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PEER 1 Hosting Reports Fiscal 2010 Third Quarter Results

^{Published on 2010-05-13 13:15:24 - Market Wire}
 

 - Revenue increased 11% to $25.1 million from $22.6 million; - Gross profit increased 10% to $10.2 million from $9.2 million; - Operating income decreased 17% to $2.2 million from $2.6 million; - Normalized EBITDA was flat at $6.4 million; and - Net income decreased to $0.5 million from $1.41 million. Selected Recent Operational Highlights - Launched US$40 million flagship data centre in Toronto Ontario. This data centre is more than 40,000 square feet and equipped to offer all three hosting solutions - colocation, dedicated hosting and managed hosting - under one roof. The building is separated into four sections called Performance Optimized Data Centre (POD) - with each POD having the capacity of approximately 270 cabinets, equivalent to approximately 7,500 servers. The first POD was built with an estimated capital cost of US$10 million and includes 7,500 square feet of data centre space and 8,000 square feet of office space, and inventory, network and storage areas to support the data centre; - Acquired Atlanta-based VIA Net.Works USA, Inc., a provider of primarily dedicated and managed hosting solutions built around the Microsoft platform for small and medium sized businesses; - Settled via confidential mediation an action that had been pursued in the Supreme Court of British Columbia by WindyPoint Capital Inc., and others for compensation alleged to be due and owing to WindyPoint in connection with financial advisory and investment banking services that it provided to the Company in 2005. In the third quarter the Company took a one time charge of $440,000 in relation to the settlement; - Announced Intention to commence a Normal Course Issuer Bid; - Entered into a referral partnership with Magento, Inc., the leading open source eCommerce platform provider, to enable merchants using Magento's feature-rich eCommerce platform to deploy sites via PEER 1 Hosting to optimize their web presence and performance; and - Launched PEER 1 Hosting Channel Partner Portal to help simplify existing partnering program to better serve and support partners. 

 EBITDA Reconciliation (unaudited - prepared by management) (in $ thousands) Three Months Ended -------------------------- 31-Mar-10 31-Mar-09 Net Profit 459 1,414 Income tax expense 775 842 Interest expense 338 405 Amortization - licences, fixed assets and deferred network costs 3,642 3,373 Stock based compensation 620 434 Loss (gain) on disposal of assets (29) - Amortization of deferred gain (20) (20) Loss on Derivative 111 - Foreign exchange loss (gain) 75 (48) ------------------------------------------------------------------------- EBITDA 5,971 6,400 Settlement of legal claim 440 - Normalized EBITDA 6,411 6,400 

 PEER 1 NETWORK ENTERPRISES, INC. Consolidated Balance Sheet March 31, 2010 (in thousands of United States dollars) March 31, June 30, 2010 2009 ------------------------------------------------------------------------- Assets Current: Cash and cash equivalents $ 3,696 $ 15,744 Accounts receivable 3,872 3,449 Future income tax asset 98 237 Prepaid expenses 1,848 1,130 ------------------------------------------------------------------------- 9,514 20,560 Other assets 2,918 2,692 Future income tax asset 2,002 1,042 Property and equipment 50,332 36,856 Equipment under capital lease 1,062 1,013 Goodwill (Note 3) 2,394 1,715 Intangible assets 3,307 2,552 ------------------------------------------------------------------------- $ 71,529 $ 66,430 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Liabilities Current: Accounts payable and accrued liabilities $ 9,781 $ 7,936 Deferred revenue 2,968 2,886 Current portion of deferred gain 79 79 Current portion of deferred lease inducements 126 138 Current portion of derivative liabilities 152 89 Current portion of notes payable 3,000 2,250 Current portion of obligations under capital lease 393 211 Income taxes payable 78 2,200 ------------------------------------------------------------------------- 16,577 15,789 Deferred gain 433 493 Deferred lease inducements 566 664 Derivative liabilities 190 179 Notes payable 12,096 12,303 Obligation under capital lease 334 363 ------------------------------------------------------------------------- 30,196 29,791 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Shareholders' equity 41,333 36,639 ------------------------------------------------------------------------- $ 71,529 $ 66,430 ------------------------------------------------------------------------- ------------------------------------------------------------------------- PEER 1 NETWORK ENTERPRISES, INC. Consolidated Statements of Shareholders' Equity For the Three and Nine Months Ended March 31, 2010 (in thousands of United States dollars except number of shares) Three months ended March 31, 2010 March 31, 2009 Number Amount Number Amount -------------------------------------------------------------------------- SHARE CAPITAL Common