UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

 

FORM 8-K

  

 

 

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

Date of Report (Date of earliest event reported):

 

October 30, 2015

 

 

 

Internap Corporation

(Exact Name of Registrant as Specified in Charter)

  

 

 

Delaware

(State or Other Jurisdiction
of Incorporation)

 

001-31989

(Commission File Number)

 

91-2145721

(IRS Employer
Identification Number

 

One Ravinia Drive, Suite 1300, Atlanta, Georgia

(Address of Principal Executive Offices)

 

30346

(Zip Code)

 

Registrant’s telephone number, including area code: (404) 302-9700

 

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

  

 

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

¨ Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)

 

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Securities Act (17 CFR 240.14d-2(b))

 

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Securities Act (17 CFR 240.13e-2(c))

 

 

 

 

Item 1.01.         Entry into a Material Definitive Agreement.

 

First Amendment to Credit Agreement

 

As of October 30, 2015, Internap Corporation (the “Company”), the lenders party thereto (the “Lenders”) and Jefferies Finance LLC, as Administrative Agent (the “Administrative Agent”), and as consented to by guarantor parties thereto, entered into a First Amendment to Credit Agreement (the “First Amendment”). The First Amendment amends the Credit Agreement, dated as of November 26, 2013 (the “Credit Agreement”), among the Company, the Lenders and the Administrative Agent, by removing from the definition of “change in control” the alleged “dead hand proxy put” provision whereby certain changes in the composition of the Company’s board of directors would have constituted a change of control and thereby an event of default under the Credit Agreement.

 

The Company and its subsidiaries from time to time have had, and may continue to have, various commercial, lending or other relationships with the Lenders and the Lenders’ respective affiliates.

 

Item 2.02         Results of Operations and Financial Condition .

 

On November 5, 2015, the Company issued a press release announcing its financial results for the quarter ended September 30, 2015. A copy of the press release is attached hereto as Exhibit 99.1 hereto and is incorporated herein by reference.

 

The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to this or such filing. The information in this report, including the exhibit hereto, shall be deemed to be “furnished” and therefore shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

 

Item 9.01         Financial Statements and Exhibits .

 

(d)          Exhibits

 

The following exhibit is furnished with this Current Report on Form 8-K:

 

Exhibit No.   Description
     
10.1   First Amendment to Credit Agreement entered into as of October 30, 2015, among Internap Corporation, each of the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent.
     
99.1   Press Release dated November 5, 2015.  

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

  INTERNAP CORPORATION  
       
Date: November 5, 2015 By: /s/ Kevin M. Dotts  
    Kevin M. Dotts  
    Chief Financial Officer  

 

 

 

 

EXHIBIT INDEX

 

Exhibit No.   Description of Exhibit
     
10.1   First Amendment to Credit Agreement entered into as of October 30, 2015, among Internap Corporation, each of the Lenders party thereto and Jefferies Finance LLC, as Administrative Agent.
     
99.1   Press Release of the Company dated November 5, 2015.

 

 

 

 

 

 

Exhibit 10.1

  

First Amendment to

Credit Agreement

 

This FIRST AMENDMENT TO CREDIT AGREEMENT (this “ Amendment ”) is entered into as of October 30, 2015, among Internap Corporation (f/k/a Internap Network Services Corporation), a Delaware corporation (the “ Borrower ”), each of the Lenders (as defined below) party hereto and Jefferies Finance LLC, as Administrative Agent (in such capacity, the “ Administrative Agent ”), and is acknowledged and consented to by each Guarantor.

 

R E C I T A L S:

 

A.           The Borrower, the lenders from time to time party thereto (the “ Lenders ”) and the Administrative Agent are parties to the Credit Agreement, dated as of November 26, 2013 (as amended, amended and restated, supplemented or otherwise modified from time to time, the “ Credit Agreement ”).

 

B.           The Loan Parties have requested an amendment to the Credit Agreement that would effect the modifications thereto set forth herein, and the Administrative Agent and each Lender party hereto consents to this Amendment.

 

C.           Accordingly, in consideration of the premises made hereunder, and for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound, hereby agree as follows:

 

Section 1.           Definitions and Interpretation .

 

1.1            Definitions . Unless otherwise defined in this Amendment, capitalized terms used herein shall have the meanings given to them in the Credit Agreement.

 

1.2            Interpretation . This Amendment shall be construed and interpreted in accordance with the rules of construction set forth in Sections 1.02 through 1.06 of the Credit Agreement.

 

Section 2.           Amendment to Credit Agreement .

 

2.1            Definitions .

 

(a)          Clause (b) of the definition of “Change in Control” in Section 1.01 of the Credit Agreement is hereby amended and restated in its entirety as follows:

 

“(b)          during any period of 12 consecutive months, a majority of the members of the Board of Directors of Borrower cease to be composed of individuals (i) who were members of that Board of Directors at the commencement of such period, (ii) whose election or nomination to that Board of Directors was approved by individuals referred to in preceding clause (i) constituting at the time of such election or nomination at least a majority of that Board of Directors or (iii) whose election or nomination to that Board of Directors was approved by individuals referred to in preceding clauses (i) and (ii) constituting at the time of such election or nomination at least a majority of that Board of Directors, or”

 

Section 3.           Effectiveness .

