Internap Corporation
08/04/10

Internap Reports Second Quarter 2010 Financial Results

-- Revenue of $60.5 million compared with $64.4 million in the second quarter of 2009; -- Segment profit(1) of $29.3 million; segment margin(1) of 48.3 percent, up 510 basis points year-over-year; -- Adjusted EBITDA(2) of $9.9 million, up 46.5 percent year-over-year; adjusted EBITDA margin(2) of 16.4 percent; -- Announced openings of data center expansions in Houston, Seattle and Silicon Valley increasing premium company-controlled selling capacity by 24 percent.

ATLANTA, Aug 04, 2010 /PRNewswire via COMTEX News Network/ -- Internap Network Services Corporation (Nasdaq: INAP), a leading provider of end-to-end Internet business products and services, today announced financial results for the second quarter of 2010. Continued focus on Internap-controlled data centers and corresponding growth in segment margin and adjusted EBITDA marked this quarter's results.

"Our fourth consecutive quarter of segment margin expansion and another quarter of strong adjusted EBITDA attest to the efficacy of our strategy for Internap's business turnaround. Proactive churn of low-margin partner data center contracts helped improve segment profit in our Data center services business by almost 7 percent sequentially and 41 percent year-over-year," said Eric Cooney, President and Chief Executive Officer of Internap. "The addition of 26,500 net sellable square feet of company-controlled data center in July, and early traction from recent product launches in both the IP and Data center business segments, bodes well for the company's future revenue growth."

    Second Quarter 2010 Financial Summary
    -------------------------------------


                    2Q      2Q        1Q
                    2010     2009       2010        YoY        QoQ
                   -----     -----      -----      Growth     Growth
                                                ------     ------
    Revenues:
      Data center
       services    $31,197   $32,273   $33,722         -3%        -8%
      IP services   29,328    32,099    29,643         -9%        -1%
                    ------    ------    ------        ---        ---
       Total
        Revenues   $60,525   $64,372   $63,365         -6%        -5%

       Operating
        Expenses   $61,238  $124,576   $63,251        -51%        -3%

       GAAP Net
        Loss       $(1,271) $(60,645)    $(260)       n/m        n/m

       Normalized
        Net Income
        (Loss)(2)   $1,356   $(1,468)     $749        n/m         81%

       Adjusted
        EBITDA      $9,924    $6,776    $9,877         32%        10%
       Adjusted
        EBITDA                                        BPS        BPS
        Margin        16.4%     10.5%     15.6%       590         80



    Normalized Net Income (Loss) and Adjusted EBITDA are non-GAAP
    measures. Reconciliations between 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

Recent 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.

  1. 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.
  2. Reconciliations between 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 second quarter 2010 conference call will be held today at 5:00 p.m. EDT. Listeners may connect to a webcast of the call, which will include accompanying presentation slides, on the investor services section of Internap's web site at http://ir.internap.com/events.cfm. The call can also be accessed by dialing 866-515-9839. International callers should dial 631-813-4875. An online archive of the webcast presentation will be available for one month following the call. An audio-only replay will be accessible from Wednesday, August 4, 2010 at 8 p.m. EDT through Wednesday, August 11, 2010 at 800-642-1687 using the code 85875105. 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 platform of data centers around the world, 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 future revenue growth, business turnaround, and Internap's 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
                                                      June 30,

                                                  2010              2009
                                                  ----              ----
    Revenues:
       Data center services                    $31,197           $32,273
       Internet protocol (IP) services          29,328            32,099
                                                ------            ------
           Total revenues                       60,525            64,372
                                                ------            ------

    Operating costs and expenses:
       Direct cost of network, sales and
        services, exclusive of
          depreciation and amortization, shown
           below:
             Data center services               19,784            24,165
             IP services                        11,479            12,414
       Direct costs of customer support          5,011             4,438
       Direct costs of amortization of
        acquired technologies                      979             5,233
       Sales and marketing                       7,002             6,947
       General and administrative                8,787            10,940
       Depreciation and amortization             7,013             6,704
       Impairments and restructuring             1,183            53,735
                                                 -----            ------

           Total operating costs and expenses   61,238           124,576
                                                ------           -------

    Loss from operations                          (713)          (60,204)


    Non-operating expense (income):
       Interest income                             (33)              (48)
       Interest expense                            518               204
       Other, net                                    6              (172)
                                                   ---              ----
    Total non-operating expense (income)           491               (16)
                                                   ---               ---

