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Internap Reports First Quarter 2014 Financial Results

Companies mentioned in this article: Internap Network Services Corporation

ATLANTA, April 24, 2014 /PRNewswire/ -- Internap Network Services Corporation (NASDAQ: INAP), a provider of high-performance Internet infrastructure services, today announced financial results for the first quarter of 2014.

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"We begin 2014 with solid first quarter results highlighted by continued growth in our data center services segment and positive financial and strategic benefits derived from the iWeb acquisition. We also continued to deliver sequential and year-over-year organic increases in our core data center services business," said Eric Cooney, President and Chief Executive Officer of Internap. "With more than 70% of company revenue derived from the Data center services segment, the first quarter of 2014 presents a materially transformed business. Inspired by 40% year-over-year organic bookings growth in the first quarter, we move forward with confidence in the strategy to deliver profitable growth from our core colocation hosting and cloud services globally."

First Quarter 2014 Financial Summary


                                                                                                            YoY              QoQ

                                     1Q 2014                 1Q 2013                 4Q 2013              Growth           Growth
                                     -------                 -------                 -------              ------           ------

    Revenues:

                 Data center
                 services    $58,283                                 $44,392                 $49,686               31%              17%

                IP services   23,678                  25,307                  24,401                  -6%              -3%
                ---------

                 Total
                 Revenues    $81,961                                 $69,699                 $74,087               18%              11%


    Operating Expenses                       $86,498                 $68,879                 $79,942               26%               8%


    GAAP Net Loss                           $(10,675)                $(1,643)               $(10,450)             550%               2%


    Normalized Net (Loss)
     Income(2)                               $(7,265)                   $242                 $(4,378)          -3,102%              66%


    Segment Profit(1)                        $46,201                 $36,829                 $40,394               25%              14%

    Segment Profit Margin                       56.4%                   52.8%                   54.5%         360 BPS          190 BPS


    Adjusted EBITDA                          $17,799                 $14,145                 $15,651               26%              14%

    Adjusted EBITDA Margin                      21.7%                   20.3%                   21.1%         140 BPS           60 BPS

Revenue

    --  Revenue totaled $82.0 million in the first quarter, an increase of 18%
        year-over-year and 11% sequentially. The increase in revenue was due to
        growth in our data center services segment, which includes $11.4 million
        of revenue attributable to iWeb Group Inc., which we acquired in
        November 2013. Revenue from data center services increased both
        year-over-year and sequentially. Revenue from IP services decreased both
        year-over-year and sequentially.
    --  Data center services revenue totaled $58.3 million in the first quarter,
        an increase of 31% year-over-year and 17% sequentially. Both increases
        were attributable to increased sales of colocation in company-controlled
        data centers, hosting and cloud services and the contribution from iWeb,
        partially offset by decreased sales in our partner data centers.
    --  IP services revenue totaled $23.7 million in the first quarter, a
        decrease of 6% year-over-year and 3% sequentially. Both decreases were
        driven by per unit price declines in IP and the loss of legacy contracts
        at higher effective prices, partially offset by an increase in overall
        traffic.

Net (Loss) Income

    --  GAAP net loss was $(10.7) million, or $(0.21) per share, compared with
        $(1.6) million, or $(0.03) per share, in the first quarter of 2013 and
        $(10.5) million, or $(0.21) per share, in the fourth quarter of 2013.
    --  Normalized net loss was $(7.3) million, or $(0.14) per share, compared
        with normalized net income of $0.2 million, or $0.00 per share, in the
        first quarter of 2013, and normalized net loss of $(4.4) million, or
        $(0.09) per share, in the fourth quarter of 2013.

