ATLANTA, Nov. 3, 2016 /PRNewswire/ -- Internap Corporation (NASDAQ: INAP), a provider of high-performance Internet infrastructure services, today announced financial results for the third quarter of 2016.

"I am very excited about INAP's presence in major U.S. and global markets with our impressive upper Tier colocation assets, high-capacity network capabilities and in-demand AgileCloud services led by our Montreal team," said Peter D. Aquino, President and Chief Executive Officer of Internap. "I believe focusing on our core strengths, reorganizing, cutting costs and aligning into pure-play businesses will position us in early 2017 to leverage these great platforms to significantly increase our sales productivity. In addition, we are simultaneously exploring strategies to improve our capital structure so we have the flexibility and runway to grow organically, participate in accretive strategic transactions, and to capture growing demand for premier products and services in the expanding internet infrastructure market."

Third Quarter 2016 Financial Summary


                                                                                                           YoY                  QoQ

                                     3Q 2016              2Q 2016               3Q 2015                   Growth               Growth
                                     -------              -------               -------                   ------               ------

    Revenues:

    Data center and network services              $49,767               $50,459                $52,440                  -5%                  -1%

    Cloud and hosting Services                     24,173                23,856                 25,878                  -7%                   1%
                                                ------                ------                 ------

                                               $73,940               $74,315                $78,318                  -6%                  -1%

      Total Revenues


    Operating Expenses                        $157,338               $76,789                $87,503                  80%                 105%


    GAAP Net Loss                            $(91,297)            $(10,693)             $(14,197)                543%                 754%


    Normalized Net Loss(2)                    $(7,681)             $(7,300)              $(9,990)                -23%                   5%


    Segment Profit(3)                          $42,378               $42,945                $44,637                  -5%                  -1%

    Segment Profit Margin(3)                     57.3%                57.8%                 57.0%       30 BPS              -50 BPS


    Adjusted EBITDA(1)                         $19,840               $20,167                $19,752                   0%                  -2%

    Adjusted EBITDA Margin(1)                    26.8%                27.1%                 25.2%      160 BPS              -30 BPS

Revenue


    --  Revenue totaled $73.9 million in the third quarter, a decrease of 6%
        year-over-year and 1% sequentially. Both decreases were attributable to
        lower IP connectivity revenue and negatively impacted by churn from a
        small number of large customers.
    --  Data Center and Network Services revenue totaled $49.8 million in the
        third quarter, a decrease of 5% year-over-year and 1% sequentially. Both
        decreases were primarily attributable to lower IP connectivity revenue
        related to the continued decline in pricing for new and renewing
        customers, the loss of legacy contracts and churn from one customer. The
        year-over-year results were also impacted by a decrease in partner
        colocation revenue offset by an increase in company-controlled
        colocation revenue.
    --  Cloud and Hosting Services revenue totaled $24.2 million in the third
        quarter, a decrease of 7% year-over-year and an increase of 1%
        sequentially. The year-over year decrease was driven by the continued
        negative impact of churn from a small number of large customers slightly
        offset by Agile bare metal server revenue growth. The sequential
        increase was driven by growth in Agile bare-metal server revenue.

Goodwill Impairment Charge

The company began its annual goodwill impairment test during the third quarter of 2016. Due to the complexity and the effort required to estimate the required fair values of certain reporting units, we recorded an impairment estimate of $78.2 million to adjust goodwill in our Data Center and Networks Services segment to an implied fair value of $1.9 million. We derived the fair value estimate based on preliminary assumptions and analysis that are subject to change. We will record any adjustment to the estimated impairment in the fourth quarter of 2016.