shares Balance at beginning of period 121,260,741 $ 27,942 119,294,323 $ 26,940 Stock options exercised 33,879 14 - - Warrants exercised - - - - ------------------------------------------------------------------------- Balance at end of period 121,294,620 27,956 119,294,323 26,940 ------------------------------------------------------------------------- Warrants Balance at beginning of period 833,333 86 2,461,619 493 Warrants exercised - - - - ------------------------------------------------------------------------- Balance at end of period 833,333 86 2,461,619 493 ------------------------------------------------------------------------- Total - share capital 28,042 27,433 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONTRIBUTED SURPLUS Balance at beginning of period 5,709 3,879 Stock-based compensation 619 434 Stock options exercised (5) - ------------------------------------------------------------------------- Balance at end of period 6,323 4,313 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RETAINED EARNINGS Balance at beginning of period 6,862 2,718 Net income 459 1,414 ------------------------------------------------------------------------- Balance at end of period 7,321 4,132 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period (315) (11) Other comprehensive income (loss) (38) - ------------------------------------------------------------------------- Balance at end of period (353) (11) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total - shareholders' equity $ 41,333 $ 35,867 ------------------------------------------------------------------------- ------------------------------------------------------------------------- Nine months ended March 31, 2010 March 31, 2009 Number Amount Number Amount ------------------------------------------------------------------------- SHARE CAPITAL Common shares Balance at beginning of period 119,314,323 $ 26,950 118,504,368 $ 26,539 Stock options exercised 352,011 225 111,670 60 Warrants exercised 1,628,286 781 678,285 341 ------------------------------------------------------------------------- Balance at end of period 121,294,620 27,956 119,294,323 26,940 ------------------------------------------------------------------------- Warrants Balance at beginning of period 2,461,619 493 3,139,904 678 Warrants exercised (1,628,286) (407) (678,285) (185) ------------------------------------------------------------------------- Balance at end of period 833,333 86 2,461,619 493 ------------------------------------------------------------------------- Total - share capital 28,042 27,433 ------------------------------------------------------------------------- ------------------------------------------------------------------------- CONTRIBUTED SURPLUS Balance at beginning of period 4,766 2,509 Stock-based compensation 1,684 1,826 Stock options exercised (127) (22) ------------------------------------------------------------------------- Balance at end of period 6,323 4,313 ------------------------------------------------------------------------- ------------------------------------------------------------------------- RETAINED EARNINGS Balance at beginning of period 4,709 (1,013) Net income 2,612 5,145 ------------------------------------------------------------------------- Balance at end of period 7,321 4,132 ------------------------------------------------------------------------- ------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME Balance at beginning of period (279) (11) Other comprehensive income (loss) (74) - ------------------------------------------------------------------------- Balance at end of period (353) (11) ------------------------------------------------------------------------- ------------------------------------------------------------------------- Total - shareholders' equity $ 41,333 $ 35,867 ------------------------------------------------------------------------- ------------------------------------------------------------------------- PEER 1 NETWORK ENTERPRISES, INC. Consolidated Statement of Operations For the Three and Nine Months Ended March 31, 2010 (in thousands of United States dollars, except per share amounts) Three months ended Nine months ended -------------------------- -------------------------- March 31, March 31, March 31, March 31, 2010 2009 2010 2009 ------------------------------------------------------------------------- Revenue Colocation Services $ 7,143 $ 5,944 $ 20,616 $ 18,783 Hosting Services 17,923 16,705 51,721 51,009 -------------------------- -------------------------- 25,066 22,649 72,337 69,792 Cost of revenue 14,852 13,404 42,670 39,306 --------------------------------------------- -------------------------- Gross profit 10,214 9,245 29,667 30,486 Operating expenses 8,047 6,636 22,761 20,671 --------------------------------------------- -------------------------- Operating income before other items 2,167 2,609 6,906 9,815 --------------------------------------------- -------------------------- Other items: Interest income (2) (4) (8) (59) Settlement of legal