    Loss before income taxes and equity
     in loss (earnings) of                      (1,204)          (60,188)
     equity method investment:
       Provision for income taxes                  129               438
       Equity in loss (earnings) of equity-
        method investment, net of taxes            (62)               19
                                                   ---               ---

    Net loss                                   $(1,271)         $(60,645)
                                               =======          ========

    Basic and diluted net loss per share        $(0.03)           $(1.22)
                                                ======            ======

    Weighted average shares outstanding
     used in computing  basic and
     diluted net
      loss per share                            50,013            49,586
                                                ======            ======


                    INTERNAP NETWORK SERVICES CORPORATION
                    CONDENSED CONSOLIDATED BALANCE SHEETS
                   (In thousands, except per share amounts)



                                                                  December
                                                     June 30,        31,
                                                          2010         2009
                                                          ----         ----
                                                    Unaudited
                        ASSETS
    Current assets:
      Cash and cash equivalents                        $76,075      $73,926
      Short-term investments in marketable
       securities                                        2,700        7,000
      Accounts receivable, net of allowance for
       doubtful accounts of $2,102 and $1,953,          18,551       18,685
        respectively
      Inventory                                            374          375
      Prepaid expenses and other assets                 10,101        8,768
                                                        ------        -----

        Total current assets                           107,801      108,754


    Property and equipment, net                        123,839       91,151
    Investments and other related assets                 1,862        1,804
    Intangible assets, net                              16,591       20,782
    Goodwill                                            39,464       39,464
    Deposits and other assets                            2,558        2,637
    Deferred tax asset, non-current, net                 2,582        2,910
                                                         -----        -----
        Total assets                                  $294,697     $267,502
                                                      ========     ========

         LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                                 $26,306      $17,237
      Accrued liabilities                                8,360       10,192
      Deferred revenues, current portion                 3,364        3,817
      Capital lease obligations, current portion           727           25
      Restructuring liability, current portion           2,797        2,819
      Other current liabilities                            130          125
                                                           ---          ---
        Total current liabilities                       41,684       34,215

    Revolving credit facility, due after one
     year                                               20,000       20,000
    Deferred revenues, less current portion              2,114        2,492
    Capital lease obligations, less current
     portion                                            19,685        3,217
    Restructuring liability, less current
     portion                                             6,171        6,123
    Deferred rent                                       16,597       16,417
    Other long-term liabilities                            570          636
                                                           ---          ---
        Total liabilities                              106,821       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; 120,000
       shares authorized; 51,924 and 50,763                 52           51
        shares outstanding at June 30, 2010 and
         December 31, 2009, respectively
      Additional paid-in capital                     1,227,054    1,221,456
      Treasury stock, at cost: 97 and 42 shares at
       June 30, 2010 and December 31, 2009                (435)        (127)
      Accumulated deficit                          (1,038,079)  (1,036,548)
      Accumulated items of other comprehensive
       loss                                               (716)        (430)
                                                          ----         ----
        Total stockholders' equity                     187,876      184,402
                                                       -------      -------
        Total liabilities and stockholders' equity    $294,697     $267,502
                                                      ========     ========


                       INTERNAP NETWORK SERVICES CORPORATION
             UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (In thousands)


                                                       Six Months Ended
                                                           June 30,
                                                          2010         2009
                                                          ----         ----
    Cash Flows from Operating Activities:
    Net loss                                           $(1,531)    $(67,253)
    Adjustments to reconcile net loss to net cash
     provided by operating activities:
       Goodwill and other intangible asset impairments    ----       55,647
       Depreciation and amortization                    16,745       15,839
       Provision for doubtful accounts                     773        1,444
       Equity in loss (earnings) from equity-method
        investment                                        (149)          88
       Non-cash changes in deferred rent                   179        1,013
       Stock-based compensation expense                  2,436        3,363
       Deferred income taxes                               352         (406)
       Other, net                                          337          264
    Changes in operating assets and liabilities:
       Accounts receivable                                (639)       3,164
       Inventory                                             1          (48)
       Prepaid expenses, deposits and other assets      (1,292)       1,190
       Accounts payable                                  9,069       (6,201)
       Accrued and other liabilities                    (1,831)        (140)
       Deferred revenues                                  (832)         853
       Accrued restructuring liability                      26        1,198
                                                           ---        -----
    Net cash flows provided by operating activities     23,644       10,015
                                                        ------       ------