Net Loss


    --  GAAP net loss was $(91.3) million, or $(1.75) per share, compared with
        $(14.2) million, or $(0.27) per share, in the third quarter of 2015 and
        $(10.7) million, or $(0.21) per share, in the second quarter of 2016.
        The GAAP net loss for third quarter 2016 includes a $78.2 million
        goodwill impairment charge.
    --  Normalized net loss was $(7.7) million, or $(0.15) per share, compared
        with normalized net loss of $(10.0) million, or $(0.19) per share, in
        the third quarter of 2015, and normalized net loss of $(7.3) million, or
        $(0.14) per share, in the second quarter of 2016.

Segment Profit and Adjusted EBITDA


    --  Segment profit totaled $42.4 million in the third quarter, a 5% decrease
        compared with the third quarter of 2015 and a 1% decrease from the
        second quarter of 2016. Segment margin was 57.3%, an increase of 30
        basis points year-over-year and a decrease of 50 basis points
        sequentially.
    --  Data Center and Network Services segment profit totaled $24.7 million in
        the third quarter, a 4% decrease compared with the third quarter of 2015
        and a 4% decrease from the second quarter of 2016. Data Center and
        Network Services segment margin was 49.7% in the third quarter, up 70
        basis points year-over-year and down 140 basis points sequentially.
        Lower IP connectivity revenue was the main contributor to lower segment
        profit.
    --  Cloud and Hosting Services segment profit totaled $17.7 million in the
        third quarter, a 7% decrease compared with the third quarter of 2015 and
        a 3% increase from the second quarter of 2016. Cloud and Hosting
        Services segment margin was 73.0% in the third quarter, down 20 basis
        points year-over-year and up 120 basis points sequentially. The
        year-over year decrease in Cloud and Hosting Services revenue resulted
        in declines in segment profit and segment margin. The sequential
        increase was driven by revenue growth and continued cost management.
    --  Adjusted EBITDA totaled $19.8 million in the third quarter, flat
        compared with the third quarter of 2015 and a 2% decrease from the
        second quarter of 2016. Adjusted EBITDA margin was 26.8% in the third
        quarter, up 160 basis points year-over-year and down 30 basis points
        sequentially. The year-over-year increase in adjusted EBITDA and
        adjusted EBITDA margin was attributable to lower cash operating expense
        (see attached reconciliation tables) primarily from optimizing our cost
        structure and improved marketing program efficiencies. Benefits included
        a decrease in cash-based compensation and a decrease in marketing
        expenses. Sequentially, lower segment profit weighed on adjusted EBITDA.

Balance Sheet and Cash Flow Statement


    --  Cash and cash equivalents totaled $9.6 million at September 30, 2016.
        Total debt was $375.1 million, net of discount and prepaid costs, at the
        end of the quarter, including $55.2 million in capital lease
        obligations.
    --  Cash generated from operations for the three months ended September 30,
        2016 was $11.5 million. Capital expenditures over the same period were
        $12.9 million. Free cash flow(4) was ($1.3) million and unlevered free
        cash flow(4) was $6.2 million for the third quarter 2016.

Business Outlook

Internap updated its financial outlook for full-year 2016:


                                Full-Year 2016        Full-Year 2016

                               Current Guidance      Previous Guidance
                               ----------------      -----------------

                                Expected Range        Expected Range
                                --------------        --------------

