VANCOUVER, BC – November 7, 2012 – 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, 2012. All amounts are stated in US dollars unless otherwise noted.
Selected Financial Highlights Comparing the Quarters Ended September 30, 2012 and 2011
- Revenue increased 25% to $39.3 million from $31.5 million;
- Gross profit increased 21% to $15.4 million from $12.7 million;
- Normalized EBITDA was $10.8 million, up from $7.9 million; and
- Net income was $0.4 million compared to a net loss of $1.3 million.
Selected Highlights for First Quarter and Period Subsequent to Quarter-End
- Closed the acquisition of NetBenefit (UK) Ltd ("NetBenefit") for a total purchase price of $39.6 million. The integration of NetBenefit is progressing to plan and is expected to be largely completed by the end of the third quarter of fiscal 2013. Revenue and normalized EBITDA contribution from NetBenefit are tracking to expectations, as is synergy realization and one-time integration costs; and
- Entered into a strategic partnership with an enterprise cloud platform developer, Tier 3, leveraging the global IT hosting services of PEER 1 with the VMware-based enterprise-grade cloud platform from Tier 3. The partnership expands and complements the Company’s existing cloud product offerings and should bring a strong pipeline of business to PEER 1.
"The closing of the NetBenefit transaction made an immediate, full quarter contribution to our financial results," said Fabio Banducci, President and CEO of PEER 1 Hosting. "To this point we are pleased with the impact that the acquisition is having and our focus remains on completing the integration on time and on budget which will move us closer to fully realizing the strategic and numerous cost synergies this transaction has brought to the table."
Financial Review for the Three Months Ended September 30, 2012 and 2011
Revenue increased to $39.3 million (up 25%) for the three months ended September 30, 2012 from $31.5 million for the three months ended September 30, 2011. Of the 25% increase in revenues over the prior year quarter, approximately $3.9 million (12%) is attributable to NetBenefit’s operations, and the remaining increase of approximately 13% is attributable to organic growth. The impact of different exchange rates on revenue between the two periods was not material.
Colocation revenue increased to $6.4 million for the three months ended September 30, 2012 compared with $6.1 million for the three months ended September 30, 2011. The increase in colocation revenue is attributable to organic growth.
Bandwidth revenue was $2.3 million for the three months ended September 30, 2012 compared with $2.3 million for the three months ended September 30, 2011. Bandwidth revenue stayed flat primarily due to increased customer usage which was offset by lower selling prices.
Hosting services revenues increased to $30.6 million for the three months ended September 30, 2012 from $23.1 million for the three months ended September 30, 2011. Of the $7.5 million (33%) increase in hosting revenue, $3.9 million (17%) is attributable to NetBenefit and the remaining increase of $3.6 million (16%) is attributable to organic growth.
Cost of sales increased by $5.1 million (27%) for the three months ended September 30, 2012 from $18.8 million for the three months ended September 30, 2011. Of the 27% increase in cost of sales, approximately $1.5 million (8%) was attributable to NetBenefit’s acquired operations. Cost of sales as a percentage of revenue increased to 61% for the three months ended September 30, 2012 compared with 60% for the three months ended September 30, 2011.
The increase in cost of sales for the three months ended September 30, 2012 compared with the same period in the prior year is primarily due to increased depreciation costs of $2.0 million, staff costs of $0.5 million, software license costs of $0.2 million, bandwidth costs of $0.5 million, power costs of $0.3 million, and an increase in other cost of sales expenses, as well as the addition of NetBenefit. Other than the increase attributable to NetBenefit, these increases are primarily attributable to the increase in revenues.
Total operating expenses increased by $4.3 million to $15.2 million for the three months ended September 30, 2012 from $10.9 million for the three months ended September 30, 2011. Operating expenses as a percentage of revenue increased to 39% for the three months ended September 30, 2012 from 35% for the three months ended September 30, 2011.