Segment Profit and Adjusted EBITDA

    --  Segment profit totaled $46.2 million in the first quarter, a 25%
        increase compared with the first quarter of 2013 and a 14% increase from
        the fourth quarter of 2013. Segment margin was 56.4%, an increase of 360
        basis points year-over-year and 190 basis points sequentially.
    --  Data center services segment profit totaled $32.4 million in the first
        quarter, a 49% increase compared with the first quarter of 2013 and a
        27% increase from the fourth quarter of 2013. Data center services
        segment margin was 55.6% in the first quarter, up 660 basis points
        year-over-year and 410 basis points sequentially. An increasing
        proportion of higher-margin services, specifically colocation sold in
        company-controlled data centers, hosting and cloud services and the
        contribution from iWeb drove data center services segment profit and
        margin higher.
    --  IP services segment profit totaled $13.8 million in the first quarter,
        an 8% decrease compared with the first quarter of 2013 and a 7% decrease
        from the fourth quarter of 2013. IP services segment margin was 58.3% in
        the first quarter, down 130 basis points year-over-year and 240 basis
        points sequentially. Lower IP transit revenue and the loss of legacy
        contracts led to a decrease in IP services segment profit and margin.
    --  Adjusted EBITDA totaled $17.8 million in the first quarter, a 26%
        increase compared with the first quarter of 2013 and a 14% increase from
        the fourth quarter of 2013. Adjusted EBITDA margin was 21.7% in the
        first quarter, up 140 basis points year-over-year and 60 basis points
        sequentially. Both the year-over-year and sequential increases in
        adjusted EBITDA and adjusted EBITDA margin were attributable to
        increased segment profit in our data center services segment, including
        iWeb.

Balance Sheet and Cash Flow Statement

    --  Cash and cash equivalents totaled $25.2 million at March 31, 2014. Total
        debt was $351.6 million, net of discount, at the end of the quarter,
        including $61.4 million in capital lease obligations.
    --  Cash generated from operations for the three months ended March 31, 2014
        was $13.2 million. Capital expenditures over the same period were $25.5
        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 today the revamp of our patented next-generation
        Managed Internet Route Optimizer(TM) (MIRO), which optimizes network
        traffic for applications and content running on our cloud, hosting and
        colocation services. We also enhanced our CDN to provide improved
        performance, scalability and ease of use for our infrastructure
        customers.
    --  Research firm Frost & Sullivan recognized Internap with its 2014 North
        American Cloud Services Competitive Strategy Innovation and Leadership
        Award for our unique ability to meet the emerging infrastructure needs
        of a new generation of large-scale, performance-intensive applications
        through a combination of our bare-metal cloud offering, commitment to
        delivering a positive customer experience and hybrid services offering.
    --  Internap was named as one of the Top 40 Innovative Technology Companies
        in Georgia by the Technology Association of Georgia (TAG) for our
        high-performance bare-metal cloud. TAG'S Top 40 Awards recognize
        Georgia-based technology companies for their innovation, financial
        impact and efforts at spreading awareness of Georgia's technology
        initiatives throughout the U.S. and globally.
    --  In February, we expanded our operations in a company-controlled data
        center in Santa Clara, California. The facility represents an
        incremental 5,300 net sellable square feet capacity.
    --  We had approximately 13,000 customers at March 31, 2014.

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 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) 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 first quarter 2014 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, April 24, 2014 at 8 p.m. ET through Wednesday, April 30, 2014 at 855-859-2056 using replay code 26846283. International callers can listen to the archived event at 404-537-3406 with the same code.

About Internap

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

Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements include statements related to our ability to drive continued growth. 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 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
    -------------------------                                ---------------


    UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

           (In thousands, except per share amounts)



                                                Three Months Ended March
                                                           31,
                                               -------------------------

                                                    2014              2013
                                                    ----              ----

    Revenues:

        Data
        center
        services                                 $58,283           $44,392

        Internet
        protocol
        (IP)
        services                                  23,678            25,307
                                                  ------            ------

            Total
            revenues                              81,961            69,699
                                                  ------            ------


    Operating costs and expenses:

       Direct costs of network, sales and
        services, exclusive of

          depreciation and amortization,
           shown below:

              Data
              center
              services                            25,891            22,647

              IP
              services                             9,869            10,223

        Direct
        costs
        of
        customer
        support                                    8,927             7,151

        Direct
        costs
        of
        amortization
        of
        acquired
        technologies                               1,461             1,179

        Sales
        and
        marketing                                 10,103             7,484

        General
        and
        administrative                            11,398             9,686

        Depreciation
        and
        amortization                              17,465            10,258

        Loss
        on
        disposal
        of
        property
        and
        equipment,
        net                                            -                 3

        Exit
        activities,
        restructuring
        and
        impairments                                1,384               248
                                                   -----               ---


