Internap Corporation
05/06/10

Internap Reports First Quarter 2010 Financial Results

-- Revenue of $63.4 million compared with $63.9 million in the first quarter of 2009; -- Segment profit(1) of $29.3 million; segment margin(1) of 46.2 percent, up 200 basis points year-over-year; -- Adjusted EBITDA(2) of $9.9 million, up 114.0 percent year-over-year; adjusted EBITDA margin(2) of 15.6 percent; -- Announced second quarter 2010 launch of integrated WAN acceleration solution, XIP(TM), for Internap's IP services offering.

ATLANTA, May 6, 2010 /PRNewswire via COMTEX News Network/ -- Internap Network Services Corporation (Nasdaq: INAP), a global provider of end-to-end Internet business products and services, today reported first quarter 2010 financial results. Continued improvements in segment profit and adjusted EBITDA, reflect sustained focus on profitable revenue opportunities and progress made strengthening operations.

"We had several notable accomplishments in the first quarter - adjusted EBITDA and adjusted EBITDA margin reached their highest levels in more than two years and segment margins grew for the third consecutive quarter," said Eric Cooney, President and Chief Executive Officer of Internap. "In Data center services, we continued to make progress shifting our investment and operational focus to higher margin company-controlled facilities which simplifies our business and increases value to our stockholders. And while it's still early, our initiatives to revitalize Internap's core IP services also appear to be yielding results."


    First Quarter 2010 Financial Summary
    ------------------------------------


                                                           YoY      QoQ
                           1Q 2010   1Q 2009   4Q 2009   Growth   Growth
    Revenues:
      Data center
       services             $33,722   $31,715   $33,176        6%       2%
      IP services            29,643    32,209    30,373       -8%      -2%
        Total Revenues      $63,365   $63,924   $63,549       -1%       0%

        Operating Expenses  $63,251   $70,272   $64,176      -10%      -1%

        GAAP Net Loss         $(260)  $(6,608)    $(497)     n/m      n/m

        Normalized Net
         Income (Loss)2        $749   $(3,682)     $774      n/m       -3%

        Adjusted EBITDA      $9,877    $4,614    $9,016      114%      10%
          Adjusted EBITDA
           Margin              15.6%      7.2%     14.2% 840 BPS  140 BPS


Normalized Net Income (Loss) and Adjusted EBITDA are non-GAAP measures. Reconciliations between accounting principles generally accepted in the United States, or GAAP, information and non-GAAP information contained in this table are provided later in this press release.

Revenue

Net (Loss) Income

Segment Profit and Adjusted EBITDA

Balance Sheet and Cash Flow Statement

First Quarter 2010 Operational Highlights

Historical trends of key financial and operational metrics can be found in a supplementary data schedule on Internap's website at http://ir.internap.com/results.cfm.

  • Segment profit is segment revenues less direct costs of network, sales and services, exclusive of depreciation and amortization, as presented in the notes to our consolidated financial statements filed with the United States Securities and Exchange Commission in Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K. Segment profit does not include direct costs of customer support, direct costs of amortization of acquired technologies or any other depreciation or amortization associated with direct costs. Segment margin is segment profit as a percentage of segment revenues.
  • Reconciliations between accounting principles generally accepted in the United States, or GAAP, information and non-GAAP information contained in this press release are provided in the tables below entitled "Reconciliation of Loss from Operations to Adjusted EBITDA," and "Reconciliation of Net Loss and Basic and Diluted Net Loss Per Share to Normalized Net Income (Loss) and Basic and Diluted Normalized Net Income (Loss) Per Share." This information is also available on our website under the Investor Services section. Adjusted EBITDA margin is Adjusted EBITDA as a percentage of total revenue.
  • Conference Call Information:

    Internap's first quarter 2010 conference call will be held today at 5:00 p.m. EDT. Participants may access the call by dialing 877-334-0775. International callers should dial 631-291-4567. Listeners may connect to the simultaneous webcast, which will include accompanying presentation slides, on the Investor Services section of Internap's web site at http://ir.internap.com/events.cfm. An online archive of the webcast presentation will be available for one month following the call. An audio-only replay will be accessible from Thursday, May 6, 2010 at 8 p.m. EDT through Thursday, May 13, 2010 at 800-642-1687 using the replay code 70110668. International callers can access the archived event at 706-645-9291 with the same code.

