Internap Network Services Management Discusses Q2 2012 Results - Earnings Call Transcript

Turning to Slide 5. Adjusted EBITDA totaled $12.2 million or 17.7% of revenue. This represented a 19% increase year-over-year and was flat sequentially. The year-over-year improvement was predominantly the result of organic revenue and segment profit growth in data center services. Cash operating expenses increased $0.2 million sequentially due to incremental marketing investments in our brand awareness program and integration expenses related to the Voxel acquisition.

On Slide 6, data center services revenue totaled $41.5 million for the quarter, an increase of 28% year-over-year and 4% sequentially. Data center segment profit was up strongly from a year ago rising 48% year-over-year and declining 1% sequentially. The solid year-over-year increase was driven by strength in colocation services from within company controlled facilities, as well as Internap's complex managed hosting services. Again, higher seasonal power costs impacted margin sequentially as the summer heat waves played a significant incremental load on the data center cooling infrastructure.

IT services revenue modestly increased quarter-over-quarter and declined year-over-year to $27.2 million. IP segment margin increased 90 basis points sequentially and increased 210 basis points year-over-year to 63.3%, primarily due to higher nonrecurring IP equipment sales, which offset the decline in IP trends of revenue. The IP services segment continues to deliver solid segment profitability in cash flow, which we leveraged to support the more capital-intensive data center services segment.

On Slide 7, we provide an update on the progress we are making on our data center expansions in Los Angeles and Atlanta. Those locations remain on track to open later in the third quarter of 2012 as we finalize the on-site work. When fully deployed, the Los Angeles facility will add 55,000 incremental net sellable square feet to our company controlled footprint, with Phase I adding 15,000 net sellable square feet. Likewise, our Atlanta facility is nearing completion, and when fully deployed, will add an incremental 31,000 net sellable square feet of premium data center capacity, with Phase I adding roughly 12,000 net sellable square feet.

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