     Total
     operating
     costs
     and
     expenses                                     86,498            68,879
                                                  ------            ------


     (Loss)
     income
     from
     operations                                   (4,537)              820
                                                  ------               ---



    Non-operating expenses:

        Interest
        expense                                    6,491             2,421

        Other,
        net                                          101               131
                                                     ---               ---

     Total
     non-
     operating
     expenses                                      6,592             2,552
                                                   -----             -----


    Loss before income taxes and
     equity in (earnings) of

        equity-
        method
        investment                               (11,129)           (1,732)

     (Benefit)
     provision
     for
     income
     taxes                                          (417)              (63)

     Equity
     in
     (earnings)
     of
     equity-
     method
     investment,
     net
     of
     taxes                                           (37)              (26)
                                                     ---               ---


     Net
     loss                                       $(10,675)          $(1,643)
                                                ========           =======


     Basic
     and
     diluted
     net
     loss
     per
     share                                        $(0.21)           $(0.03)
                                                  ======            ======


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

         Basic
         and
         diluted                                  51,027            50,771
                                                  ======            ======


                                 INTERNAP NETWORK SERVICES CORPORATION

                            UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

                                (In thousands, except par value amounts)



                                            March 31,                       December 31,

                                                             2014                              2013
                                                             ----                              ----


                 ASSETS

     Current
     assets:

     Cash
     and
     cash
     equivalents                                          $25,202                           $35,018

     Accounts
     receivable,                 $1,995,
     net                         respectively
     of
     allowance
     for
     doubtful
     accounts
     of
     $2,119
     and                                                   22,913                            23,927

     Deferred
     tax
     asset                                                    492                               371

     Prepaid
     expenses
     and
     other
     assets                                                16,620                            22,533
                                                           ------                            ------


     Total
     current
     assets                                                65,227                            81,849


     Property
     and
     equipment,
     net                                                  342,749                           331,963

     Investment
     in
     joint
     venture                                                2,648                             2,602

     Intangible
     assets,
     net                                                   56,658                            57,699

    Goodwill                                              130,313                           130,387

     Deposits
     and
     other
     assets                                                 8,262                             7,999

     Deferred
     tax
     asset                                                  1,848                             1,742
                                                            -----                             -----

     Total
     assets                                              $607,705                          $614,241
                                                         ========                          ========


               LIABILITIES
                   AND
              STOCKHOLDERS'
                  EQUITY

     Current
     liabilities:

     Accounts
     payable                                              $28,752                           $29,774

     Accrued
     liabilities                                           12,132                            13,549

     Deferred
     revenues                                               7,103                             6,729

     Capital
     lease
     obligations                                            5,858                             5,489

     Term
     loan,
     less
     discount
     of
     $1,405
     and
     $1,387,
     respectively                                           1,595                             1,613

     Exit
     activities
     and
     restructuring
     liability                                              2,500                             2,286

     Other
     current
     liabilities                                            2,435                             2,493
                                                            -----                             -----

     Total
     current
     liabilities                                           60,375                            61,933


     Deferred
     revenues                                               3,762                             3,804

     Capital
     lease
     obligations                                           55,523                            49,800

     Term
     loan,
     less
     discount
     of
     $7,652
     and
     $8,006
     respectively                                         288,598                           288,994

     Exit
     activities
     and
     restructuring
     liability                                              2,507                             1,877

     Deferred
     rent                                                  12,423                            14,617

     Deferred
     tax
     liability                                              8,181                             8,591

     Other
     long-
     term
     liabilities                                            2,392                             2,415
                                                            -----                             -----

     Total
     liabilities                                          433,761                           432,031
                                                          -------                           -------



     Commitments
     and
     contingencies

     Stockholders'
     equity:

     Preferred
     stock,
     $0.001
     par
     value;
     20,000
     shares
     authorized;
     no
     shares
     issued

     or
     outstanding                                                -                                 -

     Common
     stock,                      shares
     $0.001
     par
     value;
     120,000
     shares
     authorized;
     54,318
     and
     54,023

     outstanding,
     respectively                                              54                                54

     Additional
     paid-
     in
     capital                                            1,256,003                         1,253,106

