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Executives

Michael Nelson

J. Eric Cooney - Chief Executive Officer, President and Director

Kevin Mark Dotts - Chief Financial Officer

Analysts

Christopher M. Larsen - Piper Jaffray Companies, Research Division

Mark Kelleher - Dougherty & Company LLC, Research Division

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Priya Parasuraman - Wells Fargo Securities, LLC, Research Division

Internap Network Services (INAP) Q4 2012 Earnings Call February 21, 2013 5:00 PM ET

Operator

Good day, ladies and gentlemen, and thank you for your patience. You have joined the Internap Fourth Quarter 2012 Earnings Conference Call. [Operator Instructions] As a reminder, this conference may be recorded.

At this time, I'd like to turn the call over to your host, Senior Director of Investor Relations, Mr. Michael Nelson. Sir, you may begin.

Michael Nelson

Good afternoon, and thank you for joining us today. I'm joined by Eric Cooney, our Chief Executive Officer; and Kevin Dotts, our Chief Financial Officer. Following prepared remarks, we will open up the call for your questions. The slides we reference in the call are available on our website, in the Presentation section on the Investor Relations page.

Non-GAAP reconciliations and our supplemental data sheet, which includes additional operational and financial metrics, are available under the financial information quarterly results section of our Investor Relations page.

Today's call contains forward-looking statements, including expectations regarding future performance and the drivers for long-term profitable growth; belief in our business strategy, including the benefits from investing in company-controlled colocation, hosting and cloud services; timing for bringing new data centers and expansions online; expectations regarding margins, operating expenses, returns on invested capital, levels of capital expenditures and our capital deployment strategy. Because these statements are not guarantees of future performance and involve risks and uncertainties, they are important factors that could cause our actual results to differ materially from those in the forward-looking statements. We discuss these factors in our filings with the Securities and Exchange Commission. We undertake no obligation to amend, update or clarify these statements. In addition to reviewing the fourth quarter and year-end 2012 results, we will also discuss recent developments.

Now let me turn the call over to Eric Cooney.

J. Eric Cooney

Thank you, Michael, and good afternoon, everyone. We are pleased you can join us for our fourth quarter and full year 2012 earnings presentation. I will start the discussion with a summary of our results, and then turn the call over to Kevin Dotts, our Chief Financial Officer, to take you through our detailed financial results. From there, I will briefly wrap up our prepared remarks before we open up the call to take your questions.

Beginning on Slide 3, you will see we delivered record total revenue in the fourth quarter of 2012 of $69.7 million, representing an increase of 11% year-over-year and 2% over the third quarter of 2012. The execution of our strategic plan to generate growth from our core data center services business, including company-controlled data centers, hosting and cloud services, is underpinning this top line growth.

Segment profit of $36.2 million in the quarter increased 10% year-over-year and 5% sequentially and represented the highest levels since Internap's founding in 1996. Segment margin was 51.8%, a decrease of 60 basis points year-over-year, an increase of 110 basis points quarter-over-quarter.

On Slide 4, I'll cover segment results. Data center services revenue totaled $43.7 million in the quarter, an increase of $8.4 million year-over-year, and $1.6 million sequentially. Data center services revenue growth accelerated in the period, as represented by the 24% year-over-year and 4% quarter-over-quarter improvements. The revenue mix shift associated with the move from partner- to company-controlled colocation and hosting services also helped deliver strong profitability growth. Data center segment profit increased 34% year-over-year and 9% quarter-over-quarter. Data center segment margin expanded 350 basis points year-over-year and 230 basis points sequentially to 46.4%.

In our IP services segment, revenue totaled $26 million, down from $27.5 million 1 year ago and unchanged from the prior quarter. The year-over-year decrease was driven by a decline in IP pricing, while the stable sequential performance was a result of higher non-recurring IP revenue. IP segment margin remained solid at 61%. The IP services segment continues to deliver meaningful segment profitability and cash flow, which we leveraged to invest in the more capital-intensive data center services segment. This allows us to maintain low financial leverage relative to many of our peers, while also providing a key element of competitive differentiation for our data center services business.

In the fourth quarter, churn in our data center segment decreased 20 basis points sequentially and 60 basis points year-over-year to 1%. Churn in our IP segment increased 90 basis points sequentially and 40 basis points year-over-year to 2.3%. The higher IP churn was due to a large IP customer that churned late in the fourth quarter, which will impact IP revenue in the fourth -- first quarter. Total company churn increased 20 basis points sequentially and decreased 20 basis points year-over-year to 1.5%.