 

3.1            Conditions Precedent To Effectiveness of Amendment . The effectiveness of this Amendment is subject to the satisfaction of the following conditions precedent:

 

 

 

 

(a)          this Amendment shall have been (i) executed by the Borrower, the Administrative Agent and the Required Lenders and (ii) acknowledged by each Guarantor, and in each case, counterparts hereof as so executed or acknowledged shall have been delivered to the Administrative Agent;

 

(b)          the Loan Parties shall have paid all reasonable and documented legal fees and out-of-pocket expenses of the Administrative Agent; and

 

(c)          the Administrative Agent shall have received from the Borrower a fee for the account of each Lender that has executed and delivered a signature page hereto to the Administrative Agent no later than 5:00 p.m., New York City time, on October 30, 2015 (or such later deadline, if any, as may be agreed to by the Borrower and Administrative Agent), in an amount equal to 0.025% of the sum of such Lender’s outstanding Term Loans and Revolving Commitment (regardless of whether all or any portion of such Revolving Commitment is used or unused on the date hereof).

 

3.2            Effective Date . This Amendment, shall be effective on the date (the “ Amendment Effective Date ”) upon which the conditions precedent set forth in Section 3.1 above are satisfied.

 

Section 4.           Representations and Warranties . The Borrower hereby represents and warrants to the Administrative Agent and the Lenders party hereto as follows:

 

4.1            Power and Authority . It has the legal power and authority to execute and deliver this Amendment and perform its obligations hereunder and under the Credit Agreement as amended hereby.

 

4.2            Authorization . It has taken all proper and necessary corporate action to authorize the execution, delivery and performance of this Amendment and the transactions contemplated hereby.

 

4.3            Non-Violation . The execution and delivery of this Amendment and the performance and observance by it of the provisions hereof do not and will not (a) violate the Organizational Documents of any Company, (b) violate or result in a default or require any consent or approval under (x) any indenture, instrument, agreement, or other document binding upon any Company or its property or to which any Company or its property is subject, or give rise to a right thereunder to require any payment to be made by any Company, except for violations, defaults or the creation of such rights that could not reasonably be expected to result in a Material Adverse Effect or (y) any Organizational Document (other than such as have been obtained and are in full force and effect), (c) violate any Legal Requirement in any material respect, and (d) result in the creation or imposition of any Lien on any property of any Company, except Permitted Liens.

 

4.4            Validity and Binding Effect . This Amendment has been duly executed and delivered by the Borrower. Upon satisfaction of the conditions set forth in Section 3.1 above, this Amendment shall constitute a legal, valid and binding obligation of the Borrower, enforceable in accordance with its terms, subject to applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting creditors’ rights generally, regardless of whether considered in a proceeding in equity or at law.

 

4.5            Representations and Warranties in Credit Agreement . The representations and warranties of each Loan Party contained in the Credit Agreement as amended hereby and each Loan Document are (i) in the case of representations and warranties qualified by materiality, “Material Adverse Effect” or similar language, true and correct in all respects and (ii) in the case of all other representations and warranties, true and correct in all material respects, in each case on and as of the Amendment Effective Date, except to the extent that such representations and warranties specifically refer to an earlier date, in which case such representations and warranties are true and correct on the basis set forth above as of such earlier date.

 

  - 2 -  

 

 

4.6            No Event of Default . No Default or Event of Default exists before, nor will occur immediately after, giving effect to this Amendment or observing any provision hereof.

 

4.7            No Consent . No consent, exemption, authorization or approval of, registration or filing with, or any other action by, any Governmental Authority is required in connection with this Amendment, or the execution, delivery, performance, validity or enforceability of this Amendment or any other Loan Document, except consents, authorizations, filings and notices which have been obtained or made and are in full force and effect.

 

Section 5.           Guarantor Acknowledgment . Each Guarantor, by signing this Amendment hereby:

 

5.1           confirms and ratifies its respective guarantees, pledges and grants of security interests, as applicable, under each Loan Document to which it is a party, and agrees that notwithstanding the effectiveness of the Amendment and the consummation of the transactions contemplated thereby such guarantees, pledges and grants of security interests shall continue to be in full force and effect and shall accrue to the benefit of the Secured Parties;

 

5.2           acknowledges and agrees that all of the Loan Documents to which such Guarantor is a party or otherwise bound shall continue in full force and effect and that all of such Guarantor’s obligations thereunder shall be valid and enforceable and shall not be impaired or limited by the execution or effectiveness of this Amendment; and

 

5.3           hereby consents and agrees to and acknowledges and affirms the terms of this Amendment and the transactions contemplated thereby.

 

Section 6.           Miscellaneous .

 

6.1            Successors and Assigns . The provisions of this Amendment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns.

