PEER 1 Networks Reports Fourth Quarter and Year-End Results

VANCOUVER, BC – September 25, 2008 – PEER 1 Network Enterprises, Inc. (TSX: PIX), a leading provider of online IT infrastructure, today announced the results for the three and twelve months ended June 30, 2008.  All amounts are stated in US dollars.

Selected Financial Highlights for the year ended June 30, 2008:

• Revenue increased 20.6% to $89.3 million, compared with $74.1 million in the prior year;
• Gross profit increased 42.1% to $40.5 million, compared with $28.5 million in the prior year;
• Operating income increased 99.8% to $14.7 million, compared with $7.4 million in the prior year;
• Normalized EBITDA increased 40.8% to $28.1 million, compared with $19.9 million in the prior year;
• Normalized EBITDA margin increased to 31.4% compared with 26.9% in the prior year; and
• Net income increased by 94.5% to $7.1 million, compared with $3.6 million in the prior year.

Operational highlights:

• The Company entered into an agreement to lease 5,478 square feet of additional data center space at 151 Front Street in Toronto.  Occupancy is scheduled to commence in October 2008; and
• PEER 1 quadrupled its network backbone capacity through a comprehensive standardized network upgrade.

“We are passionate about enabling our customers to realize the limitless potential of the Internet.  The dedication of our employees, coupled with award winning service, are responsible for the exceptional growth PEER 1 experienced in 2008,” said Fabio Banducci, President and Chief Executive Officer of PEER 1.  “We have been busy expanding the capacity of our business and network to meet the needs of our present and future customers.”

Fourth Quarter and Annual Financial Review

Revenues increased by 18.0% to $23.4 million for the three months ended June 30, 2008, compared with $19.8 million for the same period in 2007.  Foreign exchange effects accounted for $0.5 million of this increase.  For the year ended June 30, 2008, consolidated revenues increased by 20.6% to $89.3 million, compared with $74.1 million for the year ended June 30, 2007.  For the year ended June 30, 2008, the increase in revenue attributable to currency fluctuations was $2.6 million.  Organic growth, after removing the effects of foreign exchange, was 15.4% for the quarter ended June 30^th, 2008 compared with the same period in 2007, and 17.1% for fiscal 2008 compared with 2007.

Growth was consistent throughout the year in dedicated hosting, PEER 1’s largest revenue segment.  Dedicated hosting revenues increased by 17.7% to $16.4 million for the three months ended June 30, 2008, from $13.9 million in the same period of the previous year.  Dedicated hosting revenues increased by 17.6% to $62.0 million for the year ended June 30, 2008, from $52.7 million for the previous year.  

For the three months ended June 30, 2008, co-location revenues increased by 21.1 % to $3.2 million, from $2.7 million for the three months ended June 30, 2007.  For the year ended June 30, 2008, co-location revenues increased by 27% to $12.6 million, from $9.9 million in the previous year.  Compared to the rest of the year, the pace of growth in the co-location segment was slower in the fourth quarter of 2008, as a result of demand outstripping capacity in the Toronto and Vancouver markets.  This constraint will be somewhat alleviated by a datacenter expansion at 151 Front Street in Toronto that will be available in October 2008.

Bandwidth revenues increased by 8.9% to $2.5 million for the three months ended June 30, 2008, compared with $2.3 million in the same period of the previous year.  Annual bandwidth revenues increased by 17.4% to $10.0 million for the year ended June 30, 2008, compared with $8.5 million for the year ended June 30, 2007.

Cost of sales as a percentage of revenue decreased to 52.7% for the three months ended June 30, 2008, from 59.9% for the three months ended June 30, 2007.  For the year ended June 30, 2008, PEER 1’s cost of sales as a percentage of revenue decreased to 54.7%, from 61.5% for the year ended June 30, 2007.  The decrease in cost of sales as a percentage of revenue can be attributed to costs remaining relatively stable, while revenue grew during the three and twelve month periods ended June 30, 2008.

For the three months ended June 30, 2008, total operating expenses increased by 11.6% to $7.2 million, from $6.5 million for the corresponding period in 2007.  Operating expenses as a percentage of revenue were 30.9% for the three months ended June 30, 2008, compared with 32.6% for the three months ended June 30, 2007.  Total operating expenses for 2008 increased by 22.1% to $25.8 million from $21.2 million for the year ended June 30, 2007.  As a percentage of revenue, operating expenses increased to 28.9% for the year ended June 30, 2008, compared with 28.6% for the year ended June 30, 2007 as a result of higher stock based compensation in fiscal 2008.

