INTERNAP CORP 
By ATLANTA, Feb. 20, 2014 /PRNewswire/ -- Internap Network Services Corporation (NASDAQ: INAP), a provider of high-performance Internet infrastructure services, today announced financial results for the fourth quarter and full-year 2013.
"Fourth quarter of 2013 was an exciting and impactful quarter for the company as we accelerated our transformation to an industry leading Internet infrastructure services provider with the successful completion of the iWeb acquisition on November 26, 2013. The continued execution of our strategy is reflected in record revenue, segment profit, and adjusted EBITDA, both quarterly and full-year. Our high-performance, hybrid infrastructure, delivered across a global network of data centers provides a compelling basis for competitive differentiation to drive these financial results," said Eric Cooney, President and Chief Executive Officer of Internap. "As we look forward into 2014, we are encouraged by the opportunity for growth both from the iWeb combination and continued solid organic growth from our core colocation, hosting and cloud services. We remain confident that the opportunity for long-term profitable growth and stockholder value creation is significant in the market for flexible, high-performance Internet infrastructure."
Fourth Quarter and Full-Year 2013 Financial Summary
Fourth Quarter Full Year
-------------- ---------
2013 2012 Growth 2013 2012 Growth
---- ---- ------ ---- ---- ------
Revenues:
Data center
services $49,686 $43,716 14% $185,147 $167,286 11%
IP services 24,401 26,032 -6% 98,195 106,306 -8%
-----------
Total Revenues $74,087 $69,748 6% $283,342 $273,592 4%
Operating Expenses $79,942 $67,699 18% $290,829 $269,828 8%
GAAP Net (Loss) Income $(10,450) $21 -49,862% $(19,830) $(4,318) 359%
Normalized Net (Loss) Income(2) $(4,378) $2,107 -308% $(7,463) $2,962 -352%
Segment Profit $40,394 $36,163 12% $151,330 $142,638 6%
Segment Profit Margin 54.5% 51.8% 270 BPS 53.4% 52.1% 130 BPS
Adjusted EBITDA $15,651 $14,964 5% $58,037 $51,854 12%
Adjusted EBITDA Margin 21.1% 21.5% -40 BPS 20.5% 19.0% 150 BPS
Revenue
-- Revenue for the full-year 2013 was $283.3 million compared with $273.6
million in 2012. The increase in annual revenue was due to growth in our
data center services segment, which includes $3.6 million of revenue
attributable to the fourth quarter 2013 acquisition of iWeb. Revenue for
the fourth quarter of 2013 was $74.1 million, an increase of 6%
year-over-year and 6% compared with the third quarter of 2013. Quarterly
revenue from data center services increased year-over-year and
sequentially. IP services revenue in the quarter decreased
year-over-year and increased sequentially. We achieved our highest
annual and quarterly revenue levels in the history of the company in
2013 and fourth quarter 2013.
-- Data center services revenue for the full-year 2013 increased 11% to
$185.2 million. Fourth quarter data center services revenue was $49.7
million, up 14% compared with the fourth quarter of 2012 and 9% over the
third quarter of 2013. The year-over-year revenue increase was
predominantly attributable to increased sales of colocation in
company-controlled data centers, hosting and cloud services. The
sequential increase was driven by organic growth in the data center
services segment and the acquisition of iWeb, partially offset by
decreased sales in our partner data centers.
-- IP services revenue for the full-year 2013 decreased 8% to $98.2
million. Fourth quarter IP services revenue was $24.4 million, a
decrease of 6% compared with the fourth quarter of 2012 and an increase
of 1% from the third quarter of 2013. The year-over-year revenue
decrease was driven by per unit declines in IP and the loss of legacy
contracts at higher effective prices, partially offset by an increase in
overall traffic. Sequentially, traffic growth and non-recurring revenue
offset per unit price declines in IP.
Net Loss
-- GAAP net loss was $(19.8) million, or $(0.39) per share for the
full-year 2013 compared with $(4.3) million, or $(0.09) per share in
2012. GAAP net loss in the fourth quarter was $(10.4) million, or
$(0.21) per share.
-- Normalized net loss was $(7.5) million, or $(0.15) per share for the
full-year 2013. Normalized net income for the full-year 2012 was $3.0
million, or $0.06 per share. Normalized net loss in the fourth quarter
was $(4.4) million, or $(0.09) per share.