On Slide 5, you can see we delivered a strong quarter of adjusted EBITDA and adjusted EBITDA margin, which both reached their highest levels in the history of the company. Fourth quarter adjusted EBITDA was $15 million, up 19% year-over-year and 20% sequentially. Adjusted EBITDA margin increased 140 basis points over the fourth quarter of 2011 and 320 basis points quarter-over-quarter. The improvement in fourth quarter adjusted EBITDA was primarily the result of revenue and segment profit growth in data center services and positive operating leverage in the business model. Cash operating expenses declined 4% sequentially due to a combination of both ongoing operational improvements and seasonally lower employee-related costs.

On Slide 6, we're providing a recap of our full year 2012 revenue and profitability. We are very pleased with the solid execution from the Internap team throughout the year, which led to record levels of annual revenue, segment profit and adjusted EBITDA. We are making steady progress in our mission to become a leading global supplier of IT Infrastructure services to the enterprise.

During 2012, revenue increased 12% to $273.6 million, driven by both organic growth and the successful integration of the Voxel business, which we acquired at the end of 2011. Segment profit increased 15% in 2012 to $142.6 million, while segment profit margin expanded 130 basis points to 52.1%. The strategic shift the company has made towards higher-margin company-controlled data centers, hosting and cloud services is delivering results and remains a key driver for our long-term profitable growth.

Importantly, while we have made solid progress on driving revenue and segment profit growth, we have also been disciplined in managing our cash operating expenses and maintaining our focus on operational excellence. As a result, in 2012, EBITDA increased 20% to $51.9 million, and adjusted EBITDA margin expanded 130 basis points to 19%.

Turning to Slide 7, we thought our investors would be interested in some of the key findings from an industry survey we published earlier this month. We polled more than 100 IT decision-makers who are responsible for purchasing a range of IT Infrastructure services, including colocation, hosting and cloud services. 1 of the key findings suggested that IT organizations are seeking to transform their traditional colocation environments with capabilities that enable hybridization with managed hosting and cloud services. Nearly 3/4 of respondents stated their interest in this type of colocation, hosting and cloud hybridization using an online portal capability. Further, the survey results also highlighted the IT buyers' interest in what we're calling cloudy colo. Cloudy colocation refers to the capability to bring many of the features often associated with cloud services to the colocation customer. These cloudy colo features could include benefits typically associated with cloud services, such as realtime monitoring, self-service equipment reboot and inventory management.

These survey results serve to reinforce our confidence in the strategic direction we have chosen for the company. Our basis for competitive differentiation is predicated on the 2 Ps, meaning platform and performance. Cloudy colo is a great example of the types of services that are envisioned for Internap's platform of IT Infrastructure services. We feel these survey respondents are representative of a long-term market evolution towards a hybridized platform of IT Infrastructure services to meet the customers' diverse application requirements. Internap's significant capital investments over the past several years have been made with this vision of a hybridized platform of IT Infrastructure services top of mind.

On Slide 8, we thought it would be helpful to highlight a few of our key industry vertical markets. We have over 3,700 customers around the world, but these customers tend to have very similar expectations for best-in-class performance and reliability from their IT Infrastructure. For most of our customers, their IT Infrastructure is business-critical. In other words, the degradation or disruption of their IT Infrastructure could significantly negatively impact their business. In particular, our ability to leverage a range of patented networking technologies enables us to compellingly differentiate our IT Infrastructure services for these customers. It's easy to imagine why industry verticals such as online gaming, health care, media & entertainment and big data would require superior network performance and availability from their IT Infrastructure services.

As an example, Riot Games is a customer delivering the world's most played online video game, League of Legends. With 70 million registered users in 145 countries and 3 million simultaneous players online on a typical day, the performance expectations for their IT Infrastructure are self-evident.

In the health care segment, New York eHealth has deployed a health information exchange system to facilitate patient electronic health records being privately, securely and reliably maintained and passed between healthcare providers to ultimately provide better health care. New York eHealth clearly has IT Infrastructure requirements not only for performance and availability, but also for security and regulatory compliance that Internap is providing.

For customers such as HBO and Spotify, network performance in terms of low latency, packet loss and jitter will directly impact the quality of the end user's experience. We've all experienced the results of packet loss and jitter on our audio or video streams, and we know that customers will leave quickly if they experience poor quality from their multimedia.