    Cash Flows from Investing Activities:
    Purchases of property and equipment                (28,475)      (9,037)
    Maturities of investments in marketable securities   4,300        7,206
                                                         -----        -----
    Net cash flows used in investing activities        (24,175)      (1,831)
                                                       -------       ------

    Cash Flows from Financing Activities:
    Proceeds from notes payable                         39,000       39,500
    Principal payments on notes payable                (39,000)     (39,500)
    Payments on capital lease obligations                  (62)        (212)
    Stock-based compensation plans                       2,845         (307)
    Other, net                                             (61)         (58)
                                                           ---          ---
    Net cash flows provided by (used in) financing
     activities                                          2,722         (577)
                                                         -----         ----
    Effect of exchange rates on cash and cash
     equivalents                                           (42)          37
                                                           ---          ---
    Net increase in cash and cash equivalents            2,149        7,644
    Cash and cash equivalents at beginning of period    73,926       46,870
                                                        ------       ------
    Cash and cash equivalents at end of period         $76,075      $54,514
                                                       =======      =======


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.

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 expenses primarily reflect goodwill impairments and subsequent plan adjustments in sublease income assumptions for certain properties included in our previously disclosed restructuring plans.

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
                                                  June 30,   31,    June 30,
                                                      2010    2010       2009
                                                      ----    ----       ----
    (Loss) income from operations (GAAP)             $(713)   $114   $(60,204)
    Stock-based compensation                         1,444     991      1,308
    Depreciation and amortization, including
     depreciation and amortization included in       7,992   8,753     11,937
      direct costs of network, sales and services
    Loss on disposals of property and
     equipment, net                                     18       1          -
    Impairments and restructuring                    1,183      18     53,735
                                                     -----     ---     ------
    Adjusted EBITDA (non-GAAP)                      $9,924  $9,877     $6,776
                                                    ======  ======     ======


                       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
                                             ------------------
                                           June 30,  March 31, June 30,
                                                2010       2010     2009
                                                ----       ----     ----
    Net loss (GAAP)                          $(1,271)    $(260) $(60,645)
    Impairments and restructuring              1,183         18   53,735
    Stock-based compensation expense           1,444        991    1,308
    Additional impairments included in
     depreciation and amortization                 -          -    4,134
                                                 ---        ---    -----
    Normalized net income (loss) (non-
     GAAP)                                    $1,356       $749  $(1,468)

    Normalized net income allocable to
     participating securities (non-GAAP)         (30)       (17)       -
                                                 ---        ---
    Normalized net income (loss) available
     to common stockholders (non-GAAP)        $1,326       $732  $(1,468)
                                              ======       ====  =======

    Weighted average shares outstanding
     used in per share calculation:
    Basic (GAAP)                              50,013     49,944   49,586
    Participating securities (GAAP)            1,132      1,193    1,203
    Diluted (GAAP)                            50,013     49,944   49,586
    Add potentially dilutive securities          450        519        -
    Less dilutive effect of stock-based
     compensation under the treasury stock
     method                                     (347)      (359)       -
                                                ----       ----      ---
    Normalized diluted shares (non-GAAP)      50,116     50,104   49,586
                                              ======     ======   ======

    Loss per share (GAAP):
    Basic and diluted                         $(0.03)    $(0.01)  $(1.22)
                                              ======     ======   ======

    Normalized net income (loss) per share
     (non-GAAP):
    Basic and diluted                          $0.03      $0.01   $(0.03)
                                               =====      =====   ======


                       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
                                           ------------------
                                         June 30,  March 31, June 30,
                                              2010       2010     2009
                                              ----       ----     ----
    Revenues:
       Data center services                $31,197    $33,722  $32,273
       Internet protocol (IP) services      29,328     29,643   32,099
                                            ------     ------   ------
             Total                          60,525     63,365   64,372
                                            ------     ------   ------

       Direct cost of network, sales and
        services, exclusive of
          depreciation and amortization:
             Data center services           19,784     23,043   24,165
             IP services                    11,479     11,042   12,414
                                            ------     ------   ------
             Total                          31,263     34,085   36,579
                                            ------     ------   ------

    Segment Profit:
       Data center services                 11,413     10,679    8,108
       IP services                          17,849     18,601   19,685
                                            ------     ------   ------
             Total                         $29,262    $29,280  $27,793
                                           =======    =======  =======

    Segment Margin:
       Data center services                   36.6%      31.7%    25.1%
       IP services                            60.9%      62.8%    61.3%
                                              ----       ----     ----
             Total                            48.3%      46.2%    43.2%
                                              ====       ====     ====


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