Internap Reports Record Customer Growth
Fifth Consecutive Quarter of Improving EBITDA Losses
Expands Service Offerings to 17 Additional Cities
Announces Executive Change Related to Headquarter Relocation
SEATTLE, WA, July 23, 2002 - Internap Network Services Corporation (NASDAQ: INAP), the leading provider of intelligent routing services over the Internet, today reported results for the fiscal second quarter ended June 30, 2002.
Revenues for the quarter on a consolidated basis were $33.0 million, a one percent increase over the prior quarter and a 13 percent increase over the $29.3 million reported for the same period in 2001.
Internap's second quarter EBITDA(i) loss, on a consolidated basis, was $6.1 million, a nearly 38 percent improvement from the $9.8 million loss in the previous quarter. This marked the fifth consecutive quarter of narrowing EBITDA losses. EBITDA loss for the same quarter of 2001 was $28.9 million. Internap's second quarter net loss, computed in accordance with GAAP, was $22.8 million, or a loss of $0.15 per share, compared to a net loss of $20.3 million, or a loss of $0.13 per share, in the previous quarter, and a net loss of $68.3 million, or a loss of $0.45 per share, in the second quarter of 2001.
"I'm pleased to report Internap has added a record 172 new revenue-producing customers," said Greg Peters, President and CEO of Internap Network Services. "In just the last quarter, Internap has expanded service to 17 additional cities in the U.S., launched a comprehensive remote access virtual private network service and delivered new technology that allows our customers to better track the transmission of their critical Internet data. Internap remains a safe haven for Internet connectivity despite some of the broader uncertainties in the telecom market."
"We continue to achieve significant milestones including our fourth consecutive quarterly increase in direct margin and fifth consecutive quarterly decrease in EBITDA losses," said John Scanlon, Chief Financial Officer of Internap. "We set a priority of reaching EBITDA profitability during the fourth quarter of this year and these results have brought us closer to meeting our objective."
In conjunction with the move of the company's headquarters to Atlanta, Ali Marashi, Internap's current Vice President of Engineering, has been named Chief Technical Officer in addition to his current responsibilities. Mr. Marashi will lead the engineering and technical transition to the new headquarters.
John Scanlon, Internap's Chief Financial Officer, will not be moving to Atlanta for personal and family reasons, but will remain with the company for a transition period.
"When I accepted the CFO position, we set an important objective to get the company to EBITDA positive," said Scanlon. "I intend to be the senior financial executive at Internap when that goal is realized."
A search will commence to find Mr. Scanlon's successor.
Quarterly Results:
Internap added a record 172 revenue-producing customers during the second quarter. Newly installed customers for the quarter, among others, included - C. E. Unterberg Towbin, Callaway Golf, Charles Schwab, Keynote, Orbitz, Sharp Electronics, Southwest Airlines, and UAL Loyalty Services.
Revenue impact due to customer churn was less than 2 percent. Revenue impact due to pricing pressure from current customers was 1 percent.
Revenue per employee on an annualized basis increased for the fifth consecutive quarter to $305,000, compared to $279,000 in the previous quarter.
Internap's direct margin(iii) for the second quarter improved to 32 percent, compared to 26 percent during the first quarter and 9 percent during the second quarter of 2001.
EBITDA losses were reduced by nearly 38 percent compared to the preceding quarter and by 79 percent compared to the second quarter of last year.
In the aggregate, for the first time in Internap's history, all Metro Markets were operating cash flow positive.
Day Sales Outstanding as of June 30, 2002 improved to 38 days, compared to 39 days as of March 31, 2002.
Cash on hand was $42.5 million as of June 30, 2002.
During the second quarter, Internap restructured equipment lease obligations, which it expects will result in a cash savings of $18.0 million over the next 20 months.
Products and Services:
Through a new commercial relationship, Internap has expanded its services to 17 additional cities including - Detroit, Las Vegas, Minneapolis / St. Paul, Phoenix, and Portland. This expansion is part of Internap's partnership strategy to enter new cities where customer commitments exist.
During June, Internap accelerated its PrivatePath VPN strategy encompassing a family of services in three main areas: site-to-site, firewall / intrusion detection, and remote access. The company now offers its internally developed PrivatePath site-to-site VPN service, PrivatePath firewall protection and intrusion detection services powered by VeriSign, as well as remote access VPN services powered by Blue Ridge Networks.
In July, Internap launched PathView Professional, a Web-based portal that allows customers to view comparative Internet backbone performance as a critical component of their risk management strategies. The service can be used to monitor IP backbone performance to discrete locations for IP-VPN, video, VoIP, and other applications.
