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iWeb revenue increased 92% in the first quarter

March 1, 2009 by  

Webmaster NewsMONTREAL, QUEBEC – iWeb (TSX-V: IWB), a global provider of Internet hosting services and IT infrastructure, today released its financial results for the quarter ended December 31, 2008. The complete interim financial statements and management report of the Company are available on the websites www.sedar.com and www.iweb.com.

First Quarter Highlights:
• Revenue increased 92% to $6.1 million for the quarter ended December 31, 2008, compared to revenues of $3.2 million for the same period in 2007
• Adjusted EBITDA grew to $1.6 million, or 26% of revenues
• New annual recurring revenues of $2.8 million generated during the first quarter.
• Operating income at break-even
• Net loss of $1.2 million, after taking into account the unrealized, theoretical exchange lost on the long-term debt denominated in U.S. dollars

“Our revenues are continuing their rapid growth, constantly reaching new heights.” proudly states Eric Chouinard, iWeb President and CEO. “Since November, our monthly billing has exceeded $2 million! With new annual recurring revenues of $2.8 million generated in Q1 and a more favorable CAD/USD exchange rate, we are maintaining the pace of our growth plan.

“Given the current economic context, we are constantly adapting our marketing strategies to generate new revenues,” adds Martin Leclair, President, Products and Technology. “We are also actively working on the major restructuring of customer service, which now operates with three distinct and specialized groups. With 24/7 availability required for support services, the planned structure is already showing signs of success; all of which is aimed at helping our clients and improving the support we provide with our services. ”

“Our operating results clearly show a stable level of profitability,” said Philip Tousignant, Chief Financial Officer. “We are still above the break-even point and our Adjusted EBITDA has doubled since last year, totaling $1.6 million; that’s 26% of revenue. However, the accounting results show a significant loss for the quarter, following the booking of financial expenses resulting from external market conditions. These costs amount to $1.4 million for the last quarter, the most important element of which is the unrealized exchange loss on the long-term debt of $10MUSD. Since the long-term debt is in USD, it is affected by the current exchange rate. During the quarter, the CAD/USD exchange rate rose from 1.06 to 1.225, causing the unrealized loss of $1.6 million on long-term debt. ”

First quarter Financial Review
Revenues for the quarter ended December 31, 2008 reached $6.1 million, an increase of $2.9 million. It is 92% higher than revenues recorded for the same period twelve months earlier.

Income for the first quarter of fiscal 2009 originated from iWeb’s three main service offerings as follows: Dedicated servers accounted for 85%, followed by 8% for co-location services and 7% for the shared web hosting. 78% of revenues for the quarter were generated in U.S. dollars, a significant advantage for the Company given the weakness of the Canadian dollar to the U.S. dollar. Compared to the same period of the previous year, this has had a positive impact of $720,000 on earnings. Even excluding this, revenues would still have increased by 69% compared to the same quarter one year ago.

iWeb’s gross profit margin for the quarter was 52% of revenue, compared to 54% for the first quarter of fiscal 2008. The favorable impact of CAD/USD currency fluctuations on the gross margin for the quarter was more than offset by higher wages to support the growth of operations, more specifically a major restructuring of customer service, including the creation of three distinct levels of support services (informative, application and technical). Ensuring the “24/7” availability of staff resources in all three groups resulted in a considerable increase of salaries for this department compared with December 2007. The gross profit margin decrease also reflects the cost of implementing the iWeb-CO data center, for which the revenues are still at the start-up stage.

Overhead costs for the quarter decreased from 53.3% of revenues in 2007 to 51.8% in 2008, the result of lower for selling and administrative costs compared to revenue, although interest expense was higher.

Operating income for the Company amounted to $11,000 for the quarter ended December 31, 2008, compared to $19,000 for the corresponding period of the previous year

The net results were affected by other financial costs, mostly the result of external market conditions. These costs amounted to $1.4 million for the last quarter. The main element of these expenses is the unrealized exchange loss on the long-term debt of $10MUSD. The Company did not hedge this debt, but plans to do so during the remaining five-year period, when the exchange rate will be more favorable. A one-cent variation in the Canada/US exchange rate would generate an unrealized exchange gain or loss on long-term debt of $100,000. Such a gain or loss must be accounted for in the quarter where the exchange rate variation is observed even though the gain or loss is not realized, and may never be. For the quarter ended 31 December 2008, the exchange rate CAD/USD rose from 1.06 in 1.225, resulting in the unrealized loss of $1.6 million.

In addition, a foreign exchange gain of $335,000, realized and unrealized, was recorded during the last quarter. Net assets, denominated in USD during the quarter, resulted in this gain.

Finally, a decrease in the risk-free interest rates of similar maturity date as the derivative embedded in the long-term debt resulted in a rise of the fair value of such derivative. Since September 30, 2008, the risk-free interest rate used for the fair value calculation went from 3.0% to 1.3%, resulting in a $98,000 effect on the Company’s results.

After these financial charges, the Company recorded a net loss of $1.2 million in the first quarter compared to net income of $18,000 last year.

About iWeb Group Inc.
iWeb is a worldwide provider of Internet hosting services and IT Infrastructure, with three secure data centers in Montreal. Since 2004, the company’s compounded annual growth rate has been above 75%, making it one of Canada’s 100 fastest growing companies according to PROFIT Magazine.

Founded in 1996 in Montreal, iWeb now generates more than 60% of its revenues from abroad; and employs over 160 full-time employees providing Dedicated Server Hosting, Co-location and Web Hosting services to more than 20,000 customers in 150 countries. iWeb’s shares are listed on the TSX Venture Exchange (TSX-V : IWB), for more information please consult the Company’s website: http://about.iweb.com

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