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Internap Network Services' CEO Discusses Q1 2012 Results - Earnings Call Transcript

As you recall, we previously disclosed that Voxel was expected to generate approximately $3.5 million in revenue for the fourth quarter 2011, and was expected to grow 25% annually. Voxel is performing well as part of the Internap team and remains on track with this revenue growth profile.

We delivered another quarter of solid adjusted EBITDA, as you can see on Slide 5. Adjusted EBITDA totaled $12.2 million or 18.3% of revenue. This represented a 3% sequential decline, but an increase of 33% over the first quarter of 2011. Similar to prior years, the sequential adjusted EBITDA decline was driven by higher cash operating expenses during the first fiscal quarter, including certain wage and payroll tax cost which reset in January.

The strong 33% year-over-year improvement in adjusted EBITDA was primarily driven by organic growth in Internap's data center services revenue and associated improvements in data center services segment profitability, with a modest positive impact from the addition of Voxel for the first quarter.

I'll cover segment results on Slide 6.

Data center revenue for the quarter totaled $39.9 million, an increase of 13% sequentially and 27% year-over-year. Segment profit in data center services was up 46% year-over-year and 25% sequentially to $19 million. While the majority of the year-over-year growth in data center services revenue and segment profitability was organic, the addition of Voxel, along with its expected 25% annual revenue growth rate, bodes well for the future of long-term profitable growth in this segment.

IP services revenue decreased modestly quarter-over-quarter and year-over-year to $27.1 million, while IP segment margin was 62.4%, a decrease of 210 basis points compared with the fourth quarter of 2011. As we've mentioned before, IP services generates strong cash flow for the business and serves as a key element of competitive differentiation for the data center services business. As enterprises become increasingly reliant on the Internet for their basic productivity applications, we see the need for high-performance, high-availability connectivity to their hosted IP environments as a central differentiator for Internap's offering. The combination of our route-optimized IP, application acceleration and content delivery technologies and expertise uniquely positions Internap in the field of IT infrastructure suppliers.

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