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Internap Network Services' CEO Discusses Q4 2011 Results - Earnings Call Transcript

On Slide 4, you can see a similar positive trend in our adjusted EBITDA results. As with segment profit, adjusted EBITDA reached its highest point in the history of the company for both the fourth quarter and the full year 2011. Fourth quarter adjusted EBITDA was $12.6 million, up 23% year-over-year and 12% sequentially. Adjusted EBITDA margin increased 300 basis points over the fourth quarter of 2010 and 190 basis points quarter-over-quarter. The improvement in fourth quarter adjusted EBITDA was driven entirely by increased segment profit. Fourth quarter cash operating expense increased 6% year-over-year in the quarter to $20.3 million, in line with the 6% or 25% increase in headcount we experienced over the same period. We are certainly pleased with this 3-year trend of profitable growth as further validation for the strategic plan.

Turning to Slide 5. Fourth quarter data center services revenue increased to $35.3 million. Year-over-year, data center services revenue increased 11% compared with the fourth quarter of 2010 and 4% sequentially, as managed hosting and core colocation showed solid growth. We continued our focus on improving the profitability of the data center services unit and seeing those efforts reflected in the results. The reduced emphasis on partner data centers and the investment in sales of our company-controlled colocation facilities, as well as sales of hosting and cloud solutions, all contribute to the 24% increase in data center segment profit and 445-basis-point increase in segment margin as compared with fourth quarter of 2010.

IP services revenue declined modestly in the fourth quarter and approximately 4% on a year-over-year basis. A combination of market price declines along with a couple of substantial contract renewals during the fourth quarter offset continued traffic growth. Despite the moderate decline in IP revenue this quarter, segment profit and segment margins in this business unit increased sequentially and year-over-year to 64.5%, as the ongoing efforts to consolidate network footprint and negotiate IP transit costs continue to yield cost reductions.

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