    About Internap

    Internap is a leading Internet products and services company that provides The Ultimate Online Experience(R) by managing, delivering and distributing applications and content with 100 percent uptime service level agreements. With a global platform of data centers, managed Internet services and a content delivery network (CDN), Internap frees its customers to innovate, improve service levels and lower the cost of IT operations. Thousands of companies across the globe trust Internap to help them achieve their Internet business goals. For more information, visit http://www.internap.com.

    Forward-Looking Statements

    This press release contains certain forward-looking statements. These forward-looking statements include statements related to product features, functions and benefits, Internap's ability to grow its IP business and its expectations regarding the expansion of data center capacity, including timing. Because such statements are not guarantees of future performance and involve risks and uncertainties, there are important factors that could cause Internap's actual results to differ materially from those in the forward-looking statements. These factors include Internap's ability to achieve or sustain profitability; its ability to expand margins and drive higher returns on investment; its ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; its ability to correctly forecast capital needs, demand planning and space utilization; its ability to respond successfully to technological change and the resulting competition; the availability of services from Internet network service providers or network service providers providing network access loops and local loops on favorable terms, or at all; failure of third party suppliers to deliver their products and services on favorable terms, or at all; failures in its network operations centers, data centers, network access points or computer systems; its ability to provide or improve Internet infrastructure services to its customers; and its ability to protect its intellectual property, as well as other factors discussed in Internap's filings with the Securities and Exchange Commission. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. Internap undertakes no obligation to update, amend or clarify any forward-looking statement for any reason.

    
    
        Press Contact:               Investor Contact:
        Mariah Torpey                Andrew McBath
        (781) 418-2404               (404) 302-9700
        internap@daviesmurphy.com    ir@internap.com
    
    
                      INTERNAP NETWORK SERVICES CORPORATION
             UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
                     (In thousands, except per share amounts)
    
    
                                                    Three Months Ended
                                                         March 31,
    
                                                     2010               2009
                                                     ----               ----
        Revenues:
           Data center services                   $33,722            $31,715
           Internet protocol (IP) services         29,643             32,209
                                                   ------             ------
               Total revenues                      63,365             63,924
                                                   ------             ------
    
        Operating costs and expenses:
           Direct cost of network, sales and
            services, exclusive of
              depreciation and amortization shown
               below:
                 Data center services              23,043             23,281
                 IP services                       11,042             12,384
           Direct costs of customer support         5,345              4,403
           Direct costs of amortization of
            acquired technologies                     979              1,158
           Sales and marketing                      7,124              7,799
           General and administrative               7,926             13,499
           Depreciation and amortization            7,774              6,878
           Impairments and restructuring               18                870
                                                      ---                ---
    
               Total operating costs and expenses  63,251             70,272
                                                   ------             ------
    
        Income (loss) from operations                 114             (6,348)
    
    
        Non-operating expense (income):
             Interest income                          (29)               (76)
             Interest expense                         304                164
             Other, net                                30                 59
                                                      ---                ---
        Total non-operating expense (income)          305                147
                                                      ---                ---
    
        Loss before income taxes and equity
         in loss (earnings) of                       (191)            (6,495)
         equity method investment:
             Provision for income taxes               156                 45
             Equity in loss (earnings) of equity-
              method investment, net of taxes         (87)                68
                                                      ---                ---
    
        Net loss                                    $(260)           $(6,608)
                                                    =====            =======
    
        Basic and diluted net loss per share       $(0.01)            $(0.13)
                                                   ======             ======
    
        Weighted average shares outstanding
         used in computing basic and diluted
         net loss per share                        49,944             49,414
    
