PEER 1 Network Enterprises, Inc.
TSX VENTURE : PIX

PEER 1 Network Enterprises, Inc.

October 27, 2006 20:20 ET

PEER 1 Releases Fiscal 2006 Year-End Results

Revenue increased 212%, EBITDA up 341% over previous year

VANCOUVER, BRITISH COLUMBIA--(CCNMatthews - Oct. 27, 2006) - PEER 1 Network Enterprises, Inc. (TSX VENTURE:PIX), a leading provider of Internet infrastructure solutions and related managed services, today released the company's financial results for the fiscal year ended June 30, 2006, recording more than three times the revenue of fiscal 2005. All figures are in US dollars.

"Fiscal year 2006 marked a year of significant change for PEER 1," said Fabio M. Banducci, PEER 1's recently appointed President. "The acquisition of the dedicated server assets from Interland Inc. dramatically changed PEER 1's operating and industry profile. We have made measured progress in integrating these assets into our operations and in strengthening our foundation to accommodate future growth and continued margin improvement."

Financial highlights from the year include the following:

- PEER 1's revenue increased 212.4% to $60.7 million for the year ended June 30, 2006, compared to $19.4 million for the year ended June 30, 2005;

- Gross profit was $21.4 million for the year ended June 30, 2006, an increase of 183.9% from $7.5 million for the year ended June 30, 2005;

- Operating income was $4.0 million for the year ended June 30, 2006, a 1,244% increase from the operating income of $0.3 million for the year ended June 30, 2005;

- Net loss was $3.2 million for the year ended June 30, 2006, compared to a net loss of $2.2 million for the year ended June 30, 2005;

- Cash flow from operating activities for the year ended June 30, 2006 was $13.6 million, compared to $3.7 million for the year ended June 30, 2005;

- Normalized EBITDA for the year ended June 30, 2006 was $12.8 million, a 342.7% increase over normalized EBITDA of $2.9 million for the year ended June 30, 2005.

Corporate highlights from fiscal 2006:

- On September 2, 2005, PEER 1 acquired the dedicated server assets of Interland Inc. for $14 million plus adjustments. The assets included 8,300 servers and data centers in Atlanta, GA; Fremont, CA; and Miami, FL, totaling over 115,000 square feet.

- PEER 1 completed a $36.0 million re-capitalization to fund the acquisition of Interland Inc.'s dedicated server assets and to improve liquidity and working capital.

- As of October 1, 2005, the company changed its functional and reporting currency to US dollars.

- In October 2005, PEER 1 established a 25,000-square-foot data center in Los Angeles to better serve the city's online entertainment and gaming industries.

SUMMARY OF FOURTH QUARTER RESULTS

Revenue for the fourth quarter of fiscal year 2006 was $17.1 million compared to $6.0 million in the same quarter of fiscal year 2005, largely as a result of a full quarter of revenue contribution from the dedicated hosting assets acquired from Interland during the year. There was no such contribution from these assets in the fourth quarter of fiscal year 2005.

Normalized EBITDA for the fourth quarter was $3.1 million compared to $1.3 million for the quarter ended June 30, 2005.

During the quarter, PEER 1 recorded a number of one-time charges, including $0.3 million in severance and $0.2 million attributable to Bill 198 compliance and outstanding legal fees related to the Interland acquisition.

Integration costs during the quarter totaled $349,000.

SUBSEQUENT EVENTS

The following corporate development initiatives occurred subsequent to June 30, 2006:

Sale/leaseback of Miami data center

On August 9, 2006, the company exercised its option to purchase its leased data center property located in Miami, Florida. The gross purchase price was $4,617,266 and was subject to closing adjustments. Subsequently, on September 26, 2006, PEER 1 entered into a sale and leaseback arrangement for the aforementioned property with a US real estate investment trust (REIT). The gross sale price was $5,600,000. The company leased the premises back from the purchaser for an initial term of ten years with the option to renew for a further two five-year periods. After adjustments, PEER 1 recorded a deferred gain of $788,135 on this transaction.

San Antonio data center expansion

On September 7, 2006, PEER 1 completed the expansion of a new facility in San Antonio comprised of 12,000 square feet of raised data center floor space and 6,000 square feet of adjoining office space.

Expansion of Vancouver data center space

During the month of September, PEER 1 committed to leasing an additional 3,500 square feet of space in Vancouver to expand its co-location operations in that city.



EBITDA Reconcilation
(unaudited - prepared by
management) Quarter Ended Year Ended
--------------------- ---------------------
(in $ thousands) 30-Jun-06 30-Jun-05 30-Jun-06 30-Jun-05

Net Profit (Loss) (1,333) (654) (3,188) (2,184)
Income taxes 390 - 390 -
Interest Expense 806 682 3,506 1,835
Interest accretion on notes
payable 49 76 667 298
Amortization of preferred
share discount 343 - 1,090 -
Amortization - licences,
fixed assets and deferred
network costs 2,399 800 8,514 2,506
Stock based compensation 30 11 289 70
Loss on disposal of assets 61 - 61 -
Peer 1 share of Symmetric
Broadband loss - 157 13 176
Foreign Exchange loss (gain) (28) (80) 305 (121)
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EBITDA 2,717 992 11,647 2,580

Integration costs 349 318 1,187 319
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Normalized EBITDA 3,066 1,310 12,834 2,899


Non-GAAP Measures

PEER 1 reports EBITDA because it is a key measure used by management to evaluate the company's performance. PEER 1 believes that EBITDA is useful supplemental information as it provides an indication of the results generated by PEER 1's main business activities prior to taking into consideration how those activities are financed and expensed. EBITDA is not a recognized measure under Canadian GAAP, and accordingly investors are cautioned that EBITDA should not be construed as an alternative to net earnings or loss determined in accordance with Canadian GAAP as an indicator of financial performance of PEER 1 or as a measure of the company's liquidity and cash flows. PEER 1's method of calculating EBITDA differs from other issuers and, accordingly, EBITDA may not be comparable to similar measures presented by other issuers. The schedule above sets out PEER 1's EBITDA calculations.

The annual financial statements, management's discussion and analysis, along with the Annual General Meeting materials, will be mailed out to shareholders in November. Interested persons may access the financial statements and MD&A on the SEDAR website: www.sedar.com.

About PEER 1

PEER 1 is a leading Internet infrastructure provider delivering highly scalable hosting and co-location solutions to ensure a client's online presence is fast performing and available 100% of the time. Since its inception in 1999, the company has grown to include data centers and network points of presence in 17 major cities across North America and Europe, all connected by PEER 1's world class Internet network. PEER 1 serves a variety of small- and medium-sized businesses including emerging technology companies, hosting providers, online gaming providers, Internet phone (VoIP) companies, and professional services organizations. The company's headquarters are in Vancouver, Canada and the stock is traded on the TSX Venture exchange under the symbol PIX. For more information visit www.peer1.com.

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's public filings with securities regulatory authorities.


The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.

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