Finally, big data isn't really an industry vertical, but several industry verticals that leverage big data in their business model. Online advertising is a good example of this use case, and OwnerIQ is 1 such online advertiser. OwnerIQ has a very demanding set of IT Infrastructure requirements driven by their business model, which is to make decisions and deploy targeted online advertisements to websites in realtime. The complexity of their analysis, the selection and the placement of the ads, all done in realtime, leads OwnerIQ to be quite discerning in their selection of an IT Infrastructure provider.

Moving to Slide 9, we thought a specific customer profile would provide some useful insights. MoPub is a 1-stop ad serving platform designed for mobile application publishers to manage their ad inventory on iOS and Android. Their business model places them at the intersection of online advertising technology, big data and mobility. Internap provides MoPub with scalable bare metal cloud and IP services. In case you are not familiar with the term, "bare metal cloud", this is one of our most popular cloud products. Bare metal refers to the fact that we are dedicating servers, as opposed to providing virtualized servers to the customer on a shared hardware platform. Cloud refers to the capability to purchase, provision and manage those servers in an on-demand and scalable manner. MoPub is a good example of a customer successfully leveraging our best-in-class platform and performance in support of a complex set of infrastructure requirements.

The myriad requirements for big data processing, geographic diversity, flexibility and scalability significantly narrowed the suitable choices for an IT Infrastructure provider for MoPub.

Now I will pass the call over to Kevin Dotts, our Chief Financial Officer, who will give us a more detailed review of our financial results. Kevin?

Kevin Mark Dotts

Thanks, Eric. I'll start my comments on Slide 10 and take everyone through our full year and fourth quarter income statement comparisons.

For the year ended December 31, 2012, revenue totaled $273.6 million, an increase of 12% from 2011. Annual segment profit increased 15% in 2012 to $142.6 million, while total segment margin for the year increased 130 basis points to 52.1%.

In the fourth quarter of 2012, revenue totaled $69.7 million, a $6.9 million increase compared to the same period last year, representing 11% year-over-year growth. Compared to the third quarter of 2012, total revenue increased by $1.6 million or 2%. Both the year-over-year and sequential increase were the result of higher core data center services revenue. Total quarterly segment profit increased 10% year-over-year and 5% sequentially to $36.2 million.

Total segment margin for the quarter contracted 60 basis points year-over-year and expanded 110 basis points sequentially to 51.8%. Total segment profit and segment margin were positively affected by solid growth in data center services revenue, and a larger mix of higher-margin, company-controlled colocation and hosting services. Lower IP revenue impacted year-over-year total segment margin comparisons.

Total cash operating expense for the full year increased 12% to $90.8 million, primarily driven by the Voxel acquisition, while cash OpEx to revenue remained relatively flat at roughly 33%. In the fourth quarter of 2012, cash OpEx was $21.2 million, representing an increase of 4% year-over-year and a decline of 4% sequentially, while OpEx to revenue declined 190 basis points year-over-year and 200 basis points sequentially to 30.4%.

We continue to benefit from several internal programs implemented to increase efficiency and improve our cost structure. In the fourth quarter, we recognized a Georgia headquarters tax credit and seasonal caps on payroll taxes.

Historically, we have experienced higher seasonal OpEx in the first quarter related to increased employee benefits. On average over the past 6 years, our cash OpEx has increased in the upper single-digit range sequentially in the first quarter when compared to the previous fourth quarter.

Annual EBIT -- adjusted EBITDA increased 20% compared to 2011, to $51.9 million, while adjusted EBITDA margin expanded 130 basis points to 19%. Fourth quarter adjusted EBITDA increased 19% year-over-year and 20% sequentially to $15 million. Adjusted EBITDA margin in the quarter was 21.5%, an expansion of 140 basis points year-over-year, and 320 basis points sequentially. The solid adjusted EBITDA, and adjusted EBITDA margin performance, is indicative of the favorable operating leverage we're building into the business. In 2012, we added $29 million in revenue, an increase of 12%, while we increased adjusted EBITDA by $8.5 million or 20%.

As we continue to grow revenues, we believe we have an opportunity to drive margins up and to the right as we execute on our strategy to sell a greater proportion of higher-margin core data center services.

GAAP net loss in 2012 was $4.3 million or $0.09 per share compared with a net loss of $1.7 million or $0.03 per share in 2011. In the fourth quarter, GAAP net income was 0.

