PEER 1 Network Announces Third Quarter Results, New Credit Facilities and Conversion of Preferred Shares

Vancouver, British Columbia – PEER 1 Network Enterprises, Inc. (TSX-V:PIX), a global provider of high performance Internet infrastructure, released the company’s financial results for the third quarter of fiscal year 2007 for the three months ended March 31, 2007. In addition, PEER 1 reported details relating to new credit facilities and the conversion of all preferred shares.

“These results represent a major milestone for PEER 1,” said Fabio M. Banducci, PEER 1’s president. “Continued profitable growth, reduced cost of capital, access to new growth capital and a simplified balance sheet have set the stage for our growth strategy.”

THIRD QUARTER RESULTS

Financial highlights from the quarter include the following (all figures are reported in US dollars):

•       PEER 1’s revenue increased 7% to $18.81 million for the three months ended March 31, 2007, compared to $17.63 million for the three month period ended March 31, 2006.

•       Gross profit was $7.06 million for the three months ended March 31, 2007, an increase of 8.12% from $6.53 million for the three months ended March 31, 2006.

•       Operating income was $1.97 million for the three months ended March 31, 2007, an increase of 61.47% from the operating profit of $1.22 million for the three months ended March 31, 2006.

•       Net profit was $0.23 million for the quarter ended March 31, 2007, compared to a net loss of $0.35 million for the quarter ended March 31, 2006.

•       Normalized EBITDA for the quarter ended March 31, 2007 was $4.80 million, an increase of 32.2% compared to $3.63 million for the quarter ended March 31, 2006 (see reconciliation table below).

"We continued to see profitable growth across all lines of business during our third quarter and made investments in operations and sales and marketing to accommodate further growth," said Mr Banducci. “Our mission to allow our customers to focus on the possibilities of the Internet, not the complexities, continues to build momentum.”

NEW CREDIT FACILITIES

Effective today, PEER 1 has closed a $40 million amended and restated loan agreement with Fortress Opportunities I LP.  The loan agreement provides for two senior, secured credit facilities: (1) a $20 million term loan to refund existing indebtedness; and (2) a $20 million line of credit.  The credit facilities will accrue interest at the rate equal to LIBOR plus an applicable margin.  The applicable margin is a function of total debt outstanding to trailing twelve month EBITDA (TTM EBITDA) at any determination date, per the table below.

Total Debt/Actual TTM EBITDA    Applicable Margin      
> 2.00x, <= 2.50x       4.25%  
> 1.00x, <= 2.00x       3.25%  
<= 1.00x        3.00%  

The applicable interest rate for PEER 1’s present level of indebtedness is LIBOR plus 3.25%.  This compares to LIBOR plus 6.50% that the company had been paying prior to today.  

“We are thrilled to have successfully negotiated these credit facilities with our existing lender,” said Mr. Banducci.  “With the cost of our debt now significantly reduced and with secured access to a line of credit, we are now well positioned to aggressively pursue additional growth opportunities.”  

CONVERSION OF PREFERRED SHARES

In addition to the above, PEER 1 reported that effective May 25, 2007, all outstanding preferred shares together with accrued and unpaid dividends have been converted into 34,869,628 common shares.  As the preferred shares were accounted for as debt under Canadian GAAP, conversion of the preferred shares will result in a reclassification of $9.4 million of long term debt to equity.

“Successful conversion of all outstanding preferred shares into common shares is a key milestone in PEER 1’s evolution.” said Mr. Banducci.  “Our capitalization structure has now been greatly simplified with the result that we now have only one class of shares outstanding.  Conversion of the preferred shares has also further strengthened our balance sheet.”

For complete details on any of the above, please refer to the Financial Statements and Management’s Discussion & Analysis which will be available at http://www.sedar.com within 24 hours of the time of this release.

EBITDA Reconciliation
(unaudited - prepared by management)
(in $ thousands)

        Quarter Ended  
        March 31, 2007  March 31, 2006 
                       
Net profit (loss)       230     (355)  
Income tax expense (recovery)   311     -      
Interest expense        803     631    
Interest accretion on notes payable     53      77     
Amortization of preferred share discount        389     342    
Amortization – licences, fixed assets and deferred network costs        2,713   2,328  
Stock-based compensation        150     77     
Loss (gain) on disposal of assets       81      -      
Amortization of deferred gain   (30)    -      
Foreign exhange loss (gain)     14      124    
EBITDA  4,714   3,224  
                       
Integration costs       91      405    
Normalized EBITDA       4,805   3,629  

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.

About PEER 1

PEER 1, a leading Internet infrastructure solutions company, provides full services to handle the needs of customers requiring 100% uptime for their online presence including network, co-location, and dedicated hosting services.  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 IP (Internet Protocol) network.  PEER 1 serves a variety of customers including hosting providers, online gaming companies, Internet phone (VoIP) companies and many small and medium-sized businesses.  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 http://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.