Segment Profit and Adjusted EBITDA
-- Segment profit in 2013 was $151.3 million, an increase of 6%
year-over-year. Segment profit in the fourth quarter increased 12%
compared with the fourth quarter 2012 and 10% sequentially to $40.4
million. Annual segment margin was 53.4% in 2013, an increase of 130
basis points over 2012. Fourth quarter segment margin was 54.5%, an
increase of 270 basis points year-over-year and 160 basis points
compared with the third quarter of 2013. We achieved the highest annual
and quarterly segment profit and segment margin levels in the history of
the company in 2013 and fourth quarter 2013.
-- Annual data center services segment profit increased 21% to $92.6
million. Fourth quarter data center services segment profit increased
26% year-over-year and 15% sequentially to $25.6 million. Data center
services segment profit margin was 50.0% in 2013 and 51.5% in the fourth
quarter of 2013, representing year-over year increases of 420 basis
points and 510 basis points, respectively. An increasing proportion of
higher-margin services, specifically colocation sold in
company-controlled data centers, hosting and cloud services, benefited
data center services segment profit compared with the full-year and
fourth quarter of 2013. Sequentially, lower seasonal power costs,
increased company-controlled colocation, hosting and cloud services
revenue and the acquisition of iWeb drove data center services segment
profit and margin higher.
-- IP services segment profit for the full-year 2013 decreased 11% to $58.7
million. Fourth quarter IP services segment profit was $14.8 million, a
decrease of 7% compared with the fourth quarter of 2012 and an increase
of 2% from the third quarter of 2013. IP services segment profit margin
was 59.8% in 2013 and 60.7% in the fourth quarter of 2013, representing
year-over year declines of 220 basis points and 30 basis points,
respectively. Decreased IP services revenue more than offset lower
costs, driving the year-over-year declines in IP services segment profit
and margin. Sequentially, higher IP services revenue led to an increase
in IP segment profit.
-- Full-year 2013 adjusted EBITDA increased 12% year-over-year to $58.0
million. Fourth quarter 2013 adjusted EBITDA increased 5% year-over-year
and 10% sequentially to $15.7 million. Adjusted EBITDA margin was 20.5%
in 2013 and 21.1% in the fourth quarter of 2013, representing a
year-over-year increase of 150 basis points and a year-over-year
decrease of 40 basis points, respectively. Sequentially, fourth quarter
adjusted EBITDA margin increased 70 basis points. The year-over-year and
sequential increases in adjusted EBITDA were attributable to increased
segment profit in our data center services segment. The year-over-year
decrease in adjusted EBITDA margin was driven by higher general and
administrative expense, which outweighed the year-over-year increase in
segment profit. Full-year 2013 and fourth quarter 2013 represent the
highest annual and quarterly adjusted EBITDA levels in the history of
the company.
Balance Sheet and Cash Flow Statement
-- Cash and cash equivalents totaled $35.0 million at December 31, 2013.
Total debt was $345.9 million, net of discount, at the end of the
quarter, including $55.3 million in capital lease obligations.
-- Cash generated from operations for the 12 and three months ended
December 31, 2013 were $33.7 million and $7.1 million, respectively.
Capital expenditures over the same periods were $63.6 million and $28.5
million, respectively.
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 approximately 13,000 customers at December 31, 2013.
-- On November 26, 2013, we completed the acquisition of iWeb, a provider
of hosting and cloud services, in an all cash transaction valued at
approximately $145.0 million.
-- Concurrently with the acquisition of iWeb, we entered into a $350.0
million credit agreement and extinguished our previous credit facility.
The new credit agreement includes a term loan of $300.0 million and a
revolving credit facility of $50.0 million.
-- In December, we opened a new company-controlled data center to expand
capacity in the New York Metro market. This facility will add 55,000
net sellable square feet at full deployment and features the latest in
data center design elements to enable power configurations of up to 18kW
per rack and concurrent maintainability for complete infrastructure
redundancy. We designed this hybrid-enabled facility to seamlessly
connect colocation, hosting, virtual and bare-metal cloud environments
through a secure Layer 2 Virtual Local Area Network.
-- We announced the expansion of company-controlled data center capacity in
Santa Clara, California. The facility will add an incremental 5,300 net
sellable square feet which we expect to be operational in the first
quarter of 2014.