Total operating expenses for the three months ended September 30, 2012 are comprised of $8.0 million in general and administrative expenses (September 30, 2011: $4.9 million), $6.0 million sales and marketing expenses (September 30, 2011: $4.8 million), and $1.2 million in expenses for technology and customer relations (September 30, 2011: $1.2 million).
Of the $3.1 million increase in general and administrative expenses, $1.0 million is related to the acquisition and integration expenses of NetBenefit, $0.8 million relates to the intangible asset amortization expense associated with the NetBenefit customer relationships that arose from the purchase price allocation, and the remaining increase of $1.3 million relates to the expenses of the NetBenefit operations and an increase in other administrative expenses of PEER 1.
The increase in sales and marketing expenses of $1.2 million, for the three months ended September 30, 2012, is due to a $0.4 million increase in marketing activities to support the continued growth of the Company, an increase of $0.2 million in commission expenses relating to the increase in revenues and bookings, and an increase of $0.6 million in other sales and marketing expenses including the sales and marketing expenses from the NetBenefit operation.
Normalizing operating expenses for the acquisition and integration expenses related to NetBenefit means operating expenses for the three months ended September 30, 2012 would be $14.2 million (36% of revenues) compared with operating expenses of $10.9 million (35% of revenues) for the three months ended September 30, 2011.
Normalized EBITDA was $10.8 million for the three months ended September 30, 2012, compared with $7.9 million in the prior year period.
Net profit for the first quarter ended September 30, 2012 was $0.4 million, compared with a net loss of $1.3 million for the same period in 2011.
As at September 30, 2012, the Company had cash and cash equivalents of $5.8 million compared with $51.1 million as at June 30, 2012. The current portion of the Company’s loans and borrowings as at September 30, 2012 was $7.5 million. The Company had a working capital deficiency of $13.0 million at September 30, 2012, compared with working capital of $28.4 million as at June 30, 2012. The decrease in working capital is primarily due to use of funds for the acquisition of NetBenefit, and partly due to investments in property, plant and equipment. As at September 30, 2012, the Company had available $39.8 million under its $149.4 million credit facilities and an additional $25.0 million available under the accordion feature of its credit agreement.
PEER 1 Hosting had 126,803,020 common shares issued and outstanding as at September 30, 2012.
EBITDA Reconciliation (unaudited - prepared by management) Three Months Ended 30-Sep 30-Sep (in $ millions) 2012 2011 Profit (loss) $ 0.4 $ (1.3) Finance expense 1.4 1.5 Depreciation, amortization 9.1 5.7 Income tax expense (recovery) 0.1 (0.4) Stock-based compensation 0.4 0.3 Foreign exchange gain (loss) (1.7) 2.0 Acquisition and integration costs 1.0 - Other non-operating expenses (income) - 0.1 Normalized EBITDA $ 10.8 $ 7.9
PEER 1 Hosting will hold a conference call on Thursday, November 8, 2012 at 11:00 am Eastern Time (ET), to discuss the results for the first quarter of fiscal 2013. 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 Thursday November 15, 2012, at midnight. To access the archived conference call, dial (416) 849-0833 or 1-855-859-2056 and enter the reservation number 39225223 followed by the number sign.
A live audio webcast of the conference call will be available at:
Please 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.
PEER 1 Hosting reports normalized EBITDA because it is a key measure used by management to evaluate the Company's performance. PEER 1 Hosting believes that normalized EBITDA is useful supplemental information, as it provides an indication of the results generated by PEER 1 Hosting's main business activities. Normalized EBITDA is not a recognized measure under IFRS, and accordingly investors are cautioned that normalized 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 normalized EBITDA may differ from other issuers and, accordingly, normalized EBITDA may not be comparable to similar measures presented by other issuers. The schedule above sets out PEER 1 Hosting's normalized EBITDA calculations.
About PEER 1 Hosting
PEER 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 19 state-of-the-art datacenters and 21 points-of-presence 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 Statements
Statements 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.
For investor inquiries please contact:
The Equicom Group
+1 (403) 218-2835