    Revenue              $297 million - $300 million    $300 million - $305 million

    Adjusted EBITDA        $81 million - $83 million      $83 million - $87 million

    Capital Expenditures   $47 million - $50 million      $40 million - $50 million

    1. Adjusted EBITDA, adjusted EBITDA margin are non-GAAP financial measures
       which we define 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 are contained in
       tables entitled "Reconciliation of Loss from Operations to Adjusted
       EBITDA". Adjusted EBITDA margin is adjusted EBITDA as a percentage of
       revenue.
    2. Normalized net loss and basic and diluted normalized net loss per share
       are non-GAAP financial measures which we define in an attachment to this
       press release entitled "Non-GAAP (Adjusted) Financial Measures".
       Reconciliations between GAAP information and non-GAAP information related
       normalized net loss and basic and diluted normalized net loss per share
       are contained in the table entitled "Reconciliation of Net Loss and Basic
       and Diluted Net Loss Per Share to Normalized Net Loss and Basic and
       Diluted Normalized Net Loss Per Share" in the attachment.
    3. Segment profit and segment margin are non-GAAP financial measures which
       we define in an attachment to this press release entitled "Non-GAAP
       (Adjusted) Financial Measures." Reconciliations between GAAP 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.
       Segment margin is segment profit as a percentage of revenue.
    4. Free cash flow and unlevered free cash flow are non-GAAP financial
       measures which we define in the attachment to the press release entitled
       "Non-GAAP (Adjusted) Financial Measures." Reconciliations between GAAP
       and non-GAAP information related to Free cash flow and unlevered free
       cash flow are contained in the table entitled "Free Cash Flow and
       Unlevered Free Cash Flow" in the attachment.

Conference Call Information:

Internap's third quarter 2016 conference call will be held today at 5:00 p.m. ET. Listeners may connect to a webcast of the call, which will include accompanying presentation slides, on the investor relations section of Internap's web site at http://ir.internap.com/events.cfm. The call can be also accessed by dialing 877-334-0775. International callers should dial 631-291-4567. 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, November 3, 2016 at 8:00 p.m. ET through Thursday, November 10, 2016 at 855-859-2056 using replay code 95010274. International callers can listen to the archived event at 404-537-3406 with the same code.

About Internap

Internap is the high-performance Internet infrastructure provider that powers the applications shaping the way we live, work and play. Our hybrid infrastructure delivers performance without compromise - blending virtual and bare-metal cloud, hosting and colocation services across a global network of data centers, optimized from the application to the end user and backed by rock-solid customer support and a 100% uptime guarantee. Since 1996, the most innovative companies have relied on Internap to make their applications faster and more scalable. For more information, visit www.internap.com.

Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements include statements related to our planning to reduce cost structure, recapitalize and reorganize; our strategy to align into pure-play businesses and expected increases in sales productivity; our expectation of participating in accretive strategic transactions; our ability to capture growing demand in the internet infrastructure market; and our expectations for full-year 2016 revenue, adjusted EBITDA and capital expenditures. Our ability to achieve these forward-looking statements is based on certain assumptions, including our ability to execute on our business strategy, leveraging of multiple routes to market, expanded brand awareness for high-performance Internet infrastructure services and customer churn levels. These assumptions may prove to be inaccurate in the future. Because such forward-looking 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 execute on our business strategy and drive growth; our ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; the robustness of the IT infrastructure services market; our ability to achieve or sustain profitability; our ability to expand margins and drive higher returns on investment; our ability to sell into new and existing data center space; the actual performance of our IT infrastructure services; 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.



    Press Contact:         Investor Contact:

    Mariah Torpey          Richard Ramlall

    (781) 418-2404         (404) 302-9982

    internap@teamlewis.com ir@internap.com


                                                                                                       INTERNAP CORPORATION

                                                                                     UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

                                                                                             (In thousands, except per share amounts)



                                                                                                                                      Three Months Ended September 30,            Nine Months Ended September 30,
                                                                                                                                      --------------------------------            -------------------------------

                                                                                                                                                   2016                      2015                    2016                 2015
                                                                                                                                                   ----                      ----                    ----                 ----

    Revenues:

       Data center and network services                                                                                                         $49,767                   $52,440                $151,099             $160,029

       Cloud and hosting services                                                                                                                24,173                    25,878                  73,081               79,507
                                                                                                                                                 ------                    ------                  ------               ------

           Total revenues                                                                                                                        73,940                    78,318                 224,180              239,536
                                                                                                                                                 ------                    ------                 -------              -------


    Operating costs and expenses:

       Direct costs of sales and services, exclusive of depreciation and amortization, shown below:

         Data center and network services                                                                                                        25,042                    26,739                  74,065               79,337