Normalized EBITDA for the quarter ended June 30, 2008 grew by 39.5% to $7.8 million, compared with $5.6 million in the fourth quarter of 2007.  Normalized EBITDA margin for the three months ended June 30, 2008 was 33.3%, compared with 28.2% for the corresponding period in 2007.  For the year ended June 30, 2008, normalized EBITDA grew by 40.8% to $28.1 million, compared with $19.9 million in fiscal 2007.  Normalized EBITDA margin for the year ended June 30, 2008 was 31.4%, compared with 26.9% in the previous year.

Net income for the three months ended June 30, 2008 decreased to $1.7 million, from $2.3 million for the corresponding period in 2007.  The relative decrease in net income between the fourth quarters of 2008 and 2007 can be attributed to the recognition of future tax benefits in the fourth quarter of 2007 that was partially offset by an increase in operating income in the fourth quarter of 2008.   For the year ended June 30, 2008, net income increased by 94.5% to $7.1 million, from $3.6 million in 2007.

As at June 30, 2008, PEER 1 had cash and cash equivalents of $11.0 million, compared with $8.8 million as at June 30, 2007.  The Company had a working capital deficit of $1.3 million at June 30, 2008, compared with a working capital deficit of $1.3 million as at the end of June 30, 2007. The working capital deficit of $1.3 million at June 30, 2008 includes deferred revenue of $4.2 million and current portion of notes payable of $3.3 million. The Company anticipates current liquidity and cash generated from operations to be sufficient to fund existing operations for the foreseeable future.  PEER 1 had 118.5 million common shares outstanding as at June 30, 2008.

Capacity and Utilization Update

Prior to June 30, 2008, PEER 1 entered into an agreement securing 5,478 square feet of additional data center space at 151 Front Street in Toronto that will increase the Company’s capacity by 120 cabinet equivalents. The cost of converting this to data center space is expected to be $2.5 million.  Occupancy is scheduled for October 2008.

Subsequent to June 30, 2008, on September 5, 2008, the Company entered into an agreement to expand the existing leased data center facility in Herndon, Virginia, adding 8,614 square feet of contiguous space that will increase the Company's capacity by approximately 2880 servers. Due to the fact that this space was formerly used as a data center, the costs of converting the space for PEER 1 are substantially lower, and are expected to be approximately $1.6 million.  The additional space is scheduled to be made available to customers commencing in the first quarter of calendar year 2009.  

The capacity numbers include the incremental capacity that 151 Front Street and Virginia will add when complete.

The Company continues to seek additional data center space in Vancouver and Toronto to address the growing need for co-location services in these two markets, as well as to locate dedicated hosting services in the Canadian marketplace.

Subsequent Events

In July 2008, an electrical fire in a BC Hydro underground vault led to a power outage in downtown Vancouver that interrupted power at the Company’s data center facility.  As a result of the related service interruption, the company issued credits in the amount of $93,000 to affected customers.  The Company has completed a full review of the event and the fail safe measures needed to mitigate these circumstances in the future.  This review can be found at http://www.peer1.com/forums/.

EBITDA Reconciliation

Conference Call

PEER 1 will be holding a conference call today, Thursday, September 25, 2008 at 5:30 p.m. EDT, to discuss its fourth quarter and year-end results. 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 416-644-3415 or 800-733-7571 15 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Thursday, October 2, 2008, at midnight. To access the archived conference call, dial 416-640-1917 or 877-289-8525 and enter the reservation number: 21282991 followed by the number sign.

A live audio webcast of the conference call will be available at:

http://newswire.ca/en/webcast/viewEvent.cgi?eventID=2405700

Please connect at least 15 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.

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 may differ 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 believes in the limitless opportunity of the Internet, and the business growth potential it provides for its more than 10,000 customers. As a leading online IT infrastructure provider, PEER 1 offers a reliable high performance Internet network, supporting scalable managed hosting, dedicated hosting through the ServerBeach brand, and co-location solutions. Backed by its 100 percent uptime guarantee and 24x7x365 FirstCall Support™, PEER 1 ensures customers' online presence is always fast, always available. Since 1999, PEER 1 has grown to include 15 data centers in North America, and points-of-presence in Europe. The Company's headquarters are in Vancouver, Canada and the stock is traded on the TSX under the symbol PIX. For more information visit: www.peer1.com.