     Treasury
     stock,
     at
     cost;
     540
     and
     461
     shares,
     respectively                                          (4,074)                           (3,474)

     Accumulated
     deficit                                           (1,076,695)                       (1,066,020)

     Accumulated
     items
     of
     other
     comprehensive
     loss                                                  (1,344)                           (1,456)
                                                           ------                            ------

     Total
     stockholders'
     equity                                               173,944                           182,210
                                                          -------                           -------

     Total
     liabilities
     and
     stockholders'
     equity                                              $607,705                          $614,241
                                                         ========                          ========


                                INTERNAP NETWORK SERVICES CORPORATION

                      UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

                                            (In thousands)



                                          Three Months Ended March
                                                     31,
                                         -------------------------

                                                                  2014             2013
                                                                  ----             ----

    Cash
     Flows
     from
     Operating
     Activities:

    Net
     loss                                                     $(10,675)         $(1,643)

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

        Depreciation
        and
        amortization                                            18,926           11,437

       Loss
        on
        disposal
        of
        property
        and
        equipment,
        net                                                          -                3

       Stock-
        based
        compensation
        expense,
        net of
        capitalized
        amount                                                   1,941            1,637

       Equity
        in
        (earnings)
        of
        equity-
        method
        investment                                                 (37)             (26)

        Provision
        for
        doubtful
        accounts                                                    43              329

       Non-
        cash
        change
        in
        capital
        lease
        obligations                                                 28              121

       Non-
        cash
        change
        in
        exit
        activities
        and
        restructuring
        liability                                                1,608              394

       Non-
        cash
        change
        in
        deferred
        rent                                                      (736)            (430)

        Deferred
        taxes                                                     (658)             137

       Other,
        net                                                        546               (2)

     Changes
     in
     operating
     assets
     and
     liabilities:

        Accounts
        receivable                                                 936             (255)

        Prepaid
        expenses,
        deposits
        and
        other
        assets                                                    (680)             397

        Accounts
        payable                                                  1,890           (4,580)

        Accrued
        and
        other
        liabilities                                                439             (831)

        Deferred
        revenues                                                   394             (371)

       Exit
        activities
        and
        restructuring
        liability                                                 (764)            (737)

       Other
        liabilities                                                  4                -

    Net
     cash
     flows
     provided
     by
     operating
     activities                                                 13,205            5,580
                                                                ------            -----


    Cash
     Flows
     from
     Investing
     Activities:

     Purchases
     of
     property
     and
     equipment                                                 (24,756)          (6,909)

     Additions
     to
     acquired
     technology                                                   (737)               -

    Net
     cash
     from
     acquisition                                                    74                -

    Net
     cash
     flows
     used
     in
     investing
     activities                                                (25,419)          (6,909)
                                                               -------           ------


    Cash
     Flows
     from
     Financing
     Activities:

     Proceeds
     from
     credit
     agreements                                                      -            9,999

     Principal
     payments
     on
     credit
     agreements                                                   (750)            (875)

    Return
     of
     deposit
     collateral
     on
     credit
     agreement                                                   4,378                -

     Payments
     on
     capital
     lease
     obligations                                                (1,360)          (1,104)

     Proceeds
     from
     exercise
     of
     stock
     options                                                       860            1,397

    Tax
     withholdings
     related
     to
     net
     share
     settlements
     of
     restricted
     stock
     awards                                                       (600)          (1,232)

    Other,
     net                                                           (44)            (639)

    Net
     cash
     flows
     provided
     by
     financing
     activities                                                  2,484            7,546
                                                                 -----            -----

    Effect
     of
     exchange
     rates
     on
     cash
     and
     cash
     equivalents                                                   (86)            (218)
                                                                   ---             ----

    Net
     (decrease)
     increase
     in
     cash
     and
     cash
     equivalents                                                (9,816)           5,999

    Cash
     and
     cash
     equivalents
     at
     beginning
     of
     period                                                     35,018           28,553

    Cash
     and
     cash
     equivalents
     at
     end
     of
     period                                                    $25,202          $34,552
                                                               =======          =======

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) income, normalized diluted shares outstanding, segment profit and segment margin. The most directly comparable GAAP equivalent to adjusted EBITDA and normalized net (loss) income is (loss) income from operations and net (loss) income, 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) income 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.