Normalized net income, which excludes the impact of stock-based compensation and certain items management considers non-recurring, totaled $3 million or $0.06 per share in 2012, compared with a net loss of $1 million, $0.02 per share in 2011. In the fourth quarter, normalized net income was $2.1 million or $0.04 per share compared to a loss of $1 million -- normalized loss of $1 million or $0.02 per share sequentially, or $3 million normalized income or $0.01 per share in prior year.

A cash flow and a balance sheet summary are shown on Slide 11. In 2012, capital expenditures totaled $74.9 million and outpaced adjusted EBITDA by $23 million. The majority of the capital deployed in 2012 went towards expanding our company-controlled data center footprint and towards the development and expansion of our hosting and cloud services. We believe these investments should generate substantial returns on invested capital in the coming years.

At year-end, cash and cash equivalents totaled $28.6 million. Our ending balance reflects the final payment made in the fourth quarter to the former Voxel owners of $4.75 million for the completion of technology transfer documentation.

Funded debt totaled $95.4 million, and capital leases were $48.6 million. With net debt of $115.4 million, our net debt to last quarter annualized adjusted EBITDA was 1.9x, comfortably below the average for our data center peers.

Day sales outstanding decline to 25 days in the fourth quarter reflected continued solid discipline in our collection procedures and prescreening credit policies.

On Page 12, we've detailed our forecasted capital expenditure plan. In 2013, we expect to spend between $60 million to $65 million of capital -- of CapEx, which will be a decline from the almost $75 million we spent in 2012. Our 2013 CapEx guidance includes $45 million to $50 million in expansion capital that we intend to deploy to build out our new data center in the New York Metro market, as well as expand an additional phase in our existing data centers in Santa Clara and Boston. We also intend to invest success-based capital in hardware to meet the growing demand for our hosting and cloud services. Roughly 75% of our 2013 plan is either capital deployed for future growth or success-based capital tied to customer installation requests. This provides us with substantial flexibility to adapt to potential changes in macro and industry trends.

We have a very disciplined approach to capital allocation, and we believe we have a significant opportunity to invest in the business and generate returns well in excess of our cost to capital.

Now let me turn the call back to Eric for his closing remarks before we take your questions.

J. Eric Cooney

Thanks, Kevin. Now I'll briefly summarize on Slide 13. We are very pleased with the strong finish to 2012 as reflected in our fourth quarter results. For 2012, the company achieved several significant milestones, including the highest levels of revenue, adjusted EBITDA and adjusted EBITDA margin in the history of the company. We executed on our strategy to deliver profitable growth by leveraging our investments in colocation, hosting and cloud services. Operationally, we further expanded our company-controlled data center footprint with the addition of 26,000 net sellable square feet across our Los Angeles and Atlanta markets. We also successfully integrated the Voxel acquisition and met our expectation for the acquisition to become accretive to adjusted EBITDA margin during the year.

As we look into 2013, our focus is simple: Execute on the strategy we have put in place. We remain confident that the market requirements fit well with our high-performance, hybridized IT Infrastructure service offerings. We remain on track in 2013 to expand our footprint in the New York Metro market, as previously announced, and we'll likely expand further in Santa Clara and Boston markets in response to customer demand as our current facilities reach full utilization. The expansion in the New York Metro area will entail a new company-controlled data center expected to come online in Secaucus, New Jersey, in the fourth quarter of 2013. Finally, we expect to continue to focus on operational excellence in support of long-term profitable growth for our shareholders.

Now we'd like to open up the call for your questions. Operator?

Operator

[Operator Instructions] Our first question comes from Chris Larsen of Piper Jaffray.

Christopher M. Larsen - Piper Jaffray Companies, Research Division

You put up a very strong sequential improvement in EBITDA, and some of that was cost side, so I'm not sure if that's Kevin flexing his muscles 1 quarter in, Eric, or what, but congratulations. But my question is, Kevin, were there any real one-timers? Maybe you can give us a sense for the size of the Georgia tax refund that came into the quarter, as we think about any other onetime cost savings that may have been in the fourth quarter that we shouldn't be thinking about, obviously, knowing the seasonality of the 4Q versus 1Q and 2Q, 3Q. Maybe just talk a little bit about that. And then you called out the growth in your data centers. Was that more for space or more for cloud hosting where you were getting that incremental really good -- the good strength you saw this quarter?