         Cloud and hosting services                                                                                                               6,520                     6,942                  19,944               20,669

       Direct costs of customer support                                                                                                           7,985                     9,173                  24,709               27,381

       Sales, general and administrative                                                                                                         18,355                    19,098                  55,416               62,642

       Depreciation and amortization                                                                                                             19,597                    24,631                  57,927               67,404

       Goodwill impairment                                                                                                                       78,169                         -                 78,169                    -

       Exit activities, restructuring and impairments                                                                                             1,670                       920                   2,023                1,245


    Total operating costs and expenses                                                                                                          157,338                    87,503                 312,253              258,678
                                                                                                                                                -------                    ------                 -------              -------


    Loss from operations                                                                                                                       (83,398)                  (9,185)               (88,073)            (19,142)
                                                                                                                                                -------                    ------                 -------              -------


    Non-operating expenses:

       Interest expense                                                                                                                           7,878                     6,923                  22,945               20,613

       Other, net                                                                                                                                  (30)                    (288)                    442                (763)
                                                                                                                                                    ---                      ----                     ---                 ----

    Total non-operating expenses                                                                                                                  7,848                     6,635                  23,387               19,850
                                                                                                                                                  -----                     -----                  ------               ------


    Loss before income taxes and equity in earnings of equity-method investment                                                                (91,246)                 (15,820)              (111,460)            (38,992)

    Provision (benefit) for income taxes                                                                                                             95                   (1,612)                    294              (1,723)

    Equity in earnings of equity-method investment, net of taxes                                                                                   (44)                     (11)                  (121)                (96)
                                                                                                                                                    ---                       ---                    ----                  ---


    Net loss                                                                                                                                  $(91,297)                $(14,197)             $(111,633)           $(37,173)
                                                                                                                                               ========                  ========               =========             ========


    Basic and diluted net loss per share                                                                                                        $(1.75)                  $(0.27)                $(2.14)             $(0.72)
                                                                                                                                                 ======                    ======                  ======               ======


    Weighted average shares outstanding used in computing net loss per share:

        Basic and diluted                                                                                                                        52,096                    51,699                  52,245               51,763
                                                                                                                                                 ======                    ======                  ======               ======



                                                               INTERNAP CORPORATION

                                                  UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                                 (In thousands, except par value amounts)



                                                                   September 30,                  December 31,

                                                                                          2016                         2015
                                                                                          ----                         ----


                           ASSETS

    Current assets:

    Cash and cash equivalents                                                           $9,640                      $17,772

    Accounts receivable, net of
     allowance for doubtful accounts of
     $1,270 and $1,751, respectively                                                    17,832                       20,292

    Prepaid expenses and other assets                                                   10,710                       12,405
                                                                                        ------                       ------


    Total current assets                                                                38,182                       50,469


    Property and equipment, net                                                        315,273                      328,700

    Investment in joint venture                                                          3,206                        2,768

    Intangible assets, net                                                              30,323                       32,887

    Goodwill                                                                            52,144                      130,313

    Deposits and other assets                                                            8,968                        9,474

    Total assets                                                                      $448,096                     $554,611
                                                                                      ========                     ========


            LIABILITIES AND STOCKHOLDERS' EQUITY

    Current liabilities:

    Accounts payable                                                                   $25,897                      $22,607

    Accrued liabilities                                                                  9,958                       10,737

    Deferred revenues                                                                    6,110                        6,603

    Capital lease obligations                                                            9,649                        8,421

    Term loan, less discount and prepaid
     costs of $2,218 and $1,784,
     respectively                                                                          782                        1,215

    Exit activities and restructuring
     liability                                                                           1,038                        2,034

    Other current liabilities                                                            1,240                        2,566
                                                                                         -----                        -----

    Total current liabilities                                                           54,674                       54,183


    Deferred revenues                                                                    4,981                        4,759

    Capital lease obligations                                                           45,580                       48,692