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

Stock-based compensation is an important part of total compensation, especially from the perspective of employees. We believe, however, that supplementing GAAP net (loss) income and net (loss) income per share information by providing normalized net (loss) income 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.

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

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
                   ------------------

                   March 31, 2014              December 31, 2013          March 31, 2013
                   --------------              -----------------          --------------

    (Loss)
     income from
     operations
     (GAAP)                           $(4,537)                   $(5,855)                   $820

    Depreciation
     and
     amortization,
     including
     amortization
     of acquired
     technologies                      18,926                     15,429                  11,437

    Loss on
     disposal of
     property
     and
     equipment,
     net                                    -                          5                       3

    Exit
     activities,
     restructuring
     and
     impairments                        1,384                        209                     248

    Stock-based
     compensation                       1,941                      1,653                   1,637

    Acquisition
     costs                                 85                      4,210                       -
                                          ---                      -----                     ---

    Adjusted
     EBITDA
     (non-GAAP)                       $17,799                    $15,651                 $14,145
                                      =======                    =======                 =======

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
                   ------------------

                   March 31, 2014               December 31, 2013           March 31, 2013
                   --------------               -----------------           --------------

    Net loss
     (GAAP)                           $(10,675)                   $(10,450)                $(1,643)

    Exit
     activities,
     restructuring
     and
     impairments                         1,384                         209                     248

    Stock-
     based
     compensation                        1,941                       1,653                   1,637

    Acquisition
     costs                                  85                       4,210                       -
                                           ---                       -----                     ---

    Normalized
     net (loss)
     income
     (non-
     GAAP)                              (7,265)                     (4,378)                    242


    Normalized
     net income
     allocable
     to
     participating
     securities
     (non-
     GAAP)                                   -                           -                       5

    Normalized
     net (loss)
     income
     available
     to common
     stockholders
     (non-
     GAAP)                             $(7,265)                    $(4,378)                   $237
                                       =======                     =======                    ====

     Participating
     securities
     (GAAP)                              1,105                       1,049                   1,024


    Weighted
     average
     shares
     outstanding
     used in
     per share
     calculation:

    Basic and
     diluted
     (GAAP)                             51,027                      50,898                  50,771


    Add
     potentially
     dilutive
     securities                              -                           -                     873

    Less
     dilutive
     effect of
     stock-
     based
     compensation
     under the
     treasury
     stock
     method                                  -                           -                    (128)
                                           ---                         ---                    ----

    Normalized
     diluted
     shares
     (non-
     GAAP)                              51,027                      50,898                  51,516
                                        ======                      ======                  ======


    Loss per
     share
     (GAAP):

    Basic and
     diluted                            $(0.21)                     $(0.21)                 $(0.03)
                                        ======                      ======                  ======


    Normalized
     net loss
     per share
     (non-
     GAAP):

    Basic and
     diluted                            $(0.14)                     $(0.09)                  $0.00
                                        ======                      ======                   =====

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
                         ------------------

                         March 31, 2014              December 31, 2013          March 31, 2013
                         --------------              -----------------          --------------

    Revenues:

        Data
        center
        services                            $58,283                    $49,686                 $44,392

        IP
        services                             23,678                     24,401                  25,307
                                             ------                     ------                  ------

          Total                              81,961                     74,087                  69,699
                                             ------                     ------                  ------


     Direct
     cost
     of
     network,
     sales
     and
     services,
     exclusive
     of

           depreciation
           and
           amortization:

        Data
        center
        services                             25,891                     24,103                  22,647

        IP
        services                              9,869                      9,590                  10,223
                                              -----

          Total                              35,760                     33,693                  32,870
                                             ------                     ------                  ------


     Segment
     Profit:

        Data
        center
        services                             32,392                     25,583                  21,745

        IP
        services                             13,809                     14,811                  15,084

          Total                             $46,201                    $40,394                 $36,829
                                            =======                    =======                 =======


     Segment
     Margin:

        Data
        center
        services                               55.6%                      51.5%                   49.0%

        IP
        services                               58.3%                      60.7%                   59.6%

          Total                                56.4%                      54.5%                   52.8%
                                               ====                       ====                    ====

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SOURCE Internap Network Services Corporation