J. Eric Cooney

Chris, it's Eric. I'll actually make a brief comment on your first question with regard to the onetime costs in fourth quarter. And certainly, in the context of projecting future results, which I'm sure is your primary background for the question, I think the way to look at fourth quarter costs is offsetting costs. We had some onetime good guys, i.e., things like the Georgia headquarters tax credit. Certainly, seasonal power costs were a benefit to COGS in the quarter. We also had some, if you will, onetime negative costs that also impacted the quarter. Certainly, you're aware of Hurricane Sandy. There were some "onetime" costs that impacted the business in the fourth quarter. So net-net, for the purpose of forecasting future financials, you should assume that the onetime costs in the fourth quarter were essentially offsetting.

Kevin Mark Dotts

The only thing I would add to that is, as we've talked about in the prepared remarks, that as we go and start -- have hike or restarts and things like that going to the first quarter, certainly, there's a step-up, and history has shown that, that has been in kind of the, call it, the high single-digit range of step-up at least on the OpEx side, Chris.

Christopher M. Larsen - Piper Jaffray Companies, Research Division

Okay. And you did mention that. That's perfect. Maybe I could just ask -- I should have asked this as well on the revenue side, any like large chunky install revenues in the fourth quarter that we shouldn't carry through to the first quarter?

J. Eric Cooney

No, I wouldn't characterize any installed revenues. As we mentioned in the prepared remarks, we did have some non-recurring IP revenue. Chris, you'll be familiar with the FCP product in the IP line, that's what we're referring to in terms of non-recurring IP revenue. But beyond that, no, there were no "onetime" revenue benefits in the fourth quarter.

Christopher M. Larsen - Piper Jaffray Companies, Research Division

Great. And then the strength of cloud versus space?

J. Eric Cooney

From our perspective, very happy with the -- let's say the growth in our core data center services, meaning both company-controlled colocation, as well as hosting cloud. In aggregate, they all continue to deliver healthy growth for our data center services segment.

Operator

[Operator Instructions] Our next question comes from Mark Kelleher of Dougherty & Company.

Mark Kelleher - Dougherty & Company LLC, Research Division

Just touching back on the IP revenue, the non-recurring items. Is there a way to size that? Was that a couple million, was it a couple percent, was there any way to size that?

J. Eric Cooney

We don't break out individual product line revenues, but the other thing that you should pay attention to in terms of your go-forward projections for IP revenue, we noted in the prepared remarks a single large IP customer churn, and you'll see that IP churn in the quarter was up. That customer actually churned right towards the end of the quarter, the point being that the revenue impact of that large IP customer churn will likely be felt -- well, will definitely be felt in sequential terms in the first quarter of '13, so it wasn't really included in fourth quarter revenue impact. And round figures, you can think of that customer as about a $200,000-a-month billing customer that will impact our first quarter '13 IP revenue.

Mark Kelleher - Dougherty & Company LLC, Research Division

Okay, that's helpful. Can you remind me what the limit of your revolving credit facility is? How much can you borrow there?

J. Eric Cooney

The revolver in total is a $70 million facility. And I think, let's see, that we have $30 million drawn on it as of 12/31.

Mark Kelleher - Dougherty & Company LLC, Research Division

So that will be the support for the CapEx, the $60 million, $65 million of CapEx?

J. Eric Cooney

Yes, I believe we drew on it about $7 million, I think, which was going into -- what supported some of the CapEx spend in the quarter.

Mark Kelleher - Dougherty & Company LLC, Research Division

All right. Would it be possible to tell me the capacity utilization in Dallas? How's that facility doing? I know that's been up and running for a bit.

J. Eric Cooney

We don't break out individual facility utilization, we provide those figures in aggregate. You got them in the supplementary materials. But I'll make a general comment in terms of trend: We're pleased with the progress we're making in Dallas. And perhaps, as you'd imagine, having a brand-new premium facility, it's a compelling product in terms of the value proposition we're offering that market segment.

Operator

Our next question comes from George Sutton of Craig-Hallum.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

I wanted to move the Q&A a little more strategic. And first, on the competitive environment, you've obviously, I think, have seen many of your traditional competitors move upmarket, and I just wanted to see if you can confirm what we're hearing in the market.

J. Eric Cooney

Just before I answer that, clarify for me what you mean by "moving upmarket."

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Moving towards larger customer opportunities.

