Internap Reports First Quarter 2011 Financial Results

The information below is a summary. Click here to view the entire release which includes our unaudited GAAP financial statements and supplemental non-GAAP financial measures.

• Revenue of $59.4 million compared with $63.4 million in the first quarter of 2010;
• Segment profit1 of $30.4 million; segment margin1 of 51.1 percent, up 490 basis points year-over-year;
• Adjusted EBITDA2 of $9.2 million adjusted EBITDA margin2 of 15.5 percent;
• Announces 55,000 net sellable square foot addition of company-controlled data center capacity in Los Angeles.

ATLANTA, GA – (April 28, 2011) Internap Network Services Corporation (NASDAQ:INAP, news, filings), a leading provider of IT infrastructure services, today announced financial results for the first quarter of 2011.

“We believe the first quarter of 2011 represents an inflection point from which the company returns to top-line growth in both of our business units, Data center services and IP services. Positive trends across the business including: bookings growth, reduced churn, and enhanced customer satisfaction, give us confidence in our expectation for sequential revenue growth in the second quarter,” said Eric Cooney, President and Chief Executive Officer of Internap. “The sustained upward trend in both segment profit and segment margin continued in the first quarter, positioning us to benefit from increased operating leverage and future top-line growth. The announcement today that we are adding Los Angeles to our portfolio of company-controlled data center markets, marks our 7th expansion and 3rd new market since the fourth quarter of 2009. Not only do these portfolio expansions provide the platform for our entire range of IT infrastructure services including connectivity, colocation, managed hosting and cloud, they position us to drive long-term profitable growth for our stockholders.”

Revenue

• Revenue totaled $59.4 million compared with $63.4 million in the first quarter of 2010 and $60.0 million in the fourth quarter of 2010. Revenue from Data center services decreased both year-over-year and sequentially. IP services decreased year-over-year and compared with the fourth quarter of 2010.
• Data center services revenue declined 6 percent year-over-year and decreased 1 percent sequentially to $31.5 million. Both the year-over-year and the sequential decline in this segment was attributable to our initiative to proactively churn certain less-profitable contracts in partner data centers. The first quarter of 2011 is the final quarter that sequential revenue growth is impacted by this program.
• IP services revenue totaled $27.9 million – a decrease of 6 percent compared with the first quarter of 2010 and 1 percent sequentially – as traffic growth was more than offset by per unit price declines in IP.

Net (Loss) Income

• GAAP net loss was $(1.5) million, or $(0.03) per share, compared with GAAP net loss of $(0.3) million, or $(0.01) per share, in the first quarter of 2010 and $(0.4) million, or $(0.01) per share, in the fourth quarter of 2010.
• Normalized net income, which excludes the impact of stock-based compensation expense and items that management considers non-recurring, was $(0.4) million, or $(0.01) per share. Normalized net income was $0.7 million, or $0.01 per share, in the first quarter of 2010, and $0.9 million, or $0.02 per share, in the fourth quarter of 2010.

Segment Profit and Adjusted EBITDA

• Segment profit totaled $30.4 million in the first quarter, an increase of 4 percent year-over-year and 3 percent sequentially. Segment margin was 51.1 percent, increasing 490 basis points compared with the first quarter of 2010 and 200 basis points over the fourth quarter of 2010.
• Segment profit in Data center services was $13.0 million, or 41.3 percent of Data center services revenue. IP services segment profit was $17.4 million, or 62.3 percent of IP services revenue. Proactive churn of less-profitable partner data center revenue benefited Data center services segment profit compared with both the first quarter of 2010 and the fourth quarter of 2010. Data center services segment margin increased 960 basis points year-over-year and 280 basis points sequentially to 41.3 percent. IP services segment profit decreased 7 percent compared with the first quarter of 2010. Sequentially, IP segment profit increased 1 percent. Lower revenue drove the year-over-year decrease in segment margins. Lower network infrastructure costs drove the sequential improvement in IP segment profit. IP services segment margin decreased 50 basis points year-over-year and increased 120 basis points sequentially to 62.3 percent.
• Adjusted EBITDA totaled $9.2 million in the first quarter, a 7 percent decrease compared with the first quarter of 2010 and down 10 percent relative to Adjusted EBITDA in the fourth quarter of 2010. Adjusted EBITDA margin was 15.5 percent in the first quarter of 2011, down 10 basis points year-over-year and 160 basis points sequentially. Higher operating costs in the first quarter drove the decline relative to prior periods. Operating costs in the first quarter included approximately $0.6 million of executive severance costs that will not impact future quarters.