    
                              INTERNAP NETWORK SERVICES CORPORATION
                              CONDENSED CONSOLIDATED BALANCE SHEETS
                            (In thousands, except par value amounts)
    
    
    
                                                               March 31,   December 31,
                                                                     2010          2009
                                                                     ----          ----
                                                             (Unaudited)
                               ASSETS
        Current assets:
          Cash and cash equivalents                               $81,108       $73,926
          Short-term investments in marketable
           securities                                               6,900         7,000
          Accounts receivable, net of allowance
           for doubtful accounts of $1,966 and,                    18,770        18,685
                                         $1,953 respectively
          Inventory                                                   354           375
          Prepaid expenses and other assets                         9,002         8,768
                                                                    -----         -----
    
            Total current assets                                  116,134       108,754
    
    
        Property and equipment, net                               105,478        91,151
        Investments and other related assets                        1,847         1,804
        Intangible assets, net                                     18,141        20,782
        Goodwill                                                   39,464        39,464
        Deposits and other assets                                   2,570         2,637
        Deferred tax asset, non-current, net                        2,613         2,910
                                                                    -----         -----
            Total assets                                         $286,247      $267,502
                                                                 ========      ========
    
                LIABILITIES AND STOCKHOLDERS' EQUITY
        Current liabilities:
          Accounts payable                                        $18,684       $17,237
          Accrued liabilities                                       8,379        10,192
          Deferred revenues, current portion                        3,479         3,817
          Capital lease obligations, current
           portion                                                    187            25
          Restructuring liability, current portion                  2,728         2,819
          Other current liabilities                                   128           125
                                                                      ---           ---
            Total current liabilities                              33,585        34,215
    
        Revolving credit facility, due after one
         year                                                      20,000        20,000
        Deferred revenues, less current portion                     2,307         2,492
        Capital lease obligations, less current
         portion                                                   19,711         3,217
        Restructuring liability, less current
         portion                                                    5,592         6,123
        Deferred rent                                              16,774        16,417
        Other long-term liabilities                                   603           636
                                                                      ---           ---
            Total liabilities                                      98,572        83,100
                                                                   ------        ------
    
    
        Commitments and contingencies
        Stockholders' equity:
          Preferred stock, $0.001 par value,
           20,000 shares authorized; no shares
           issued                                                    ----          ----
           or outstanding
          Common stock, $0.001 par value; 60,000
           shares authorized; 51,832 and 50,763                        52            51
           shares outstanding at March 31, 2010 and
            December 31, 2009, respectively
          Additional paid-in capital                            1,225,390     1,221,456
           Treasury stock, at cost, 73 and 42
            shares at March 31, 2010 and December
            31, 2009                                                 (304)         (127)
          Accumulated deficit                                  (1,036,808)   (1,036,548)
          Accumulated items of other comprehensive
           loss                                                      (655)         (430)
                                                                     ----          ----
            Total stockholders' equity                            187,675       184,402
                                                                  -------       -------
            Total liabilities and stockholders'
             equity                                              $286,247      $267,502
                                                                 ========      ========
    
    
    
                      INTERNAP NETWORK SERVICES CORPORATION
            UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                  (In thousands)
    
    
                                                         Three Months Ended
                                                              March 31,
                                                          2010               2009
                                                          ----               ----
        Cash Flows from Operating
         Activities:
        Net loss                                         $(260)           $(6,608)
        Adjustments to reconcile net loss to
         net cash provided by operating
         activities:
           Depreciation and Amortization                 7,774              6,878
           Direct costs of amortization of
            acquired technologies                          979              1,158
           Loss on disposal of property and
            equipment, net                                   1              -----
           Provision for doubtful accounts                 330                375
           Equity in loss (earnings) from
            equity-method investment                       (87)                68
           Non-cash changes in deferred rent               357                706
           Stock-based compensation expense                991              2,056
           Deferred income taxes                           297                (27)
           Other, net                                      (12)                48
        Changes in operating assets and
         liabilities:
           Accounts receivable                            (414)             1,907
           Inventory                                        21                (40)
           Prepaid expenses, deposits and other
            assets                                        (174)               754
           Accounts payable                              1,447             (1,112)
           Accrued and other liabilities                (1,812)               124
           Deferred revenue                               (523)               720
           Accrued restructuring liability                (622)               318
                                                          ----                ---
        Net cash flows provided by operating
         activities                                      8,293              7,325
                                                         -----              -----
    
