PEER 1 Hosting's normalized earnings before interest, taxes, depreciation, and amortization dropped from $6.5 million in Q1 2010 to $6.02 million in Q1 2011.
(WEB HOST INDUSTRY REVIEW) — Online IT infrastructure provider PEER 1 Network Enterprises (www.peer1.com) has announced its results for the three months ended September 30, 2010, reporting a 12.6-percent revenue increase to $26.3 million from $23.4 million compared to the same quarter last year, however, operating income, normalized EBITDA and net income decreased.
According to PEER 1’s Wednesday announcement, the increase in revenue in the first fiscal quarter of 2011 is primarily due to organic growth, the effect of the increase in value of the Canadian dollar against the US dollar, and from PEER 1’s acquisition of Atlanta-based hosting provider VIA Net.Works USA (www.vianetworks.net).
Compared to Q1 2010, however, operating income fell 51.3 percent to $1.2 million from $2.5 million, normalized EBITDA dropped $6.5 million to $6.02 million, and net income decreased to $0.36 million from $1.3 million. The increase in operating expenses, the company said, was largely due to $0.84 million higher staff and training cost, and increased commission expenses of $0.32 million attributable to new sales, as well as added professional services costs, rent, office expenses, property tax, travel expenses, insurance, and advertising expenses.
PEER announced many developments over the past quarter.
The company signed a multi-year colocation agreement with Capgemini Canada (www.ca.capgemini.com), which provides consulting, technology and outsourcing services.
PEER 1 also announced its participation in the VMware Service Provider Program to offer customers VMware-based private cloud solutions. And IBM Canada became a PEER 1 Hosting platinum level colocation reseller.
“In the first quarter we began to see improvements in financial performance based on investments made in the prior fiscal year,” PEER 1 Hosting president and chief executive officer Fabio Banducci said in a statement. “Ours is a capital intensive business and we anticipate seeing a return on the infrastructure investments made in fiscal 2010 and the period subsequent to year end, in combination with key new business wins and solution launches, in the second half of fiscal 2011. Subsequent to quarter end, we entered into credit agreement providing us with a source of non-dilutive capital that will allow us to execute on our broader growth strategy.”
PEER 1 Hosting’s Canadian operations accounted for $5.48 million of revenue for the three months ended September 30, 2010 compared with $4.73 million of revenues for the three months ended September 30, 2009. This change is primarily related to organic growth and favorable foreign exchange effects of $0.26 million for the three months ended September 30, 2010. The foreign exchange effects on revenue largely provide a natural hedge which offset exchange effects on expenses incurred in Canadian operations.
The company also completed two independent audits of its selected controls, processes and procedures in the first quarter. These included compliance with the American Institute of Certified Public Accountants’ (www.aicpa.org) Statement on Auditing Standards No. 70 for service organizations, and the Canadian Institute of Chartered Accountants (www.cica.ca) Section 5970. These audits covered the period from January 1, 2010 to June 30, 2010 and are commonly referred to within the hosting industry as a Type II Audit.
The increased value of the Canadian dollar against the US dollar helped increase revenue numbers. Bandwidth revenues increased to $2.19 million in the quarter compared with $2.02 million for the three months ended September 30, 2009, largely due to the increased value of the Canadian dollar, and partly offset by pricing pressures in the market. Colocation revenue increased to $3.48 million from $3.31 million.
Hosting services revenues increased to $19.24 million for the three months ended September 30, 2010 from $16.75 million for the three months ended September 30, 2009. The increase for the three months ended September 30, 2010 is attributable to organic growth and additional revenue from the VIA acquisition. Hosting Services revenues were not greatly impacted by exchange rates because nearly all hosting services sales are conducted in US dollars.
The company announced plans to proceed with the build out of PODs B and C at its flagship data center located near Toronto at an expected capital cost of $14.50 million. PEER 1 Hosting also said that its efforts to secure additional data centre space are ongoing.
PEER 1 also announced Wednesday that it has been given a $45 million non-revolving term facility and a $30 million revolving credit facility as the result of a credit agreement with a syndicate of lenders led by National Bank Financial (www.nbf.ca) and including Business Development Bank of Canada (www.bdc.ca), Laurentian Bank (www.laurentianbank.ca) and Canadian Western Bank (www.cwbank.com).
An accordion feature also allows PEER 1 to request an increase in the amount available under the revolving facility by a further $25 million, bringing the total potential credit available under the facilities to $100 million.
“Securing access to a significant amount of non-dilutive capital at favourable rates leaves us very well positioned to execute on our global growth strategy,” Banducci stated. “In the near term this includes expansion of our Toronto data facility and a contemplated build out of a dedicated European facility, while also granting us maximum flexibility to pursue additional opportunities across a range of geographies and service offerings.”
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