claim 440 440 - Gain on insurance recovery - - (93) - Gain on disposal of property and equipment (29) - (71) (20) Loss on derivative 111 - 111 - Foreign exchange (gain) / loss 75 (48) 264 (132) Interest expense - long term 338 405 987 1,266 --------------------------------------------- -------------------------- 933 353 1,630 1,055 --------------------------------------------- -------------------------- Income before income taxes 1,234 2,256 5,276 8,760 --------------------------------------------- -------------------------- Future income tax expense (recovery) (212) 144 (712) 381 Current income tax expense 987 698 3,376 3,234 --------------------------------------------- -------------------------- Income tax expense 775 842 2,664 3,615 --------------------------------------------- -------------------------- Net income $ 459 $ 1,414 $ 2,612 $ 5,145 Other comprehensive income: Change in unrealized fair value of derivatives designated as cash flow hedges (38) - (74) - --------------------------------------------- -------------------------- Comprehensive income $ 421 $ 1,414 $ 2,538 $ 5,145 --------------------------------------------- -------------------------- --------------------------------------------- -------------------------- Net income attributable to: Common shares $ 459 $ 1,414 $ 2,612 $ 5,145 Comprehensive income attributable to: Common shares $ 421 1,414 $ 2,538 $ 5,145 --------------------------------------------- -------------------------- --------------------------------------------- -------------------------- Basic and diluted earnings per share $ 0.00 $ 0.01 $ 0.02 $ 0.04 --------------------------------------------- -------------------------- --------------------------------------------- -------------------------- Weighted average number of shares outstanding: Basic 121,274,770 119,294,323 120,653,339 119,085,836 Diluted 124,338,272 123,755,886 124,316,811 124,073,826 PEER 1 NETWORK ENTERPRISES, INC. Consolidated Statement of Cash Flows For the Three and Nine Months Ended March 31, 2010 (in thousands of United States dollars) Three months ended Nine months ended -------------------------- -------------------------- March 31, March 31, March 31, March 31, 2010 2009 2010 2009 --------------------------------------------- -------------------------- Operating Activities: Net income $ 459 $ 1,414 $ 2,612 $ 5,145 Adjustments for non-cash items: Amortization of property and equipment 3,560 3,050 10,055 8,693 Amortization of intangible assets 82 323 569 1,051 Increase in accrued interest - 11 - 66 Bad debt expense 174 198 388 595 Gain on disposal of property and equipment (29) - (71) (20) Gain on insurance - - (93) - Amortization of deferred gain (20) (20) (59) (59) Amortization of deferred loan origination fees 74 110 191 350 Future income tax expense (212) 144 (712) 381 Stock-based compensation included in income for the period 620 434 1,684 1,825 Decrease in deferred lease inducements (37) (36) (110) (35) Changes in non-cash working capital: Decrease (Increase) accounts receivable 405 816 (458) (466) Decrease (Increase) in prepaid expenses (81) 183 (657) (30) Increase (Decrease) in accounts payable and accrued liabilities 490 (145) 1,147 (1,320) Increase (Decrease) in income taxes payable 54 169 (2,122) 468 Decrease in deferred revenue (314) (236) (200) (176) --------------------------------------------- -------------------------- Cash flows from operating activities 5,225 6,415 12,164 16,468 --------------------------------------------- -------------------------- Investing Activities: Acquisition of subsidiary, net of cash acquired (534) - (534) - Investment in other assets (135) 12 (362) 43 Acquisition of property and equipment (9,390) (2,788) (22,992) (11,819) Acquisition of intangible assets (389) (304) (1,325) (1,200) Proceeds on disposition of equipment 29 - 71 20 --------------------------------------------- -------------------------- Cash flows used in investing activities (10,419) (3,080) (25,142) (12,956) --------------------------------------------- -------------------------- Financing Activities: Proceeds from line of credit 2,000 - 2,000 - Repayments of notes payable (750) (800) (1,500) (2,400) Payment of capital lease obligations (66) (47) (178) (148) Issuance of capital stock 9 - 471 194 --------------------------------------------- -------------------------- Cash flows from (used in) financing activities 1,193 (847) 793 (2,354) --------------------------------------------- -------------------------- Foreign exchange gain (loss) on cash and cash equivalents 75 (19) 137 (139) --------------------------------------------- -------------------------- (Decrease) Increase in cash and cash equivalents (3,926) 2,469 (12,048) 1,019 Cash and cash equivalents, beginning 7,622 9,576 15,744 11,026 --------------------------------------------- -------------------------- Cash and cash equivalents, ending $ 3,696 $ 12,045 $ 3,696 $ 12,045 --------------------------------------------- -------------------------- --------------------------------------------- --------------------------