        Cash Flows from Investing
         Activities:
        Purchases of property and equipment             (3,908)            (5,476)
        Maturities of investments in
         marketable securities                             100              4,580
        Proceeds from disposal of property
         and equipment                                       1              -----
                                                           ---
        Net cash flows used in investing
         activities                                     (3,807)              (896)
                                                        ------               ----
    
        Cash Flows from Financing
         Activities:
        Proceeds from notes payable                     19,500             19,800
        Principal payments on notes payable            (19,500)           (19,800)
        Payments on capital lease
         obligations                                       (13)               (95)
        Stock-based compensation plans                   2,762               (231)
        Other, net                                         (30)               (28)
                                                           ---                ---
        Net cash flows provided by (used in)
         financing activities                            2,719               (354)
                                                         -----               ----
        Effect of exchange rates on cash and
         cash equivalents                                  (23)               (51)
                                                           ---                ---
        Net increase in cash and cash
         equivalents                                     7,182              6,024
        Cash and cash equivalents at
         beginning of period                            73,926             46,870
                                                        ------             ------
        Cash and cash equivalents at end of
         period                                        $81,108            $52,894
                                                       =======            =======
    
    
    

    INTERNAP NETWORK SERVICES CORPORATION

    NON-GAAP (ADJUSTED) FINANCIAL MEASURES

    In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (GAAP), Internap has historically provided additional financial measures that are not prepared in accordance with GAAP (non-GAAP), including adjusted EBITDA, normalized net income (loss), normalized diluted shares outstanding, segment profit and segment margin. The most directly comparable GAAP equivalent to adjusted EBITDA and normalized net income (loss) is loss from operations and net loss, respectively. The most directly comparable GAAP equivalent to normalized diluted shares outstanding is diluted common shares outstanding. Segment profit is defined and disclosed in the notes to our consolidated financial statements filed with the United States Securities and Exchange Commission in Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.

    We define non-GAAP measures as follows:

    We detail reconciliations of our non-GAAP financial measures to the most directly comparable financial measure in the reconciliations of GAAP to non-GAAP measures below. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations.

    We believe that excluding depreciation and amortization and loss on disposals of property and equipment, as well as impairments and restructuring, to calculate adjusted EBITDA provides supplemental information and an alternative presentation that is useful to investors' understanding of Internap's core operating results and trends. Not only are depreciation and amortization expenses based on historical costs of assets that may have little bearing on present or future replacement costs, but also they are based on management estimates of remaining useful lives. Loss on disposals of property and equipment is also based on historical costs of assets that may have little bearing on replacement costs. Impairments and restructuring reflect the charge for ceasing to use part of a smaller leased data center facility and a sales office during the three months ended December 31, 2009 and adjustments in sublease income assumptions for certain properties included in previously-disclosed restructuring plans for the three months ended December 31, 2008. Internap believes that impairment and restructuring charges are unique costs that we do not expect to recur on a regular basis, and consequently, we do not consider these charges as a normal component of expenses related to current and ongoing operations.

    Similarly, we believe that excluding the effects of stock-based compensation from non-GAAP financial measures provides supplemental information and an alternative presentation useful to investors' understanding of Internap's core operating results and trends. Investors have indicated that they consider financial measures of our results of operations excluding stock-based compensation as important supplemental information useful to their understanding of our historical results and estimating our future results.

    We also believe that, in excluding the effects of stock-based compensation, our non-GAAP financial measures provide investors with transparency into what management uses to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods and to compare our results of operations on a more consistent basis against that of other companies, in making financial and operating decisions and to establish certain management compensation.