    Revolving credit facility                                                           35,500                       31,000

    Term loan, less discount and prepaid
     costs of $5,153 and $5,703
     respectively                                                                      283,597                      285,298

    Exit activities and restructuring
     liability                                                                           1,350                        1,844

    Deferred rent                                                                        7,389                        8,879

    Deferred tax liability                                                               1,364                          880

    Other long-term liabilities                                                          4,396                        4,640
                                                                                         -----                        -----

    Total liabilities                                                                  438,831                      440,175
                                                                                       -------                      -------



    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; 58,246
     and 55,971 shares

    outstanding, respectively                                                               58                           56

    Additional paid-in capital                                                       1,283,051                    1,277,511

    Treasury stock, at cost; 1,020 and
     826 shares, respectively                                                          (6,866)                     (6,393)

    Accumulated deficit                                                            (1,265,590)                 (1,153,957)

    Accumulated items of other
     comprehensive loss                                                                (1,388)                     (2,781)
                                                                                        ------                       ------

    Total stockholders' equity                                                           9,265                      114,436
                                                                                         -----                      -------

    Total liabilities and stockholders'
     equity                                                                           $448,096                     $554,611
                                                                                      ========                     ========




                                                                                                       INTERNAP CORPORATION

                                                                                    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                                                                                          (In thousands)



                                                                                                     Three Months Ended September 30,         Nine Months Ended September 30,
                                                                                                     --------------------------------         -------------------------------

                                                                                                                                     2016                                      2015         2016         2015
                                                                                                                                     ----                                      ----         ----         ----

    Cash Flows from Operating Activities:

    Net loss                                                                                                                    $(91,297)                                $(14,197)  $(111,633)   $(37,173)

    Adjustments to reconcile net loss to net cash provided by operating activities:

       Depreciation and amortization                                                                                               19,597                                    24,631       57,927       67,404

       Impairments                                                                                                                 79,798                                       232       79,798          232

       Amortization of debt discount and issuance costs                                                                               648                                       508        1,881        1,498

       Stock-based compensation expense, net of capitalized amount                                                                  1,253                                     2,435        4,717        6,200

       Equity in earnings of equity-method investment                                                                                (44)                                     (11)       (121)        (96)

       Provision for doubtful accounts                                                                                                322                                       316          902          922

       Non-cash change in capital lease obligations                                                                                 (122)                                    (527)         405      (1,167)

       Non-cash change in exit activities and restructuring liability                                                                 246                                       864          865        1,400

       Non-cash change in deferred rent                                                                                             (490)                                    (499)     (1,490)     (1,287)

       Deferred taxes                                                                                                                 119                                   (2,024)         158      (2,181)

       Payment of debt lender fees                                                                                                      -                                        -     (1,716)           -

       Other, net                                                                                                                      26                                       212          212          230

    Changes in operating assets and liabilities:

       Accounts receivable                                                                                                            192                                   (1,812)       1,894      (3,459)

       Prepaid expenses, deposits and other assets                                                                                (3,498)                                    1,797        1,108          836

       Accounts payable                                                                                                             2,584                                       414        4,853      (7,748)

       Accrued and other liabilities                                                                                                3,302                                     (308)       (629)     (1,862)

       Deferred revenues                                                                                                            (398)                                    (529)       (304)         624

       Exit activities and restructuring liability                                                                                  (776)                                    (673)     (2,355)     (2,014)

       Asset retirement obligation                                                                                                      -                                        -       (174)           -

       Other liabilities                                                                                                                2                                       (1)        (33)          34

    Net cash flows provided by operating activities                                                                                11,464                                    10,828       36,265       22,393
                                                                                                                                   ------                                    ------       ------       ------


    Cash Flows from Investing Activities:

    Proceeds from sale of building                                                                                                    542                                         -         542            -

    Purchases of property and equipment                                                                                          (12,418)                                 (10,610)    (38,732)    (41,299)

