Internap Reports Third Quarter 2008 Financial Results

Record revenues of $65.4 million, an increase of 4.9 percent versus the second quarter of 2008 and 8.2 percent compared with the third quarter of 2007;
- Adjusted EBITDA(1) of $10.0 million, up 81.6 percent compared with the second quarter 2008;
- Adjusted EBITDA margin(1) of 15.2 percent, a increase of 640 basis points over the second quarter 2008;
- Year-to-date operating cash flow of $30.6 million;
- On track to complete 40,000 sq. ft. data center deployment plan at company-controlled facilities in the fourth quarter 2008.

ATLANTA, GA – (November 6, 2008) Internap Network Services Corporation (NASDAQ: INAP), a global provider of fast and reliable end-to-end Internet business solutions, today reported third quarter financial results, highlighted by record revenues and strong operating margins. Strength in data center services and solid IP services revenue drove results.

"Internap posted record revenues and expanded margins in the third quarter, demonstrating focus and discipline in the face of a weak economy and signaling that we have begun to restore predictability and stability to our business,” said James P. DeBlasio, chief executive officer of Internap. “Data center revenue grew nicely and our expansion plans are on track, delivering incremental capacity to satisfy customer demand, resulting in robust top line growth. Internap’s core IP services business also performed well and we benefitted from efforts to reduce churn and proactively manage our customers’ Performance IP pricing. During the third quarter, we added important new features to our content delivery network and increased reliability by further integrating our CDN with our IP network. These positive results underscore our confidence that Internap’s unique bundled-services approach, strong balance sheet, and durable subscription based business model will enable the company to weather the challenges of a difficult economy and position the Company for consistent growth going forward.”

Third quarter 2008 revenues were $65.4 million, an increase of 8.2 percent compared with the third quarter of 2007 and 4.9 percent sequentially. The year-over-year improvement was primarily due to an increase in data center services revenue as increased data center square footage and continued pricing strength both benefitted the year-over-year comparison. Since the beginning of the year, Internap has deployed more than 36,000 square feet in partner and Internap-operated data center facilities. Compared to the prior quarter, continued demand for the Company’s data center services and improvement in IP Services revenue more than offset a quarter over quarter decline in CDN services.

GAAP net loss the third quarter of 2008 was $(101.4) million, or $(2.06) per diluted share compared with GAAP net income of $1.4 million or $0.03 per diluted share for the third quarter of 2007. Third quarter GAAP net loss includes a previously announced non-cash goodwill and other intangible asset impairment charge, which totals $102.3 million. Normalized net income(1) and normalized net income per diluted share(1), which exclude the impact of this impairment charge and other non-recurring items and stock-based compensation, was $2.8 million, or $0.06 per diluted share in the third quarter 2008.

Adjusted gross profit(1) was $30.0 million, an increase of 4.0 percent versus the second quarter 2008. Year-over-year adjusted gross profit (1) declined 3.7 percent. Adjusted gross margin(1) was 45.9 percent in the third quarter of 2008, decreasing 40 basis points from 46.3 percent in the second quarter of 2008. Compared with the third quarter 2007, adjusted gross margin(1) declined 570 basis points. Both the year-over-year and sequential decreases in margin were primarily driven by a decline in data center gross margins which fell due to the planned roll-out of additional company-controlled capacity during the quarter. IP services and CDN services adjusted gross margins also contributed to the decreases as per-unit pricing declines more than offset higher traffic volume and increased operating leverage.

Adjusted EBITDA(1) in the third quarter of 2008 was $10.0 million, an increase of $4.5 million over the second quarter of 2008. Compared with the same quarter in the prior year, Adjusted EBITDA(1) decreased of $0.5 million or 5.0 percent. Adjusted EBITDA margin(1) improved 640 basis points sequentially to 15.2 percent. Year over year, adjusted EBITDA margin(1) fell 220 basis points. The increase compared with the second quarter 2008 was primarily attributable to a decrease in bad debt expense and lower sales and marketing costs. The year-over-year decline in adjusted EBITDA margin(1) was the result of lower total gross margins.

The Company ended the quarter with $64.4 million in cash, restricted cash and short-term investments compared with $68.3 million at the end of the second quarter of 2008. Total debt, including capital lease obligations was $20.7 million in the third quarter 2008, approximately flat with the previous quarter’s outstanding balance.

Internap had 3,671 customers under contract in the third quarter of 2008, a net decrease of 97 customers compared with the second quarter 2008. New accounts this period included Readytech Corporation and Tribune Company. Internap reaffirmed its outlook for full-year 2008 financial results:
-- Full year revenue growth of 9 to 13 percent over 2007;
-- Full year adjusted EBITDA(1) in the range of 11 to 15 percent of total revenues; and
-- Full year capital expenditures in the range of $45 - $50 million.

(1) Reconciliations between GAAP information and non-GAAP information contained in this press release are provided in the tables below entitled "Reconciliation of Net (Loss) Income to Adjusted EBITDA," "Reconciliation of Net (Loss) Income and Basic and Diluted Net (Loss) Income Per Share to Normalized Net Income (Loss) and Basic and Diluted Normalized Net Income (Loss) Per Share" and "Reconciliation of Gross Margin to Adjusted Gross Margin." This information is also available on our Web site under the Investor Services heading.

Conference Call Information:
Internap's third quarter 2008 conference call will be held today at 5:00 p.m. EST. Participants may access the call by dialing 800-431-4190. International callers should dial 913-312-0835. Listeners may also connect to the simultaneous webcast available from the investor relations section of the company’s web site at http://ir.internap.com/events.cfm. A replay of the call will be accessible from Thursday, November 6 at 8 p.m. EST through Wednesday, November 12 at 888-203-1112 using the replay code 2366145. International callers can access the archived event at 719-457-0820 with the same code.

About Internap
Internap is a leading Internet solutions company that provides The Ultimate Online Experience™ by managing, delivering and distributing applications and content with 100% performance and reliability. With a global platform of data centers, managed Internet services and a content delivery network (CDN), Internap frees its customers to innovate their business, improve service levels, and lower the cost of IT operations. More than 3,000 companies across the globe trust Internap to help them achieve their Internet business goals. For more information, visit www.internap.com.

Internap “Safe Harbor” Statement
Certain information included in this press release constitutes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements, other than statements of historical facts, including, among others, statements regarding the performance of our products, business strategy, projected levels of growth and projected costs, are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Internap and members of our management team, as well as the assumptions on which such statements are based. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties that actual results may differ materially from those contemplated by forward-looking statements. Other important factors that may affect Internap’s business, products, results of operations and financial condition include, but are not limited to: our ability to sustain profitability; our ability to respond successfully to technological change; 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, network access points or computer systems; and our ability to protect our intellectual property.

Our Annual Report on Form 10-K/A, Quarterly Reports on Form 10-Q, recent Current Reports on Form 8-K and other Securities and Exchange Commission filings discuss the foregoing risks, as well as other important risk factors that could contribute to such differences or otherwise affect our business, results of operations and financial condition. We undertake no obligation to revise or update any forward-looking statement for any reason.

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Internap Reports Third Quarter 2008 Financial Results