-- We launched the beta availability of our next generation public cloud,
AgileCLOUD. It is the first cloud platform that fully exposes both
virtualized and bare-metal compute instances over a native OpenStack API
and delivers significant performance, interoperability and flexibility
benefits.
-- Internap received the 2013 Cloud Computing Excellence Award for our
bare-metal cloud service.
1. Segment margin and segment profit 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.
2. Adjusted EBITDA, adjusted EBITDA margin and normalized net (loss) income
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 (loss) income are contained in the
tables entitled "Reconciliation of (Loss) Income from Operations to
Adjusted EBITDA," and "Reconciliation of Net (Loss) Income and Basic and
Diluted Net (Loss) Income Per Share to Normalized Net (Loss) Income and
Basic and Diluted Normalized Net (Loss) Income Per Share" in the
attachment.
Conference Call Information:
Internap's fourth quarter 2013 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 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, February 20, 2014 at 8 p.m. ET through Wednesday, February 26, 2014 at 855-859-2056 using replay code 58844242. 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 the drivers for competitive differentiation, our ability to drive continued growth and stockholder value creation and our expectations for timing of expansion of data center capacity. 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 execute on our business strategy; 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 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.
Press Contact: Investor Contact:
Mariah Torpey Michael Nelson
(781) 418-2404 (404) 302-9700
internap@daviesmurphy.com ir@internap.com
(Logo: http://photos.prnewswire.com/prnh/20120426/CL95398LOGO)
INTERNAP NETWORK SERVICES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2013 2012 2013 2012
---- ---- ---- ----
Revenues:
Data center services $49,686 $43,716 $185,147 $167,286
Internet protocol (IP) services 24,401 26,032 98,195 106,306
------ ------ ------ -------
Total revenues 74,087 69,748 283,342 273,592
------ ------ ------- -------
Operating costs and expenses:
Direct costs of network, sales and services, exclusive of
depreciation and amortization, shown below:
Data center services 24,103 23,445 92,564 90,604
IP services 9,590 10,140 39,448 40,350
Direct costs of customer support 7,635 6,556 29,687 26,664
Direct costs of amortization of acquired technologies 1,324 1,179 4,967 4,718
Sales and marketing 8,191 7,369 31,800 31,343
General and administrative 14,780 8,750 42,759 38,635
Depreciation and amortization 14,105 9,685 48,181 36,147
Loss (gain) on disposal of property and equipment, net 5 (35) 9 (55)
Exit activities, restructuring and impairments 209 610 1,414 1,422
--- --- ----- -----
Total operating costs and expenses 79,942 67,699 290,829 269,828
------ ------ ------- -------
(Loss) income from operations (5,855) 2,049 (7,487) 3,764
------ ----- ------ -----
Non-operating expenses:
Interest expense 4,022 2,232 11,346 7,566
Loss on extinguishment of debt 881 - 881 -
Other, net (65) (131) 614 283
--- ---- --- ---
Total non-operating expenses 4,838 2,101 12,841 7,849
----- ----- ------ -----
Loss before income taxes and equity in (earnings) of
equity-method investment (10,693) (52) (20,328) (4,085)
(Benefit) provision for income taxes (187) (50) (285) 453
Equity in (earnings) of equity-method investment, net of taxes (56) (23) (213) (220)
--- --- ---- ----
Net (loss) income $(10,450) $21 $(19,830) $(4,318)
======== === ======== =======
Basic and diluted net (loss) income per share $(0.21) $0.00 $(0.39) $(0.09)
====== ===== ====== ======
Weighted average shares outstanding used in computing
net (loss) income per share:
Basic 50,898 50,606 51,135 50,761
====== ====== ====== ======
Diluted 50,898 51,227 51,135 50,761
====== ====== ====== ======
INTERNAP NETWORK SERVICES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
December 31, December 31,
2013 2012
---- ----
ASSETS
Current assets:
Cash and cash equivalents $35,018 $28,553
Accounts receivable, net of allowance for doubtful accounts 23,927 19,035
of $1,995 and $1,809, respectively
Deferred tax asset 371 -
Prepaid expenses and other assets 22,533 13,438
------ ------
Total current assets 81,849 61,026
Property and equipment, net 331,963 248,095
Investment in joint venture 2,602 3,000
Intangible assets, net 57,699 21,342
Goodwill 130,387 59,605
Deposits and other assets 7,999 5,735
Deferred tax asset 1,742 1,909
----- -----
Total assets $614,241 $400,712
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $29,774 $22,158
Accrued liabilities 13,549 11,386