    Additions to acquired and developed technology                                                                                  (442)                                    (310)     (1,211)     (1,120)

    Net cash flows used in investing activities                                                                                  (12,318)                                 (10,920)    (39,401)    (42,419)
                                                                                                                                  -------                                   -------      -------      -------


    Cash Flows from Financing Activities

    Proceeds from credit agreements                                                                                                     -                                    4,000        4,500       21,000

    Principal payments on credit agreements                                                                                         (750)                                    (750)     (2,250)     (2,250)

    Payments on capital lease obligations                                                                                         (2,384)                                  (2,001)     (7,211)     (5,718)

    Proceeds from exercise of stock options                                                                                             -                                    1,517          675        6,005

    Acquisition of common stock for income tax withholdings                                                                         (130)                                    (464)       (473)     (1,332)

    Other, net                                                                                                                       (58)                                     (74)       (250)         869

    Net cash flows (used in) provided by financing activities                                                                     (3,322)                                    2,228      (5,009)      18,574
                                                                                                                                   ------                                     -----       ------       ------

    Effect of exchange rates on cash and cash equivalents                                                                            (52)                                    (236)          13        (320)
                                                                                                                                      ---                                      ----          ---         ----

    Net decrease in cash and cash equivalents                                                                                     (4,228)                                    1,900      (8,132)     (1,772)

    Cash and cash equivalents at beginning of period                                                                               13,868                                    16,412       17,772       20,084

    Cash and cash equivalents at end of period                                                                                     $9,640                                   $18,312       $9,640      $18,312
                                                                                                                                   ======                                   =======       ======      =======

INTERNAP 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 and adjusted EBITDA margin, normalized net loss, normalized diluted shares outstanding, segment profit and segment margin, levered free cash flow and cash operating expense. The most directly comparable GAAP equivalent to adjusted EBITDA and normalized net 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 the following non-GAAP measures as follows:


    --  Adjusted EBITDA is loss from operations plus depreciation and
        amortization, loss (gain) on disposals of property and equipment, exit
        activities, restructuring and impairments, stock-based compensation,
        strategic alternatives and related costs, organizational realignment
        costs and acquisition costs.
    --  Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenues.
    --  Normalized net loss is net loss plus exit activities, restructuring and
        impairments, stock-based compensation, acquisition costs and strategic
        alternatives and related costs, organizational realignment costs and
        acquisition costs.
    --  Normalized diluted shares outstanding are diluted shares of common stock
        outstanding used in GAAP net loss per share calculations, excluding the
        dilutive effect of stock-based compensation using the treasury stock
        method.
    --  Normalized net loss per share is normalized net loss divided by basic
        and normalized diluted shares outstanding.
    --  Segment profit is segment revenues less direct costs of sales and
        services, exclusive of depreciation and amortization for the segment, as
        presented in the notes to our consolidated financial statements. Segment
        profit does not include direct costs of customer support or any
        depreciation or amortization associated with direct costs.
    --  Segment margin is segment profit as a percentage of segment revenues.
    --  Free cash flow is net cash flows provided by operating activities minus
        capital expenditures. Unlevered free cash flow is free cash flow plus
        cash interest expense.

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 our 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.

We believe that exit activities, restructuring and impairment charges, strategic alternatives and related costs and organizational realignment costs 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 our 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 loss and normalized net loss per share, excluding the effect of exit activities, restructuring and impairments, stock-based compensation and acquisition costs 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:


    --  EBITDA is widely used by investors to measure a company's operating
        performance without regard to items such as interest expense, income
        taxes, depreciation and amortization, which can vary substantially from
        company-to-company depending upon accounting methods and book value of
        assets, capital structure and the method by which assets were acquired;
        and
    --  investors commonly adjust EBITDA information to eliminate the effect of
        disposals of property and equipment, impairments, restructuring and
        stock-based compensation which vary widely from company-to-company and
        impair comparability.
    --  Our management uses adjusted EBITDA:
    --  as a measure of operating performance to assist in comparing performance
        from period-to-period on a consistent basis;
    --  as a measure for planning and forecasting overall expectations and for
        evaluating actual results against such expectations; and
    --  in communications with the board of directors, analysts and investors
        concerning our financial performance.