 

6.2            Survival of Representations and Warranties . All representations and warranties made hereunder shall survive the execution and delivery of this Amendment, and no investigation by the Administrative Agent or the Lenders or any subsequent extension of credit shall affect any of such representations and warranties or the right of the Administrative Agent or any Lender to rely upon them.

 

6.3            Severability . Any provision of this Amendment held to be invalid, illegal or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such invalidity, illegality or unenforceability without affecting the validity, legality and enforceability of the remaining provisions hereof; and the invalidity of a particular provision in a particular jurisdiction shall not invalidate such provision in any other jurisdiction.

 

6.4            Headings . The headings, captions and arrangements used in this Amendment are for convenience only and shall not affect the interpretation of this Amendment.

 

6.5            Loan Documents Unaffected . Each reference to the Credit Agreement in any Loan Document shall hereafter be construed as a reference to the Credit Agreement as amended hereby. This Amendment shall not by implication or otherwise limit, impair, constitute a waiver of, or otherwise affect the rights and remedies of any party under, the Credit Agreement or any other Loan Document. Except as herein otherwise specifically provided, all provisions of the Credit Agreement and the other Loan Documents, and the guarantees, pledges and grants of security interests, as applicable, under each of the Security Documents, are hereby reaffirmed and ratified and shall remain in full force and effect, shall continue to accrue to the benefit of the Secured Parties and shall be unaffected hereby. This Amendment is a Loan Document.

 

  - 3 -  

 

 

6.6           Waiver of Claims . The Loan Parties hereby acknowledge and agree that, through the date hereof, each of the Administrative Agent and the Lenders has acted in good faith and has conducted itself in a commercially reasonable manner in its relationships with the Loan Parties in connection with the Obligations, the Credit Agreement, and the other Loan Documents, and the Loan Parties hereby waive and release any claims to the contrary. The Loan Parties hereby release, acquit and forever discharge the Administrative Agent and each of the Lenders, their respective Affiliates, and their respective officers, directors, employees, agents, attorneys, advisors, successors and assigns, both present and former, from any and all claims and defenses, known or unknown as of the date hereof, with respect to the Obligations, this Amendment, the Credit Agreement, the other Loan Documents and the transactions contemplated hereby and thereby.

 

6.7           Expenses . As provided in the Credit Agreement, but without limiting any terms or provisions thereof, each of the Loan Parties hereby jointly and severally agrees to pay on demand all reasonable costs and expenses incurred by the Administrative Agent in connection with the documentation, preparation and execution of this Amendment, regardless of whether this Amendment becomes effective in accordance with the terms hereof, and all costs and expenses incurred by the Administrative Agent and/or any Lender in connection with the enforcement or preservation of any rights under the Credit Agreement as amended or otherwise modified hereby, including reasonable and documented fees and out-of-pocket disbursements of one outside counsel of the Lenders and one counsel to each Agent and any necessary local counsel.

 

6.8           Entire Agreement . This Amendment, together with the Credit Agreement and the other Loan Documents, integrates all the terms and conditions mentioned herein or incidental hereto and supersedes all oral representations and negotiations and prior writings with respect to the subject matter hereof.

 

6.9           Acknowledgments . Each Loan Party hereby acknowledges that:

 

(a)          it has been advised by counsel in the negotiation, execution and delivery of this Amendment and the other Loan Documents;

 

(b)          neither the Administrative Agent nor any Lender has any fiduciary relationship with or duty to any Loan Party arising out of or in connection with this Amendment or any of the other Loan Documents, and the relationship between the Administrative Agent and the Lenders, on one hand, and the Loan Parties, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

 

(c)          no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Lenders or among the Loan Parties and the Lenders.

 

  - 4 -  

 

 

6.10         Counterparts . This Amendment may be executed by the parties hereto separately in one or more counterparts, each of which when so executed shall be deemed to be an original, but all of which when taken together shall constitute one and the same agreement. Transmission by a party to another party (or its counsel) via facsimile or electronic mail of a copy of this Amendment (or a signature page of this Amendment) shall be as fully effective as delivery by such transmitting party to the other parties hereto of a counterpart of this Amendment that had been manually signed by such transmitting party.

 

6.11         Governing Law . THIS AMENDMENT AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

6.12         Submission To Jurisdiction; Waivers

 

Each Loan Party hereby irrevocably and unconditionally:

 

(a)          submits for itself and its property in any legal action or proceeding relating to this Amendment and the other Loan Documents to which it is a party, or for recognition and enforcement of any judgment in respect thereof, to the non-exclusive general jurisdiction of the courts of the State of New York, the courts of the United States for the Southern District of New York, and appellate courts from any thereof;

 

(b)          consents that any such action or proceeding may be brought in such courts and waives any objection that it may now or hereafter have to the venue of any such action or proceeding in any such court or that such action or proceeding was brought in an inconvenient court and agrees not to plead or claim the same;

 

(c)          agrees that service of process in any such action or proceeding may be effected by mailing a copy thereof by registered or certified mail (or any substantially similar form of mail), postage prepaid, to the Borrower or any other Loan Party at its address set forth in Section 10.01 of the Credit Agreement, or, in any case, at such other address of which the Administrative Agent shall have been notified pursuant thereto;

 

(d)          agrees that nothing herein shall affect the right to effect service of process in any other manner permitted by law or shall limit the right to sue in any other jurisdiction; and

 

(e)          waives, to the maximum extent not prohibited by law, any right it may have to claim or recover in any legal action or proceeding referred to in this Section any special, exemplary, punitive or consequential damages.