Deferred revenues 6,729 2,991
Capital lease obligations 5,489 4,504
Term loan, less discount of $1,387 and $239, respectively 1,613 3,261
Exit activities and restructuring liability 2,286 2,508
Other current liabilities 2,493 169
----- ---
Total current liabilities 61,933 46,977
Deferred revenues 3,804 2,669
Capital lease obligations 49,800 44,054
Revolving credit facility - 30,501
Term loan, less discount of $8,006 and $388, respectively 288,994 61,612
Exit activities and restructuring liability 1,877 3,365
Deferred rent 14,617 15,026
Deferred tax liability 8,591 -
Other long-term liabilities 2,415 903
----- ---
Total liabilities 432,031 205,107
------- -------
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; 54,023 and 53,459 shares
outstanding, respectively 54 54
Additional paid-in capital 1,253,106 1,243,801
Treasury stock, at cost; 461 and 267 shares, respectively (3,474) (1,845)
Accumulated deficit (1,066,020) (1,046,190)
Accumulated items of other comprehensive loss (1,456) (215)
------ ----
Total stockholders' equity 182,210 195,605
------- -------
Total liabilities and stockholders' equity $614,241 $400,712
======== ========
INTERNAP NETWORK SERVICES CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Three Months Ended December 31, Year Ended December 31,
------------------------------- -----------------------
2013 2012 2013 2012
---- ---- ---- ----
Cash Flows from Operating Activities:
Net (loss) income $(10,450) $21 $(19,830) $(4,318)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization 15,430 10,864 53,148 40,865
Loss (gain) on disposal of property and equipment, net 1 (35) 9 (55)
Impairment of capitalized software - 180 520 438
Stock-based compensation expense, net of capitalized amount 1,653 1,476 6,743 5,858
Equity in (earnings) of equity-method investment (56) (23) (213) (220)
Provision for doubtful accounts 784 99 1,861 932
Non-cash portion of loss on extinguishment of debt 841 - 841 -
Non-cash change in capital lease obligations (22) 36 99 705
Non-cash change in accrued contingent consideration - (195) - 124
Non-cash change in exit activities and restructuring liability 264 485 1,185 1,171
Non-cash change in deferred rent (536) (346) (1,907) (1,073)
Deferred taxes (292) (88) (67) 204
Other, net 200 61 706 (199)
Changes in operating assets and liabilities:
Accounts receivable (2,734) 1,868 (5,777) (1,428)
Prepaid expenses, deposits and other assets (220) (374) (218) (671)
Accounts payable 6,107 (4,127) 3,992 413
Accrued and other liabilities (4,039) 1,478 (5,062) 2,304
Deferred revenues 837 198 1,149 862
Exit activities and restructuring liability (715) (718) (2,895) (2,890)
Other liabilities 12 - (601) 720
Net cash flows provided by operating activities 7,065 10,860 33,683 43,742
----- ------ ------ ------
Cash Flows from Investing Activities:
Purchases of property and equipment (28,208) (10,333) (62,798) (74,947)
Additions to acquired technology (325) - (801) -
Payment of accrued contingent consideration - (4,750) - (4,750)
Acquisition, net of cash received (144,487) - (144,487) -
Net cash flows used in investing activities (173,020) (15,083) (208,086) (79,697)
-------- ------- -------- -------
Cash Flows from Financing Activities:
Proceeds from credit agreements 300,000 8,172 320,000 40,401
Principal payments on credit agreements (113,375) (875) (116,000) (3,250)
Payment of debt issuance costs (12,415) - (12,415) (543)
Deposit collateral on credit agreement (6,461) - (6,461) -
Payments on capital lease obligations (1,180) (1,007) (4,655) (3,303)
Proceeds from exercise of stock options 162 224 2,138 2,469
Tax withholdings related to net share settlements of restricted stock awards (187) (129) (1,630) (1,085)
Other, net (43) (28) (167) (118)
Net cash flows provided by financing activities 166,501 6,357 180,810 34,571
------- ----- ------- ------
Effect of exchange rates on cash and cash equivalents 31 44 58 165
--- --- --- ---
Net increase (decrease) in cash and cash equivalents 577 2,178 6,465 (1,219)
Cash and cash equivalents at beginning of period 34,441 26,375 28,553 29,772
Cash and cash equivalents at end of period $35,018 $28,553 $35,018 $28,553
======= ======= ======= =======
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 loss, normalized diluted shares outstanding, segment profit and segment margin. The most directly comparable GAAP equivalent to adjusted EBITDA and normalized net loss is income 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:
-- Adjusted EBITDA is (loss) income from operations plus depreciation and
amortization, loss (gain) on disposals of property and equipment, exit
activities, restructuring and impairments, stock-based compensation and
acquisition costs.
-- Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenues.
-- Normalized net (loss) income is net (loss) income plus exit activities,
restructuring and impairments, stock-based compensation 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) income per share is normalized net (loss) income
divided by basic and normalized diluted shares outstanding.
-- Segment profit is segment revenues less direct costs of network, 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, 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.
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 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 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 income 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.
INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF (LOSS) INCOME FROM OPERATIONS TO ADJUSTED EBITDA
A reconciliation of (loss) income 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
------------------
December 31, September 30, December 31,
2013 2013 2012
---- ---- ----
(Loss) income from
operations (GAAP) $(5,855) $(1,354) $2,049
Depreciation and
amortization,
including
amortization of
acquired
technologies 15,429 13,537 10,864
Loss (gain) on
disposal of
property and
equipment, net 5 4 (35)
Exit activities,
restructuring and
impairments 209 274 610
Stock-based
compensation 1,653 1,709 1,476
Acquisition costs 4,210 - -
----- --- ---
Adjusted EBITDA
(non-GAAP) $15,651 $14,170 $14,964
======= ======= =======
INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF NET (LOSS) INCOME AND BASIC AND DILUTED
NET (LOSS) INCOME PER SHARE TO NORMALIZED NET (LOSS) INCOME AND
BASIC AND DILUTED NORMALIZED NET (LOSS) INCOME PER SHARE
Reconciliations of (1) net (loss) income, the most directly comparable GAAP measure, to normalized net (loss) income, (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) income per share, the most directly comparable GAAP measure, to normalized net (loss) income per share for each of the periods indicated is as follows (in thousands, except per share data):
Three Months Ended
------------------
December 31, September 30, December 31,
2013 2013 2012
---- ---- ----
Net (loss) income
(GAAP) $(10,450) $(4,035) $21
Exit activities,
restructuring and
impairments 209 274 610
Stock-based
compensation 1,653 1,709 1,476
Acquisition costs 4,210 - -
----- --- ---
Normalized net
(loss) income
(non-GAAP) (4,378) (2,052) 2,107
Normalized net
income allocable
to participating
securities (non-
GAAP) - - (45)
Normalized net
(loss) income
available to
common
stockholders (non-
GAAP) $(4,378) $(2,052) $2,062
======= ======= ======
Participating
securities (GAAP) 1,049 1,008 1,109
Weighted average
shares outstanding
used in per share
calculation:
Basic (GAAP) 50,898 50,882 50,606
Diluted (GAAP) 50,898 50,882 51,227
Add potentially
dilutive
securities - - -
Less dilutive
effect of stock-
based compensation
under the treasury
stock method - - (152)
--- --- ----
Normalized diluted
shares (non-GAAP) 50,898 50,882 51,075
====== ====== ======
(Loss) income per
share (GAAP):
Basic and diluted $(0.21) $(0.08) $ -
====== ====== =================
Normalized net
(loss) income per
share (non-GAAP):
Basic and diluted $(0.09) $(0.04) $0.04
====== ====== =====
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
------------------
December 31, September 30, December 31,
2013 2013 2012
---- ---- ----
Revenues:
Data center services $49,686 $45,488 $43,716
IP services 24,401 24,084 26,032
------ ------ ------
Total 74,087 69,572 69,748
------ ------ ------
Direct cost of network, sales and services,
exclusive of depreciation and amortization:
Data center services 24,103 23,171 23,445
IP services 9,590 9,624 10,140
-----
Total 33,693 32,795 33,585
------ ------ ------
Segment Profit:
Data center services 25,583 22,317 20,271
IP services 14,811 14,460 15,892
Total $40,394 $36,777 $36,163
======= ======= =======
Segment Margin:
Data center services 51.5% 49.1% 46.4%
IP services 60.7% 60.0% 61.0%
Total 54.5% 52.9% 51.8%
==== ==== ====
SOURCE Internap Network Services Corporation