Our presentation of segment profit and segment margin excludes direct costs of customer support and 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.

RECONCILIATION OF LOSS FROM OPERATIONS TO ADJUSTED EBITDA AND FORWARD LOOKING 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
                                                                                          ------------------

                                                                                  September 30, 2016                   June 30, 2016           September 30, 2015
                                                                                  ------------------                   -------------           ------------------

    Loss from operations (GAAP)                                                                              $(83,398)               $(2,474)                     $(9,185)

    Depreciation and amortization                                                                               19,597                  19,217                        24,631

    Loss on disposal of property and equipment, net                                                                 25                      31                            99

    Exit activities, restructuring and impairments, including goodwill impairment                               79,839                     152                           920

    Stock-based compensation                                                                                     1,253                   1,542                         2,435

    Strategic alternatives and related costs                                                                     1,121                     282                           852

    Organizational realignment costs                                                                             1,403                   1,417                             -

    Adjusted EBITDA (non-GAAP)                                                                                 $19,840                 $20,167                       $19,752
                                                                                                               =======                 =======                       =======


    Total revenue                                                                                               73,940                  74,315                        78,318
                                                                                                                ------                  ------                        ------

    Adjusted EBITDA margin                                                                                       26.8%                  27.1%                        25.2%
                                                                                                                  ----                    ----                          ----

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



                                                                                  Nine Months Ended 2016       2016 Full-Year Guidance
                                                                                  ----------------------       -----------------------

                                                                                          Actual                         Low                  High
                                                                                          ------                         ---                  ----


    Total revenue                                                                                         $224                           $297         $300
                                                                                                          ----                           ----         ----


    Loss from operations (GAAP)                                                                          $(88)                         $(90)       $(88)

    Depreciation and amortization                                                                           58                             77           77

    Loss on disposal of property and equipment, net                                                          -                             -           -

    Exit activities, restructuring and impairments, including goodwill impairment                           80                             82           82

    Stock-based compensation                                                                                 5                              6            6

    Strategic alternatives and related costs                                                                 2                              2            2

    Organizational realignment costs                                                                         4                              4            4

    Adjusted EBITDA (non-GAAP)                                                                             $61                            $81          $83
                                                                                                           ===                            ===          ===

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF NET LOSS AND BASIC AND DILUTED
NET LOSS PER SHARE TO NORMALIZED NET LOSS AND
BASIC AND DILUTED NORMALIZED NET LOSS PER SHARE

Reconciliations of (1) net loss, the most directly comparable GAAP measure, to normalized net 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 loss per share for each of the periods indicated is as follows (in thousands, except per share data):


                                                                                            Three Months Ended
                                                                                            ------------------

                                                                                     September 30, 2016                  June 30, 2016            September 30, 2015
                                                                                     ------------------                  -------------            ------------------

    Net loss (GAAP)                                                                                            $(91,297)               $(10,693)                     $(14,197)

    Exit activities, restructuring and impairments, including goodwill impairment                                 79,839                      152                            920

    Stock-based compensation                                                                                       1,253                    1,542                          2,435

    Strategic alternatives and related costs                                                                       1,121                      282                            852

    Organizational realignment costs                                                                               1,403                    1,417                              -

    Normalized net loss (non-GAAP)                                                                              $(7,681)                $(7,300)                      $(9,990)
                                                                                                                 =======                  =======                        =======


    Weighted average shares outstanding used in per share calculation:

    Basic and diluted (GAAP)                                                                                      52,096                   52,062                         51,699

    Add potentially dilutive securities                                                                                -                       -                             -