J. Eric Cooney

Sure. So from Internap's standpoint, our historic go-to-market has been predominantly a direct sales enterprise go-to-market strategy, targeting, as you would probably describe, the upmarket customers. So in that sense, I think it's fair to say that some of the emerging cloud providers, and even legacy managed hosting providers, have begun to move "upmarket" more towards the enterprise customer, so yes, absolutely seeing competitive pressures from more traditional public cloud or managed hosting offerings in the enterprise segment.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Now on the pricing side, of course, during the quarter, Amazon, Google, DuPont Fabros, had all had different pricing discussions that kind of put a little bit of fear into the market. Can you talk about pricing trends that you're seeing?

J. Eric Cooney

Sure. In the cloud market, pricing trends, from our perspective, had been flat to, I would say, slightly declining over the past couple of years. That trend really hasn't changed given some of the more public or even excepting some of the more public announcements of significant price reductions from some of the public cloud companies. Essentially, what you have to keep in mind, or at least as Internap thinks about it, while yes, the absolute sell price dollar per server or dollar per gigabyte of storage is flat to slightly declining, recognize also that the returns on capital are ultimately driven by the costs for the hardware, the infrastructure that we're paying for those servers and storage. And obviously, those costs have also quite significantly come down over the past several years. So for us, it's all a return on capital discussion and suffice it to say that we're quite pleased with the returns on capital, both today and our projections for future returns on capital, even excepting fairly modest price declines in the marketplace.

George F. Sutton - Craig-Hallum Capital Group LLC, Research Division

Got you. Lastly, relative to your cloudy colo survey that you did, does that suggest you are exactly where you want to be in terms of your positioning? Or is there any modest change you feel you need to make?

J. Eric Cooney

I'll say in terms of the strategy, we feel quite confident that the strategy we've put in place is being positively received in the market and that the market continues to evolve generally in line with the expectations that our strategy suggested. That being said, I'm never going to suggest we are satisfied or comfortable in our current position as it relates to product development or product roadmap. We're always going to be investing aggressively in running hard to bring new products to market. But at a high level, strategically speaking, and as evidenced by the cloudy colo discussion during our prepared remarks, we feel good about the strategy we've put in place in terms of our ability to respond to current and emerging market requirements.

Operator

Our next question comes from Gray Powell of Wells Fargo Securities.

Priya Parasuraman - Wells Fargo Securities, LLC, Research Division

This is actually Priya Parasuraman in for Gray. So I was wondering if you could help us better understand the data center revenue line item in terms of how much is the company-controlled colo versus managed hosting in cloud and third-party data center. And how should we think about the gross margin profile of each of these businesses?

J. Eric Cooney

We don't actually break out detailed revenue on the data center services segment. What I can tell you in proportionate terms, if you broke our data center services into 2 buckets, bucket #1 being partner data center revenues and bucket #2 being core data center services, inclusive of company-controlled colocation, hosting and cloud, bucket #1 would be, round figures, about 30% of data center services revenue; and bucket #2, the core data center services, would be about 70% of our total data center services revenue. And to your second question about the gross margins, certainly, partner data center revenue is, simply put, Internap reselling third-party partner data centers, and the segment margins on that are relatively low. We've previously talked about figures in the 20% segment margin range. And for the core data center services, what we've indicated is that our gross margins for the individual colocation, hosting and cloud products are reasonable to expect they're comparable with peer group companies, respectively, in the 50%, 60-plus percent range from the segment margin perspective.

Priya Parasuraman - Wells Fargo Securities, LLC, Research Division

Okay. And then 1 more. What is the attach rate you're seeing between colo and managed hosting and cloud? And are you seeing the Voxel assets drive any meaningful change in your colo demand at all?

J. Eric Cooney

In terms of attach rate between colo, hosting and cloud, I think it's accurate to say that most customers today are not buying day 1 hybridized colo, hosting and cloud products. Most customers are still today purchasing one or the other of those products. That being said, what we are seeing today is buying decisions being heavily influenced based on the infrastructure service provider's capability to offer those hybridized environments, because customers are planning for their future application needs. So again, even though they may not be buying, today's application requirements aren't universally requiring hybridized colo, hosting, cloud infrastructure. Virtually every customer conversation we have entails a discussion of the roadmap of that customer and the future requirements for hybridized infrastructure.

Operator

At this time, I would like to turn the call back over to management for any closing remarks.

J. Eric Cooney

I think that'll be it. Thank you very much, operator. We appreciate everybody's time and attention, and we'll speak with you again next quarter. Thank you.

Operator

Thank you, sir, and thank you, ladies and gentlemen, for your participation. That does conclude your program. You may disconnect your lines at this time. Have a great day.

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