use of cash to fund the UK expansion and the increase in trade payables primarily due to timing.  As at March 31, 2012, the Company had $12.29 million available under its $75.00 million credit facilities.  In addition, the Company also has a $25.00 million accordion feature available that is subject to syndicate approval.PEER 1 Hosting had 124,315,167 common shares issued and outstanding as at March 31, 2012.EBITDA Reconciliation        (unaudited - prepared by management)       (in $ thousands)     Three Months Ended      31-Mar-1231-Mar-11        Net Profit                1,062            (272)Income tax expense                   241              (12)Interest expense                   643           1,090Amortization - licences, fixed assets and deferred network costs                7,293           5,391EBITDA                9,239           6,197Stock based compensation                   520             553Foreign exchange gain                  (636)            (567)Gain on disposal of assets                   (60)                (8)Reverse of sales tax provisions                  (122)                -Service Level Arrangement Credit                     -             161Commission - One time                     -             375Normalized EBITDA                8,941           6,711        Conference CallPEER 1 Hosting will hold a conference call on Wednesday, May 9, 2012 at 5:30pm Eastern Time (ET), to discuss the results for the third 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 Wednesday May 16, 2012, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 76257835 followed by the number sign.A live audio webcast of the conference call will be available at:http://www.newswire.ca/en/webcast/detail/962463/1032231Please 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 is one of the world's leading IT hosting providers. The company is built on two obsessions: Ping & People. Ping, represents its commitment to best-in-breed technology, founded on a high performance 10Gbps FastFiber Network™ connected by 18 state-of-the-art datacenters, 22 points-of-presence and 10 colocation facilities throughout North America and Europe.  People, represents its commitment to delivering outstanding customer service to its more than 10,000 customers worldwide, backed by a 100 percent uptime guarantee and 24x7x365 FirstCall Support™. Info-Tech Research Group recently named PEER 1 Hosting as a "Champion" in its Canadian colocation and managed services Vendor Landscape report, recognizing the company's strength in product offerings and enterprise strategy in the global IT marketplace. PEER 1 Hosting's portfolio includes Managed Hosting, Dedicated Servers under the ServerBeach brand, Colocation and Cloud Services under the Zunicore brand. Founded in 1999, the company is headquartered 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)              March 31,2012      June 30,2011ASSETS                     Current assets                     Cash and cash equivalents          $  4,966  $   7,803Trade and other receivables             6,999      6,447Prepaid expenses             2,628      1,448Income tax receivable             294      2,874              14,887      18,572Non-current assets                     Other assets             2,708      2,353Deferred tax assets             3,176      1,818Property, plant and equipment             98,522      87,697Equipment under finance lease              2,700      724Intangible assets             8,029      6,636              115,135      99,228Total assets             130,022      117,800                      LIABILITIES AND EQUITY                     Current liabilities                     Trade and other payables             13,492      9,944Loans and borrowings             6,110      5,008Derivatives             444      250Income tax payable             1,029      -Deferred lease inducement             345      136Obligations under finance lease             844      237Deferred revenue             2,847      2,561              25,111      18,136Non-current liabilities                     Loans and borrowings             52,418      53,062Derivatives             1,220      875Deferred tax liability             1,016      1,354Obligations under finance lease             1,600      11Deferred lease inducement             704      655              56,958      55,957Total liabilities             82,069      74,093                      EQUITY                     Issued capital             32,360      28,221Share-based payments reserve             10,182      9,985Warrants             -      -Accumulated other comprehensive income             (88)      (492)Retained earnings             5,499      5,993Total equity             47,953      43,707Total liabilities and equity             130,022      117,800                                         CONDENSED INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME(unaudited, expressed in thousands of United States dollars)    Three months ended March 31  Nine months ended  March 31    20122011  20122011Revenue         Colocation services   $          8,724$          8,067  $        25,434$        22,501Hosting Services   25,48920,662  73,90760,442    34,21328,729  99,34182,943Cost of sales   20,97618,001  59,92851,272Gross profit   13,23710,728  39,41331,671Administration expenses   5,1314,491  16,73113,998Sales and marketing expenses   5,6044,742  15,40912,671Other operating expenses   1,3741,267  3,7933,670Operating profit before other items   1,128228  3,4801,332          Finance income   -(3)  (7)(17)Gain on disposal of property, plant and equipment   (60)(8)  (23)(36)Loss on legal settlement   --  -24Foreign exchange loss (gain)   (636)(567)  778(2,856)Finance expense   6431,090  2,9161,939Other non-operating income   (122)-  (122)-Profit (loss) before income taxes   1,303(284)  (62)2,278          Income taxes expense (recovery)   241(12)  432775Profit (loss) for the period   1,062(272)  (494)1,503          Other comprehensive income (loss)         Foreign currency translation gain (loss)   1,4011,169  (1,763)3,253Unrealized gain (loss) on net investment in subsidiaries   (178)(950)  2,167(3,612)Other comprehensive income (loss) for the period, net of tax   1,223219  404(359)Total comprehensive income (loss) for the period   2,285(53)  (90)1,144          Profit (loss) attributable to common shares   1,062(272)  (494)1,503Total comprehensive income (loss) attributable to common shares   2,285(53)  (90)1,144          Earnings (loss) per share         Basic   0.01(0.00)  (0.00)0.01Diluted   0.01(0.00)  (0.00)0.01          Weighted average number of common shares outstanding         Basic   124,028,252120,042,547  122,044,055119,938,894Diluted   129,969,421120,042,547  122,044,055124,242,766                    CONDENSED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY(unaudited, expressed in thousands of United States dollars)   Share capital                    Number  Amount  Warrants Share-basedpayments reserve Accumulated othercomprehensive income  Retainedearnings  Total                      Balance at July 1, 2010  119,721,834  $     27,631             $86 $            6,804                    $-  $         4,961  $       39,482 Stock options exercised  170,303  173  - (94) -  -  79 Warrants exercised  833,333  422  (86) - -  -  336 Stock-based compensation  -  -  - 2,902 -  -  2,902 Purchase of shares for cancellationpursuant to normal course issuer bid  (189,500)  (44)  - - -  (211)  (255)Transactions with owners  120,535,970  28,182  - 9,612 -  4,750  42,544 Profit for the period  -  -  - - -  1,503  1,503 Other comprehensive income (loss):                     Foreign currency translation gain  -  -  - - 3,253  -  3,253Unrealized loss on net investment insubsidiaries  -  -  - - (3,612)  -  (3,612)Total comprehensive income forthe period  -  -  - - (359)  1,503  1,144Balance at March 31, 2011  120,535,970  28,182  - 9,612 (359)  6,253  43,688                    Balance at July 1, 2011  120,576,370  28,221  - 9,985 (492)  5,993  43,707 Stock options exercised  3,738,797  4,139  - (2,544) -  -  1,595 Stock-based compensation  -  -  - 2,741 -  -  2,741Transactions with owners  124,315,167  32,360  - 10,182 (492)  5,993  48,043 Loss for the period  -  -  - - -  (494)  (494) Other comprehensive income (loss):                     Foreign currency translation gain(loss)  -  -  - - (1,763)  -  (1,763)Unrealized gain (loss) on netinvestment in subsidiaries  -  -  - - 2,167  -  2,167Total comprehensive income forthe period            404  (494)  (90)Balance at March 31, 2012  124,315,167  32,360  - 10,182 (88)  5,499  47,953                                       CONDENSED INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS(unaudited, expressed in thousands of United States dollars)   Nine months ended March 31     2012   2011           Operating Activities           Net income (loss)   $(494)  $1,503           Depreciation of property, plant and equipment    18,286    13,879Amortization of intangible assets    877    472Bad debt expense    575    271Gain on disposal of property, plant and equipment    (23)    (36)Amortization of deferred loan origination fees    194    408Future income tax recovery    (1,665)    (1,672)Stock-based compensation    2,741    2,902Interest paid    (2,349)    (1,321)Income taxes refunded (paid)    1,464    (2,768)Net change in non-cash working capital    6,638    1,927Cash flows from operating activities    26,244    15,565           Investment Activities           Investment in other assets    (332)    (625) Acquisition of property, plant and equipment    (29,872)    (31,228) Acquisition of intangible assets    (2,025)    (1,064) Proceeds on disposition of equipment    130    46Cash flows used in investing activities    (32,099)    (32,871)           Financing Activities           Proceeds from loans and borrowings    7,510    74,172 Repayments of loans and borrowings    (6,290)    (32,726) Payment of finance lease obligations    (349)    (291) Payment of derivative liabilities    -    (283) Purchase of shares for cancellation pursuant to normal course issuer bid    -    (255) Issuance of capital stock    1,583    415Cash flow from financing activities    2,454    41,032           Foreign exchange gain (loss) on cash and cash equivalents    564    (2,543)(Decrease) Increase in cash and cash equivalents,    (2,837)    21,182Cash and cash equivalents, beginning (1)    7,803    2,321Cash and cash equivalents, ending (1)    4,966    23,503Supplemental non-cash financing and investing disclosure:          Effect of acquisition of property, plant and equipment in trade and other payables    (236)    111(1)   Cash and cash equivalents consist of highly liquid money market instruments with original maturity of three monthsor less, which are readily convertible into a known amount of cash.  For further information: For investor inquiries please contact: Nick Hurst The Equicom Group +1 (403) 218-2835 nhurst@equicomgroup.com  For media inquiries please contact: Marcela Peake PEER 1 Hosting +1 (604) 909-6428 mpeake@peer1.com