 

6.13          Jury Trial Waiver . EACH LOAN PARTY, EACH AGENT AND EACH LENDER SIGNATORY HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS AMENDMENT (INCLUDING, WITHOUT LIMITATION, ANY AMENDMENTS, WAIVERS OR OTHER MODIFICATIONS RELATING TO ANY OF THE FOREGOING) OR ANY OTHER LOAN DOCUMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

[Signature page follows]

 

  - 5 -  

 

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the day and year first above written.

 

  INTERNAP CORPORATION (F/K/A INTERNAP
NETWORK SERVICES CORPORATION),
     
  By: /s/ Kevin M. Dotts
    Name: Kevin M. Dotts
    Title: Chief Financial Officer

 

First Amendment to Credit Agreement

 

 

 

 

  JEFFERIES FINANCE LLC,
  as Administrative Agent and as a Lender
     
  By: /s/ J. Paul McDonnell
    Name: J. Paul McDonnell
    Title: Managing Director
     
    [Lenders’ signature pages omitted]

 

[ Signature Page to First Amendment to Credit Agreement ]

 

 

 

 

  Acknowledged and agreed:
   
  VOXEL HOLDINGS, INC. , as a Guarantor
     
  By /s/ John D. Maggard
  Name: John D. Maggard
  Title: President and Treasurer
     
  VOXEL DOT NET, INC. , as a Guarantor
     
  By /s/ John D. Maggard
  Name: John D. Maggard
  Title: President and Treasurer
     
  UBERSMITH, INC. , as a Guarantor
     
  By /s/ John D. Maggard
  Name: John D. Maggard
  Title: President and Treasurer
     
  INTERNAP CONNECTIVITY LLC , as a Guarantor
     
  By /s/ John D. Maggard
  Name: John D. Maggard
  Title: President and Treasurer

 

[ Signature Page to First Amendment to Credit Agreement ]

 

 

 

 

 

 

Exhibit 99.1

 

 

Internap Reports Continued Adjusted EBITDA Margin Expansion and Positive Levered Free Cash Flow

 

· Revenue of $78.3 million, down 7% versus the third quarter of 2014

 

· Data center services revenue of $58.6 million, down 5% year-over-year

 

· Segment margin 1 of 57.0%, up 90 basis points versus the third quarter of 2014

 

· Adjusted EBITDA 2 of $19.8 million unchanged year-over-year

 

· Adjusted EBITDA margin 2 of 25.2%, up 190 basis points year-over-year

 

· Levered free cash flow 3 of $2.2 million

 

ATLANTA, GA – (November 5, 2015) Internap Corporation (NASDAQ: INAP), a provider of high-performance Internet infrastructure services, today announced financial results for the third quarter of 2015.

 

“Our company-wide growth initiatives are beginning to yield encouraging results. We gained positive operating momentum throughout the third quarter of 2015 with bookings increasing each month during the quarter and September bookings reaching the highest level in six months. Additionally, customer churn is improving while channel partner productivity is increasing,” said Michael Ruffolo, President and Chief Executive Officer of Internap. “We believe our third quarter 2015 results provide a solid foundation to accelerate top-line revenue growth and expand margins. With a disciplined approach to capital allocation, we are encouraged in our ability to generate positive levered free cash flow. We remain confident that our compelling performance-based value proposition should drive long-term profitable growth for the business.”

 

Third Quarter 2015 Financial Summary

 

(In thousands)

 

                      YoY     QoQ  
    3Q 2015     3Q 2014     2Q 2015     Growth     Growth  
Revenues:                                        
Data center services   $ 58,622     $ 61,640     $ 59,422       -5 %     -1 %
IP services     19,696     $ 23,027     $ 21,010       -14 %     -6 %
Total Revenues   $ 78,318     $ 84,667     $ 80,432       -7 %     -3 %
                                         
Operating Expenses   $ 87,503     $ 87,702     $ 86,270       0 %     1 %
                                         
GAAP Net Loss   $ (14,197 )   $ (9,377 )   $ (12,534 )     -51 %     -13 %
                                         
Normalized Net Loss 2   $ (9,990 )   $ (7,543 )   $ (10,290 )     -32 %     3 %
                                         
Segment Profit 1   $ 44,637     $ 47,519     $ 47,454       -6 %     -6 %
Segment Profit Margin     57.0 %     56.1 %     59.0 %     90 BPS       -200 BPS  
                                         
Adjusted EBITDA   $ 19,752     $ 19,714     $ 19,109       0 %     3 %
Adjusted EBITDA Margin     25.2 %     23.3 %     23.8 %     190 BPS       140 BPS  

 

  1
 

 

 

Revenue

 

● Revenue totaled $78.3 million in the third quarter, a decrease of 7% year-over-year and 3% sequentially. The year-over-year decrease was due to the loss of revenue related to customer attrition following our migration out of the New York metro data center into our Secaucus facility, the decrease in partner colocation revenue and lower IP revenue, partially offset by organic growth in core data center services revenue. Sequentially, revenue declined in data center services and IP services.