    Stock-based compensation is an important part of total compensation, especially from the perspective of employees. We believe, however, that supplementing GAAP net loss and net loss per share information by providing normalized net income (loss) and normalized net income (loss) per share, excluding the effect of impairments, restructuring and stock-based compensation in all periods, is useful to investors because it enables additional and more meaningful period-to-period comparisons. We consider normalized diluted shares to be another important indicator of our overall performance because it eliminates the effect of non-cash items.

    Adjusted EBITDA is not a measure of liquidity calculated in accordance with GAAP, and should be viewed as a supplement to -- not a substitute for -- our results of operations presented on the basis of GAAP. Adjusted EBITDA does not purport to represent cash flow provided by operating activities as defined by GAAP. Our statements of cash flows present our cash flow activity in accordance with GAAP. Furthermore, adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.

    We believe adjusted EBITDA is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:

    Our management uses adjusted EBITDA:

    Our presentation of segment profit and segment margin excludes direct costs of customer support, depreciation and amortization in order to allow investors to see the business through the eyes of management. Management views direct costs of network, sales and services as generally less controllable, external costs and management regularly monitors the margin of revenues in excess of these direct costs. Similarly, we view the costs of customer support to also be an important component of costs of revenues but believe that the costs of customer support to be more within our control and to some degree discretionary as we can adjust those costs by hiring and terminating employees.

    Segment margin is an important metric to our investors and analysts, as we have regularly discussed and disclosed the effects of third party vendors' pricing declines and the corresponding effect on our revenues. The presentation of segment margin highlights the impact of the pricing declines and allows investors and analysts to evaluate our revenue generation performance relative to direct costs of network, sales and services. Conversely, we have much greater latitude in controlling the compensation component of costs of revenues, represented by customer support, and we analyze this component separately from the direct external costs.

    We also have excluded depreciation and amortization from segment profit and segment margin because, as noted above, they are based on estimated useful lives of tangible and intangible assets. Further, depreciation and amortization are based on historical costs incurred to build out our deployed network and the historical costs of these assets may not be indicative of current or future capital expenditures.

    Although we believe, for the foregoing reasons, that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial measures should only be considered in addition to, and not as a substitute for, or superior to, any measure of financial performance prepared in accordance with GAAP.

    Use of non-GAAP financial measures is subject to inherent limitations because they do not include all the expenses that must be included under GAAP and because they involve the exercise of judgment of which charges should properly be excluded from the non-GAAP financial measure. Management accounts for these limitations by not relying exclusively on non-GAAP financial measures, but only using such information to supplement GAAP financial measures. Our non-GAAP financial measures may not be the same non-GAAP measures, and may not be calculated in the same manner, as those used by other companies.

    
    
                             INTERNAP NETWORK SERVICES CORPORATION
                   RECONCILIATION OF LOSS FROM OPERATIONS TO ADJUSTED EBITDA
    
    
    

    A reconciliation of loss from operations, the most directly comparable GAAP measure, to adjusted EBITDA for each of the periods indicated is as follows (in thousands):

    
    
    
                                              Three Months Ended
                                              ------------------
                                    March 31,     December        March 31,
                                       2010       31, 2009           2009
                                   ----------      --------      ----------
         Income (loss) from
          operations (GAAP)              $114         $(627)        $(6,348)
         Stock-based compensation         991         1,178           2,056
         Depreciation and
          amortization, including
          depreciation and
          amortization included in
          direct costs of network,
          sales and services            8,753      8,366        8,036
    
         Loss on disposals of
          property and equipment,
          net                               1             6               -
         Impairments and
          restructuring                    18            93             870
                                          ---           ---             ---
         Adjusted EBITDA (non-
          GAAP)                        $9,877        $9,016          $4,614
                                       ======        ======          ======
    
    
    