Balance Sheet and Cash Flow Statement

• Cash and cash equivalents totaled $46.3 million at March 31, 2011. Total debt was $48.3 million, net of discount, at the end of the quarter, including $29.3 million in capital lease obligations.
• Cash generated from operations for the three months ended March 31, 2011 was $0.1 million. Capital expenditures over the same period were $12.7 million.

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.

• We had 2,733 customers under contract at the end of the first quarter 2011.
• On April 4, 2011, we announced that Accelerated IP (XIP™), a service-based Internet traffic accelerator that improves performance of enterprise web services and applications by up to four times, is now available across the company’s global data center footprint.
• On April 11, 2011, we announced that we were integrating our XIP service into our global Content Delivery Network (CDN). The integration further sets apart the performance of Internap’s CDN by improving the delivery of video streaming and web content to a wide range of user devices, including mobile phones, tablets and PCs, resulting in up to four times faster streaming and downloads.
• On March 23, 2011, we opened a 7,000 net sellable square feet expansion in our Boston facility. This data center is designed to an N+1 standard for power, cooling, and connectivity and is capable of scaling power densities to 12 kilowatts per cabinet making center one of the most robust sites in the region.
• Today, we announced that we will construct a new premium, company-controlled data center in Los Angeles that is expected to be operational in the second quarter of 2012. Like Internap’s other company-controlled data centers, the LA facility will offer customers a highly-reliable and flexible IT infrastructure platform. It will maintain a full range of customer amenities and will feature a modular power design that enables our customers to increase their power densities to over 12 kilowatts per cabinet without taking on additional space.

¹ Segment profit and segment margin are non-GAAP financial measures and are defined in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP information and non-GAAP information related to segment profit and segment margin are contained in the table entitled “Segment Profit and Segment Margin” in the attachment.

² Adjusted EBITDA and Normalized Net Income (Loss) are non-GAAP financial measures and are defined in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP information and non-GAAP information related to Adjusted EBITDA and Normalized Net Income (Loss) are contained in the tables 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” in the attachment.

Conference Call InformationInternap’s first quarter 2011 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 Thursday, April 28, 2011 at 8 p.m. EDT through Thursday, May 5, 2011 at 800-642-1687 using the replay code 59494301. International callers can access the archived event at 706-645-9291 with the same code.

About InternapInternap provides intelligent IT Infrastructure services that enable our customers to focus on their core business, improve service levels, and lower the cost of IT operations. Our enterprise IP, CDN, colocation, managed hosting and cloud solutions are differentiated by unparalleled levels of performance, availability and support. Since 1996, thousands of businesses have entrusted Internap with the delivery and protection of their online applications. Transform your IT infrastructure into a competitive advantage with IT IQ from Internap. For more information, visit http://www.internap.com/, our blog at http://www.internap.com/blog, or follow us on Twitter at http://twitter.com/internap.

Forward-Looking StatementsThis press release contains forward-looking statements. These forward-looking statements include statements related to future revenue growth, the benefits to be realized from investments in our business, our strategy to drive long-term profitable growth and our expectations regarding the expansion of company-controlled data center capacity, including expectations as to 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 our ability to achieve or sustain profitability; our ability to expand margins and drive higher returns on investment; our ability to complete expansion of company-controlled data centers within the expected timeframe; our ability to sell into new data center space; the actual performance of our IT infrastructure services; our ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; our ability to correctly forecast capital needs, demand planning and space utilization; our 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 our network operations centers, data centers, network access points or computer systems; our ability to provide or improve Internet infrastructure services to our customers; and our ability to protect our intellectual property, as well as other factors discussed in our 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. We undertake no obligation to update, amend or clarify any forward-looking statement for any reason.

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The information above is a summary. Click here to view the entire release which includes our unaudited GAAP financial statements and supplemental non-GAAP financial measures.

Press Contact
Mariah Torpey
Davies Murphy Group
781.418.2404
internap@daviesmurphy.com

Investor Contact
Andrew McBath
404.302.9700
ir@internap.com

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