 

● Data center services revenue totaled $58.6 million in the third quarter, a decrease of 5% year-over-year and 1% sequentially. The year-over-year decrease was primarily due to the loss of revenue from the New York metro data center migration. The sequential decrease was primarily attributable to previously-disclosed hosting churn experienced late in the second quarter of 2015, partially offset by organic growth in core revenues. Partner colocation revenue declined due to our strategy to focus on selling into our company-controlled data centers.

 

● IP services revenue totaled $19.7 million in the third quarter, a decrease of 14% year-over-year and 6% sequentially. Both decreases were driven by a decline in IP pricing for new and renewing customers and the loss of legacy contracts.

 

Net Loss

 

● GAAP net loss was $(14.2) million, or $(0.27) per share, compared with $(9.4) million, or $(0.18) per share, in the third quarter of 2014 and $(12.5) million, or $(0.24) per share, in the second quarter of 2015.

 

● Normalized net loss was $(10.0) million, or $(0.19) per share, compared with normalized net loss of $(7.5) million, or $(0.15) per share, in the third quarter of 2014, and normalized net loss of $(10.3) million, or $(0.20) per share, in the second quarter of 2015.

 

Segment Profit and Adjusted EBITDA

 

● Segment profit totaled $44.6 million in the third quarter, a 6% decrease year-over-year and quarter-over-quarter. Segment margin was 57.0%, an increase of 90 basis points year-over-year and a decrease of 200 basis points sequentially.

 

● Data center services segment profit totaled $33.5 million in the third quarter, a 1% decrease compared with the third quarter of 2014 and a 4% decrease from the second quarter of 2015. Data center services segment margin was 57.2% in the third quarter, up 220 basis points year-over-year and down 180 basis points sequentially. An increasing proportion of higher-margin services, specifically colocation sold in company-controlled data centers, hosting and cloud services drove data center services segment profit and margin higher compared with the third quarter of 2014. Higher seasonal power costs resulted in a decrease in data center services segment profit and margin compared with the second quarter of 2015.

 

● IP services segment profit totaled $11.1 million in the third quarter, an 18% decrease compared with the third quarter of 2014 and a 10% decrease from the second quarter of 2015. IP services segment margin was 56.5% in the third quarter, down 250 basis points year-over-year and 240 basis points sequentially. Lower IP transit revenue and the loss of legacy contracts drove the decrease in segment profit and segment margin.

 

● Adjusted EBITDA totaled $19.8 million in the third quarter, flat compared with the third quarter of 2014 and a 3% increase from the second quarter of 2015. Adjusted EBITDA margin was 25.2% in the third quarter, up 190 basis points year-over-year and 140 basis points sequentially. Lower cash operating expense 4 positively impacted adjusted EBITDA and adjusted EBITDA margin. Benefits included a decrease in sales and marketing costs primarily related to the removal of redundancies in connection with the phase-out of the iWeb trade name and other marketing program efficiencies. General and administrative costs decreased primarily due to lower cash-based compensation.

 

Balance Sheet and Cash Flow Statement

 

● Cash and cash equivalents totaled $18.3 million at September 30, 2015. Total debt was $376.3 million, net of discount, at the end of the quarter, including $57.5 million in capital lease obligations.

 

● Cash generated from operations for the three months ended September 30, 2015 was $10.8 million. Capital expenditures over the same period were $10.9 million and cash interest expense was $6.7 million, resulting in $2.2 million of levered free cash flow.

 

  2
 

 

B

 

Business Outlook

 

We are reaffirming the following guidance for full-year 2015:

 

  ● Revenue   $320 million - $325 million
         
  ● Adjusted EBITDA   $80 million - $85 million
         
  ● Capital Expenditures   $60 million - $70 million

 

Recent Operational Highlights

 

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

 

● Internap announced the general availability of AgileSERVER 2.0, the next generation of its bare-metal Infrastructure-as-a-Service (IaaS) offering. A high-performance IaaS option, AgileSERVER 2.0 features significant hardware, networking and management advancements designed to meet the needs of enterprises and devops teams deploying mission-critical applications and big-data workloads on OpenStack.

 

● Internap announced an alliance with Akamai to provide customers with Internap's performance-optimized cloud, data center and network services combined with Akamai's cloud security and data center protection services.

 

● Internap’s New York Metro data center was recently awarded Leadership in Energy and Environmental Design (LEED) Platinum certification by the U.S. Green Building Council. This facility has also achieved ENERGY STAR certification, a program run by the U.S. Environmental Protection Agency (EPA) to identify ways in which energy efficiency can be measured, documented and implemented in data centers.

 

● We had 11,021 customers at September 30, 2015.