Third Quarter Guidance:
For the third quarter, Internap is projecting revenues to be approximately the same as the second quarter; EBITDA losses in the range of $2.0 to $4.0 million; net loss on a GAAP basis in the range of $18.0 to $20.0 million; and cash use in the range of $11.0 to $13.0 million.
Supplemental Financial Data:
(Dollars in Millions)
Q2 '02 Q1 '02 Q4 '01 Q3 '01 Q2 '01
Revenues $33.0 $32.6 $30.5 $29.2 $29.3
Direct Cost of Network $22.6 $24.1 $24.5 $24.6 $26.6
EBITDA(i) $(6.1) $(9.8) $(13.9) $(20.3) $(28.9)
Net Loss (GAAP) $(22.8) $(20.3) $(29.3) $(114.8) $(68.3)
Capital Expenditures(ii) $6.4 $1.1 $2.3 $1.2 $9.5
Direct Margin(iii) 32% 26% 20% 16% 9%
New Customer Additions 172 142 150 167 144
Total Customers 1,134 1,014 974 894 783
Day Sales Outstanding 38 39 45 48 49
Metro Markets
15 Domestic, 3 International(iv) 17 18 18 18 17
Operating Cash Flow Positive
Metro Markets 5 5 4 4 3
(i) EBITDA is defined as net losses before interest income (expense), investment income (loss), loss on sales and retirement of property and equipment, income taxes, depreciation, amortization, amortization of deferred stock compensation, and restructuring costs and credits.
(ii) Consists of cash paid for capital expenditures. For the second quarter of 2002, $5.8 million of the $6.3 million relates to a non-recurring equipment lease restructuring transaction as stated in the May 29, 2002 press release.
(iii) Direct margin is defined as revenues less direct cost of network divided by revenue.
(iv) Includes Tokyo, Japan operated through a joint venture. The joint venture is accounted for as an unconsolidated equity-method investment.
Second Quarter Conference Call:
Internap's second quarter conference call will be held today, Tuesday, July 23, 2002 at 5:00 p.m. Eastern Time, 2:00 p.m. Pacific Time. The dial-in numbers are 888-820-8951 for domestic calls and 712-257-2273 for international calls. The passcode is "Internap," and no RSVP is required. The replay numbers are 800-945-7991 for domestic calls and 402-220-3590 for international calls. No passcode is required for replay. A live Web cast of the call will also be made available. Please visit our Web site at www.internap.com/investor_services for the hyperlink or for further information.
The conference call and Web cast replays, including a written transcript, will be made available until Tuesday, August 6, 2002 at 5:00 P.M. Pacific.
To view the Balance Sheet and Statement of Operations, please click here.
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For more recent news on Internap, please visit www.internap.com/newsroom .
Internap Investor Contacts:
Tim Hanson
Internap Network Services
206-262-3742
thanson@internap.com
Internap Media Contacts:
Chris Barker
Brian Sibley
Text 100 Public Relations
206-381-3791
internap@text100.com
About Internap
Internap provides customers with certainty over the Internet through its patented route management technology and service guarantees. This managed IP service intelligently routes data across the major Internet backbones through a single connection from a customer's network to one of Internap's Service Points. Internap's customers bypass congestion points on the Internet, avoiding packet loss, latency and other difficulties that can plague conventional Internet connectivity. Founded in 1996 in Seattle, Internap offers services in numerous key markets throughout the United States, Europe and Japan including Atlanta, Boston, Chicago, London, Los Angeles, New York, San Francisco, San Jose, Seattle, Tokyo and Washington, DC. Internap® and P-NAP® are registered trademarks of Internap. All other trademarks and brands are the property of their respective owners. For more information, visit www.internap.com.
Internap "Safe Harbor" Statement This release may contain projections or other forward-looking statements that involve risks and uncertainties. Readers are cautioned that these statements are only predictions and may differ materially from actual future events or results. Readers are referred to the documents filed by Internap with the SEC, including without limitation its most recent Reports on Forms 10-K and 10-Q, which identify important risk factors that could cause actual results to differ from those contained in the forward-looking statements, including, among other things, Internap's history of operating losses and expected future losses, Internap's limited operating history, fluctuations in Internap's quarterly operating results, ability to maintain Nasdaq listing, Internet infrastructure and regulatory changes, volatility of stock price, deployment of new Service Points, integration of acquired businesses and rapid technological and market change. All forward-looking statements are based on information available to Internap on the date hereof, and Internap assumes no obligation to update such statements. This release contains certain metrics, such as "EBITDA," "direct cost of network," and "direct margin" that are not computed in accordance with accounting principles generally accepted in the United States ("GAAP"). In practice, companies apply these definitions in a variety of ways.
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