Hostopia reports third quarter financial results

February 13, 2007; 01:01 AM

Hostopia.com Inc. (TSX: H), a leading provider of web services that enable small and medium-sized businesses to establish and maintain an internet presence, reported its financial results for its third quarter ended December 31, 2006. All figures are in U.S. dollars unless otherwise stated.

Colin Campbell, Hostopia's CEO comments, "We are pleased with our third quarter operational progress and financial results. Our business and product development initiatives were both on plan and we entered into agreements with a number of new customers, including an agreement that will add 240,000 email accounts to our platform. This agreement validates our technological leadership in managed email services and our position as a leading web services provider." Mr. Campbell added, "We are also happy to have made exciting progress in new product initiatives by launching a number of web services that we expect will both increase our revenue per user and improve our service."

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Business Highlights

-   Quarterly revenue increased 25% year over year (97% monthly recurring revenue)
-   27th quarter of consecutive revenue growth
-   End-user growth of 30% year over year to over 248,000
-   Signed 14 new customer contracts
-   Migrated 11,000 end-users to our platform
-   Subsequent to quarter end licensed more than 2,500 website templates to a large retail webhosting provider
-   Received $22 million of net proceeds from our initial public offering to invest in accelerating business growth
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Mr. Campbell notes, "While some isolated factors slowed revenue growth this quarter, business opportunities in the pipeline support our expectation of accelerated growth in the coming quarters." I am also elated by our first licensing agreement of website templates to a large retail web hosting company and the opportunity this represents for incremental revenue from additional licensing agreements."

Financial Results

Revenues increased 25% or $1.1 million to $5.6 million in the three months ended December 31, 2006 compared to the same period last year. This growth in revenues was due to a 30% or 57,500 increase in the number of end-users hosted and serviced since December 31, 2005. At December 31, 2006, the company had approximately 248,000 end-users utilizing its services. Year over year growth in end-users has come from both existing customers that added new end-users, as well as the acquisition of new customers and their end-users.

Cash flows from operations for the nine months ended December 31, 2006 totaled $2.8 million. Hostopia invested $2.1 million in capital assets and intellectual property during the same period. This resulted in net free cash flow of $0.7 million and when combined with the opening cash position as well as the $22 million in net IPO proceeds, Hostopia had $25.7 million in cash and cash equivalents available at December 31, 2006 to invest in its future business growth.

Basic and diluted net income per common share for the third quarter was $0.05 and $0.04 respectively, compared to $0.12 and $0.08 for the same period last year. For the nine months ended December 31, 2006, basic and diluted net income per common share was $0.23 and $0.18 respectively, compared to $0.33 and $0.21 for the nine months ended December 31, 2005. Net income was $0.3 million lower in the quarter and year to date primarily as a result of the higher sales and operating expenses related to preparing the business for our new customer additions and higher research and development expenses related to the development of new web services and enhanced software and service offerings. Net income per share also declined because of the significant increase in shares outstanding related to the Company's public offering of 4.8 million shares in the quarter.

Conference Call Information

Hostopia will hold its third quarter conference call on Monday, February 12, 2007, at 5:00 p.m. ET. Colin Campbell, Chief Executive Officer and Michael Mugan, Chief Financial Officer, will discuss financial results and performance for the three months ended December 31, 2006.

To access the call, please dial 416-644-3415 or 1-800-733-7560.

A replay of the conference call will be available as of 7:00 p.m. ET, Monday February 12, 2007 until midnight, Monday, February 19, 2007. To access the replay, call 416-640-1917 or 1-877-289-8525, followed by passcode 21219279, followed by the number sign.

About Hostopia.com Inc.

Hostopia is a leading provider of web services that enable small and medium-sized businesses to establish and maintain an Internet presence. The company's customers are communication services providers, including telecommunication carriers, cable companies, internet service providers, domain registrars, and web hosting service providers. Hostopia's customers purchase its web services on a wholesale basis and resell these services under their own brands to small and medium-sized businesses. The company provides customers with the technology, infrastructure, and support services to enable them to offer web services, while saving them research and development as well as capital and operating costs typically associated with the design, development, and delivery of web services.