 

 

 

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 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 and normalized net loss are contained in the tables entitled “Reconciliation of Loss from Operations to Adjusted EBITDA,” and “Reconciliation of Net Loss and Basic and Diluted Net Loss Per Share to Normalized Net Loss and Basic and Diluted Normalized Net Loss Per Share” in the attachment.

 

3 Levered free cash flow is a non-GAAP measure 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 levered free cash flow is contained in the table entitled “Levered Free Cash Flow” in the attachment.

 

4 Cash operating expense is a non-GAAP measure 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 cash operating expense is contained in the table entitled “Cash Operating Expense” in the attachment.

 

Conference Call Information:

 

Internap’s third quarter 2015 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, November 5, 2015 at 8:00 p.m. ET through Wednesday, November 11, 2015 at 855-859-2056 using replay code 61666043. International callers can listen to the archived event at 404-537-3406 with the same code.

 

  3
 

 

 

 

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 ability to accelerate top-line growth, expand margins, generate positive levered free cash flow and drive long-term profitable growth and our expectations for full-year 2015 revenue, adjusted EBITDA and capital expenditures. Our ability to accelerate top-line growth, expand margins, generate positive levered free cash flow and drive long-term profitable growth and our expectations for full-year 2015 revenue, adjusted EBITDA and capital expenditures are based on certain assumptions, including anticipated new product launches, 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; 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 and existing 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

 

  4
 

 

 

INTERNAP CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2015     2014     2015     2014  
Revenues:                                
Data center services   $ 58,622     $ 61,640     $ 177,142     $ 181,318  
Internet protocol (IP) services     19,696       23,027       62,394       69,378  
Total revenues     78,318       84,667       239,536       250,696  
                                 
Operating costs and expenses:                                
Direct costs of sales and services, exclusive of depreciation and amortization, shown below:                                
Data center services     25,111       27,716       73,711       80,170  
IP services     8,570       9,432       26,295       29,300  
Direct costs of customer support     9,173       9,114       27,381       27,594  
Direct costs of amortization of acquired and developed technologies     816       1,524       2,557       4,535  
Sales and marketing     8,305       8,858       28,347       28,938  
General and administrative     10,793       11,611       34,295       34,471  
Depreciation and amortization     23,815       19,391       64,847       54,773  
Exit activities, restructuring and impairments     920       56       1,245       3,001  
                                 
Total operating costs and expenses     87,503       87,702       258,678       262,782  
                                 
Loss from operations     (9,185 )     (3,035 )     (19,142 )     (12,086 )
                                 
Non-operating expenses:                                
Interest expense     6,923       6,699       20,613       19,996  
Other, net     (288 )     (149 )     (763 )     335  
Total non-operating expenses     6,635       6,550       19,850       20,331  
                                 
Loss before income taxes and equity in (earnings) of equity-method investment     (15,820 )     (9,585 )     (38,992 )     (32,417 )
Benefit for income taxes     (1,612 )     (128 )     (1,723 )     (982 )
Equity in (earnings) of equity-method investment, net of taxes     (11 )     (80 )     (96 )     (198 )
                                 
Net loss   $ (14,197 )   $ (9,377 )   $ (37,173 )   $ (31,237 )
                                 
Basic and diluted net loss per share   $ (0.27 )   $ (0.18 )   $ (0.72 )   $ (0.61 )
                                 
Weighted average shares outstanding used in computing net loss per share:                                
Basic and diluted     51,699       51,063       51,763       51,180  

 

  5
 

 

 

INTERNAP CORPORATION

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except par value amounts)

 

    September 30,     December 31,  
    2015     2014  
             
ASSETS            
Current assets:                
Cash and cash equivalents   $ 18,312     $ 20,084  
Accounts receivable, net of allowance for doubtful accounts of $1,830 and $2,121, respectively     22,007       19,606  
Deferred tax asset     676       633  
Prepaid expenses and other assets     10,994       12,276  
Total current assets     51,989       52,599  
Property and equipment, net     330,603       342,145  
Investment in joint venture     2,733       2,622  
Intangible assets, net     38,463       52,545  
Goodwill     130,313       130,313  
Deposits and other assets     10,790       9,923  
Deferred tax asset     164       1,637  
Total assets   $ 565,055     $ 591,784  
                 
LIABILITIES AND STOCKHOLDERS' EQUITY                
Current liabilities:                
Accounts payable   $ 18,047     $ 30,589  
Accrued liabilities     11,981       13,120  
Deferred revenues     6,696       7,345  
Capital lease obligations     8,218       7,366  
Term loan, less discount of $1,523 and $1,463, respectively     1,477       1,537  
Exit activities and restructuring liability     2,140       1,809  
Other current liabilities     2,232       1,590  
Total current liabilities     50,791       63,356  
                 