    Less dilutive effect of stock-based compensation under the treasury stock method                                   -                       -                             -
                                                                                                                     ---                     ---                           ---

    Normalized diluted shares (non-GAAP)                                                                          52,096                   52,062                         51,699
                                                                                                                  ======                   ======                         ======


    Loss per share (GAAP):

    Basic and diluted                                                                                            $(1.75)                 $(0.21)                       $(0.27)
                                                                                                                  ======                   ======                         ======


    Normalized net loss per share (non-GAAP):

    Basic and diluted                                                                                            $(0.15)                 $(0.14)                       $(0.19)
                                                                                                                  ======                   ======                         ======

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)


SEGMENT PROFIT AND SEGMENT MARGIN

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




                                                           Three Months Ended
                                                           ------------------

                                                    September 30, 2016                June 30, 2016         September 30, 2015
                                                    ------------------                -------------         ------------------

    Revenues:

       Data center and network services:

          Company-controlled                                                  $22,710               $22,933                    $22,507

          Partner                                                               9,837                 9,793                     10,237

          IP connectivity                                                      17,220                17,733                     19,696

          Total data center and network services                               49,767                50,459                     52,440

       Cloud and hosting services                                              24,173                23,856                     25,878


          Total                                                                73,940                74,315                     78,318
                                                                               ------                ------                     ------

    Direct cost of sales and services, exclusive of
    depreciation and amortization:

       Data center and network services:

          Company-controlled                                                   10,266                 9,994                     10,261

          Partner                                                               7,517                 7,051                      7,908

          IP connectivity                                                       7,259                 7,605                      8,570

          Total data center and network services                               25,042                24,650                     26,739

       Cloud and hosting services                                               6,520                 6,720                      6,942

          Total                                                                31,562                31,370                     33,681
                                                                               ------                ------                     ------

    Segment Profit:

       Data center and network services

          Company-controlled                                                   12,444                12,939                     12,246

          Partner                                                               2,320                 2,742                      2,329

          IP connectivity                                                       9,961                10,128                     11,126

          Total data center and network services                               24,725                25,809                     25,701

       Cloud and hosting services                                              17,653                17,136                     18,936

          Total                                                               $42,378               $42,945                    $44,637
                                                                              =======               =======                    =======

    Segment Margin:

       Data center and network services

          Company-controlled                                                    54.8%                56.4%                     54.4%

          Partner                                                               23.6%                28.0%                     22.8%

          IP connectivity                                                       57.8%                57.1%                     56.5%

          Total data center and network services                                49.7%                51.1%                     49.0%

       Cloud and hosting services                                               73.0%                71.8%                     73.2%
                                                                                 ----                  ----                       ----

          Total                                                                 57.3%                57.8%                     57.0%
                                                                                 ====                  ====                       ====

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

FREE CASH FLOW AND UNLEVERED FREE CASH FLOW

Free cash flow and unlevered free cash flow are non-GAAP measures. Free cash flow is net cash flows provided by operating activities minus capital expenditures. Unlevered free cash flow is free cash flow plus cash interest expense (in thousands):



                                                           Three Months Ended
                                                           ------------------

                                                    September 30, 2016                 June 30, 2016           September 30, 2015
                                                    ------------------                 -------------           ------------------

    Net cash flows provided by operating activities                            $11,464                 $14,019                      $10,828

    Capital expenditures:

    Maintenance capital                                                        (1,935)                (1,675)                     (3,435)

    Growth capital                                                            (10,925)               (12,727)                     (7,485)
                                                                               -------                 -------                       ------

    Free cash flow (non-GAAP)                                                  (1,396)                  (383)                        (92)


    Cash interest expense                                                        7,601                   7,816                        6,660

    Unlevered free cash flow (non-GAAP)                                         $6,205                  $7,433                       $6,568
                                                                                ======                  ======                       ======

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SOURCE Internap Corporation