                             INTERNAP NETWORK SERVICES CORPORATION
                       RECONCILIATION OF NET LOSS AND BASIC AND DILUTED
                    NET LOSS PER SHARE TO NORMALIZED NET INCOME (LOSS) AND
                   BASIC AND DILUTED NORMALIZED NET INCOME (LOSS) PER SHARE
    
    
    

    Reconciliations of (1) net loss, the most directly comparable GAAP measure, to normalized net income (loss), (2) diluted shares outstanding used in per share calculations, the most directly comparable GAAP measure, to normalized diluted shares used in normalized per share outstanding calculations and (3) net loss per share, the most directly comparable GAAP measure, to normalized net income (loss) per share for each of the periods indicated is as follows (in thousands, except per share data):

    
    
    
    
                                               Three Months Ended
                                               ------------------
                                    March 31,      December       March 31,
                                       2010        31, 2009          2009
                                   ----------     ---------       ----------
         Net loss (GAAP)                $(260)         $(497)        $(6,608)
         Impairments and
          restructuring                    18             93             870
         Stock-based compensation
          expense                         991          1,178           2,056
                                          ---          -----           -----
         Normalized net income
          (loss) (non-GAAP)              $749           $774         $(3,682)
    
         Normalized income
          allocable to
          participating securities
          (non-GAAP)                      (17)           (16)              0
                                          ---            ---             ---
         Normalized net income
          (loss) available to
          common stockholders
          (non-GAAP)                     $732           $758         $(3,682)
                                         ====           ====         =======
    
         Weighted average shares
          outstanding used in per
          share calculation:
         Basic (GAAP)                  49,944         49,657          49,414
         Participating securities
          (GAAP)                        1,193          1,081             874
         Diluted (GAAP)                49,944         49,657          49,414
         Add potentially dilutive
          securities                      519             54               -
         Less dilutive effect of
          stock-based
          compensation under the
          treasury stock method          (359)           (54)              -
                                         ----            ---             ---
         Normalized diluted shares
          (non-GAAP)                   50,104         49,657          49,414
                                       ======         ======          ======
    
         Net income (loss) per
          share (GAAP):
         Basic and diluted             $(0.01)        $(0.01)         $(0.13)
                                       ======         ======          ======
    
         Normalized net income
          (loss) per share (non-
          GAAP):
         Basic and diluted              $0.01          $0.02          $(0.07)
                                        =====          =====          ======
    
    
    
                             INTERNAP NETWORK SERVICES CORPORATION
                               SEGMENT PROFIT AND SEGMENT MARGIN
    
    
    

    Segment profit and segment margin, which does not include direct costs of customer support, direct costs of amortization of acquired technologies or any other depreciation or amortization, for each of the periods indicated is as follows (dollars in thousands):

    
    
    
    
                                                  Three Months Ended
                                                  ------------------
                                       March 31,        December     March 31,
                                          2010          31, 2009        2009
                                       ----------      ---------     ----------
         Revenues:
            Data center services          $33,722        $33,176        $31,715
            Internet protocol (IP)
             services                      29,643         30,373         32,209
                                           ------         ------         ------
                  Total                    63,365         63,549         63,924
                                           ------         ------         ------
    
            Direct cost of network,
             sales and services,
             exclusive of
             depreciation and
             amortization:
                  Data center services     23,043         23,065         23,281
                  IP services              11,042         11,210         12,384
                                           ------         ------         ------
                  Total                    34,085         34,275         35,665
                                           ------         ------         ------
    
         Segment Profit:
            Data center services           10,679         10,111          8,434
            IP services                    18,601         19,163         19,825
                                           ------         ------         ------
                  Total                   $29,280        $29,274        $28,259
                                          =======        =======        =======
    
         Segment Margin:
            Data center services             31.7%          30.5%          26.6%
            IP services                      62.8%          63.1%          61.6%
                                             ----           ----           ----
                  Total                      46.2%          46.1%          44.2%
                                             ====           ====           ====
    
    
    

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    SOURCE Internap Network Services Corporation

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