Deferred revenues     4,613       3,544  
Capital lease obligations     49,291       52,686  
Revolving credit facility     31,000       10,000  
Term loan, less discount of $5,396 and $6,543 respectively     286,354       287,457  
Exit activities and restructuring liability     1,756       2,701  
Deferred rent     9,296       10,583  
Deferred tax liability     3,610       7,293  
Other long-term liabilities     4,668       3,828  
Total liabilities     441,379       441,448  
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; 56,036 and 54,410 shares outstanding, respectively     56       54  
Additional paid-in capital     1,274,834       1,262,402  
Treasury stock, at cost; 768 and 621 shares, respectively     (6,014 )     (4,683 )
Accumulated deficit     (1,142,687 )     (1,105,514 )
Accumulated items of other comprehensive loss     (2,513 )     (1,923 )
Total stockholders' equity     123,676       150,336  
Total liabilities and stockholders' equity   $ 565,055     $ 591,784  

 

  6
 

 

 

INTERNAP CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

    Three Months Ended September 30,     Nine Months Ended September 30,  
    2015     2014     2015     2014  
Cash Flows from Operating Activities:                                
Net loss   $ (14,197 )   $ (9,377 )   $ (37,173 )   $ (31,237 )
Adjustments to reconcile net loss to net cash provided by operating activities:                                
Depreciation and amortization     24,631       20,915       67,404       59,308  
Impairment of property and equipment     232       -       232       537  
Amortization of debt discount and issuance costs     508       763       1,498       1,441  
Stock-based compensation expense, net of capitalized amount     2,435       1,778       6,200       5,675  
Equity in (earnings) of equity-method investment     (11 )     (80 )     (96 )     (198 )
Provision for doubtful accounts     316       634       922       811  
Non-cash change in capital lease obligations     (527 )     (440 )     (1,167 )     (87 )
Non-cash change in exit activities and restructuring liability     864       145       1,400       2,996  
Non-cash change in deferred rent     (499 )     (646 )     (1,287 )     (2,028 )
Deferred taxes     (2,024 )     (92 )     (2,181 )     (1,226 )
Other, net     212       (293 )     230       197  
Changes in operating assets and liabilities:     -                          
Accounts receivable     (1,812 )     (2,011 )     (3,459 )     3,198  
Prepaid expenses, deposits and other assets     1,797       111       836       (3,080 )
Accounts payable     414       614       (7,748 )     (2,585 )
Accrued and other liabilities     (308 )     1,991       (1,862 )     4,795  
Deferred revenues     (529 )     (1,229 )     624       99  
Exit activities and restructuring liability     (673 )     (756 )     (2,014 )     (2,296 )
Other liabilities     (1 )     (97 )     34       (90 )
Net cash flows provided by operating activities     10,828       11,930       22,393       36,230  
                                 
Cash Flows from Investing Activities:                                
Purchases of property and equipment     (10,610 )     (14,051 )     (41,299 )     (51,312 )
Additions to acquired and developed technology     (310 )     (704 )     (1,120 )     (2,004 )
Proceeds from sale-leaseback transactions     -       2,603       -       2,603  
Acquisition, net of cash received     -       -       -       74  
Net cash flows used in investing activities     (10,920 )     (12,152 )     (42,419 )     (50,639 )
                                 
Cash Flows from Financing Activities:                                
Proceeds from credit agreements     4,000       -       21,000       5,000  
Principal payments on credit agreements     (750 )     (750 )     (2,250 )     (2,250 )
Return of deposit collateral on credit agreement     -       308       -       6,461  
Payments on capital lease obligations     (2,001 )     (1,469 )     (5,718 )     (4,212 )
Proceeds from exercise of stock options     1,517       95       6,005       973  
Acquisition of common stock for income tax withholdings     (464 )     (59 )     (1,332 )     (744 )
Other, net     (74 )     (46 )     869       (135 )
Net cash flows provided by (used in) financing activities     2,228       (1,921 )     18,574       5,093  
Effect of exchange rates on cash and cash equivalents     (236 )     (227 )     (320 )     (209 )
Net increase (decrease) in cash and cash equivalents     1,900       (2,370 )     (1,772 )     (9,525 )
Cash and cash equivalents at beginning of period     16,412       27,863       20,084       35,018  
Cash and cash equivalents at end of period   $ 18,312     $ 25,493     $ 18,312     $ 25,493  

 

  7
 

 

 

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 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 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, acquisition costs and strategic alternatives and related 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.

 

● 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, direct costs of amortization of acquired and developed technologies or any other depreciation or amortization associated with direct costs.

 

● Segment margin is segment profit as a percentage of segment revenues.

 

● Levered free cash flow is adjusted EBITDA less capital expenditures, net of equipment sale-leaseback transactions and cash paid for interest.

 

● Cash operating expense is GAAP operating expense less direct cost of sales and services, depreciation and amortization, loss (gain) on disposals of property and equipment, exit activities, restructuring and impairments, stock-based compensation, acquisition costs and strategic alternatives and related costs.

 

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.

 

  8
 

 

 

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

 

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.

 

  9
 

 

 

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

 

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

 

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, 2015     June 30, 2015     September 30, 2014  
Loss from operations (GAAP)   $ (9,185 )   $ (5,838 )   $ (3,035 )
Depreciation and amortization, including amortization of acquired and developed technologies     24,631       22,566       20,915  
Loss on disposal of property and equipment, net     99       137       -  
Exit activities, restructuring and impairments     920       59       56  
Stock-based compensation     2,435       2,185       1,778  
Strategic alternatives and related costs     852       -       -  
Adjusted EBITDA (non-GAAP)   $ 19,752     $ 19,109     $ 19,714  

 

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, 2015     June 30, 2015     September 30, 2014  
Net loss (GAAP)   $ (14,197 )   $ (12,534 )   $ (9,377 )
Exit activities, restructuring and impairments     920       59       56  
Stock-based compensation     2,435       2,185       1,778  
Strategic alternatives and related costs     852       -       -  
Normalized net loss (non-GAAP)     (9,990 )     (10,290 )     (7,543 )
                         
Normalized net income allocable to participating securities (non-GAAP)     -       -       -  
Normalized net loss available to common stockholders (non-GAAP)   $ (9,990 )   $ (10,290 )   $ (7,543 )
Participating securities (GAAP)     1,305       1,246       1,083  
                         
Weighted average shares outstanding used in per share calculation:                        
Basic and diluted (GAAP)     51,699       51,579       51,063  
Add potentially dilutive securities     -       -       -  
Less dilutive effect of stock-based compensation under the treasury stock method     -     -       -  
Normalized diluted shares (non-GAAP)     51,699       51,579       51,063  
                         
Loss per share (GAAP):                        
Basic and diluted   $ (0.27 )   $ (0.24 )   $ (0.18 )
                         
Normalized net loss per share (non-GAAP):                        
Basic and diluted   $ (0.19 )   $ (0.20 )   $ (0.15 )

 

  10
 

 

 

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

 

INTERNAP 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 and developed technologies or any other depreciation or amortization, for each of the periods indicated is as follows (dollars in thousands):

 

    Three Months Ended  
    September 30, 2015     June 30, 2015     September 30, 2014  
Revenues:                        
Data center services:                        
Core   $ 48,385     $ 48,711     $ 49,941  
Partner colocation     10,237       10,711       11,699  
Total data center services     58,622       59,422       61,640  
IP services     19,696       21,010       23,027  
Total     78,318       80,432       84,667  
                         
Direct cost of sales and services, exclusive of depreciation and amortization:                        
Data center services:                        
Core     17,203       16,371       18,849  
Partner colocation     7,908       7,964       8,867  
Total data center services     25,111       24,335       27,716  
IP services     8,570       8,643       9,432  
Total     33,681       32,978       37,148  
                         
Segment Profit:                        
Data center services:                        
Core     31,182       32,340     31,092  
Partner colocation     2,329       2,747     2,832  
Total data center services     33,511       35,087       33,924  
IP services     11,126       12,367       13,595  
Total   $ 44,637     $ 47,454   $ 47,519  
                         
Segment Margin:                        
Data center services:                        
Core     64.4 %     66.4 %     62.3 %
Partner colocation     22.8 %     25.6 %     24.2 %
Total data center services     57.2 %     59.0 %     55.0 %
IP services     56.5 %     58.9 %     59.0 %
Total     57.0 %     59.0 %     56.1 %

 

  11
 

 

B

 

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

 

LEVERED FREE CASH FLOW

 

Levered free cash flow is a non-GAAP measure and is adjusted EBITDA less capital expenditures, net of equipment sale-leaseback transactions and cash paid for interest (in thousands):

 

    Three Months Ended  
    September 30, 2015     June 30, 2015     September 30, 2014  
Adjusted EBITDA (non-GAAP)   $ 19,752     $ 19,109     $ 19,714  
Capital expenditures, net of equipment sale-leaseback transactions     (10,920 )     (15,797 )     (13,758 )
Unlevered free cash flow (non-GAAP)     8,832       3,312       5,956  
                         
Cash interest expense     (6,660 )     (6,602 )     (6,167 )
Levered free cash flow (non-GAAP)   $ 2,172     $ (3,290 )   $ (211 )

 

CASH OPERATING EXPENSE

 

Cash operating expense is a non-GAAP measure and is operating expense defined by GAAP, less direct costs of sales and services, depreciation and amortization, (loss) gain on disposal of property and equipment, exit activities, restructuring and impairments, stock-based compensation, acquisition costs and strategic alternatives and related costs (in thousands):

 

    Three Months Ended  
    September 30, 2015     June 30, 2015     September 30, 2014  
Total operating costs and expenses   $ 87,503     $ 86,270     $ 87,702  
Direct costs of sales and services, exclusive of depreciation and amortization     (33,681 )     (32,978 )     (37,148 )
Depreciation and amortization, including amortization of acquired and developed technologies     (24,631 )     (22,566 )     (20,915 )
Loss on disposal of property and equipment, net     (99 )     (137 )     -  
Exit activities, restructuring and impairments     (920 )     (59 )     (56 )
Stock-based compensation     (2,435 )     (2,185 )     (1,778 )
Strategic alternatives and related costs     (852 )     -       -  
Cash operating expense (non-GAAP)   $ 24,885     $ 28,345     $ 27,805  

 

  12