Internap Network Services Corporation Q2 2009 Earnings Call Transcript

| About: Internap Network (INAP)

Internap Network Services Corporation (NASDAQ:INAP)

Q2 2009 Earnings Call

August 05, 2009; 5:00 pm ET


Eric Cooney - President & Chief Executive Officer

George Kilguss - Chief Financial Officer

Andrew McBath - Director of Investor Relations


Jonathan Atkins - RBC Capital Markets

Andrew Conner - Kaufman Brothers

Sri Anantha - Oppenheimer & Co.

Donna Jaegers - D.A. Davidson

Dave Raut - Jefferies & Co.


Good day everyone, and welcome to the Internap second quarter 2009 earnings conference call. Today’s call is being recorded. For opening remarks and introductions, I’d now like to turn the call over to Mr. Andrew McBath, Director of Investor Relations. Please go ahead, sir.

Andrew McBath

Good afternoon and thank you for being with us today. I’m joined by Eric Cooney, our President and Chief Executive Officer; and George Kilguss, our Chief Financial Officer. Following the prepared remarks this afternoon by Eric and George we will open up the call for your questions.

Before I go through the caution after it language concerning forward-looking statements I want to point out we’ll be referencing slides that correspond with our conference call this afternoon. These slides can be viewed in the online presentation stream, which can be accessed in the presentation section of Internap’s Investor Services website.

Non-GAAP reconciliations and our supplemental data sheet, which includes additional operational and financial metrics for your use, are available under the Quarterly Results section of our site. Let me remind everyone that today’s call contains forward-looking statements within the meaning of the Private Securities litigation for form act of 1995.

These statements include statements regarding future financial position and performance, customer growth and satisfaction, business strategy and prospects including our expectations for our business segments, timetable for rollout of new products, expectations regarding levels of growth including data center supply and demand, costs and cost savings, expenses and margins, capital expenditures and financing needs.

Because these forward-looking statements are not guarantees of future performance and involve risks and uncertainties, there are important factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors are discussed in our filings with the Securities and Exchange Commission.

We undertake no obligation to update these statements. In addition to reviewing the second quarter results, we will also discuss recent developments. Any non-GAAP financial measure discussed during this call will be reconciled to the most directly comparable GAAP financial measure.

Now, I’ll turn the call over to Eric Cooney.

Eric Cooney

Thank you, Drew and good afternoon everyone. I’m pleased to be here today to provide an update on our progress as we execute our strategic plan for the company. First of all I’ll walk through a summary of our second quarter 2009 results followed by an update on our strategy and certain key actions we expect will impact both mid and long term profitable growth.

Our Chief Financial Officer, George Kilguss, will describe our financial results in detail. I’ll then provide a financial summary and we’ll open up for questions. So, beginning on slide three, you can see that we delivered revenue of $64 million in the quarter, which represents slight growth of 3% compared with the second quarter of 2008.

Quarter-over-quarter, revenue was up 1%. Total segment gross profit was $28 million and adjusted EBITDA totaled $7 million or 10.5% of revenue for the quarter. EBITDA improved on both a year-over-year basis and compared with the prior quarter. This improvement in profitability was driven by slightly higher revenue and the significantly reduced operating expense level.

Moving on to slide four, I want to point out that we’ve now consolidated our segment reporting to two segments, data center services and IP services. During the quarter we made the decision is segregate our CDN services segment and consolidate these financials within the IP and data center services segments.

Specifically we’ve allocated the managed server portion of our CDN segment to the data center segment and we’ve allocated the remaining CDN segment businesses to our IP services segment. This revised segment reporting is reflective of Internap’s new management structure, the integration of our CDN assets within our IP network and the integration of our support for the CDN assets.

Further, this dual-segment reporting provides appropriate focus on the business segments driving near term profitable growth. We provided a schedule reconciling the previous segment reporting structure to this new segment reporting structure for the most recent six quarters on the Investor Relations section of our website.

You will also see that we incurred a $56 million non-cash charge to goodwill and other intangible assets in the quarter. When we made the decision to consolidate our CDN segment this triggered a requirement to perform an impairment test for these assets, which then resulted in this impairment charge.

George will provide further details on this in a few minutes, but this $56 million charge was the primary contributor to the large net loss for the quarter. As you can see in slide five, our data center services segment drove the second quarter top line increase. Data center services revenue increased 17% over the second quarter of 2008. Our data center expansions and increased occupancy along with stable pricing benefited revenue growth and offset significant churn from a couple of large customers during the quarter.

In IP services, revenue declined 7% year-over-year and was flat sequentially reflecting soft pricing and a challenging economic climate. Traffic levels, however, continued to show significant growth rising 27% compared to the prior years quarter. As we stated during last quarters results, we’re focused on driving profitable growth for our business and as such, we are actively redirecting our sales activities to pursue opportunities with improved profitability.

On slide six, you’ll see the graphic representation of the strategy for driving long term profitable growth that we outlined on our first quarter call. You’ll continue to see Internap applying this strategic framework, leveraging technology leadership and best-in-class customer service as the means to drive profitable growth across both of our business segments.

In our data center services segment, the next step in executing our strategy requires an expansion of our data center assets. So we are announcing a $50 million commitment to expand our data center presence in two or three markets through 2010 without incremental debt.

With successful track record of growing our data center business, a strong industry outlook, and the intrinsic value of more company controlled occupancy, we believe this is a sound investment for Internap. We will provide subsequent updates on these capital expenditures as the funds are allocated to specific markets or projects.

In our IP services segment we have taken several steps in the execution of our strategy. First, our product group has refined and developed the compelling value proposition and deployed this updated message to our entire sales organization. The sales team is now able to clearly and consistently articulate the aspects that differentiate our IP transit from other service providers. Specifically, quantifying how Internap provides the best performance, availability and support.

Second, we’re actively renegotiating the commercial agreements with our carrier providers to stay ahead of the pricing curve. Third, we remain on track to launch our next generation CDN product later this year. Finally, we are investing to expand the engineering development organization to solidify and expand our technology leadership position for the long term. Beyond these segments specific investments, we’re taking many actions which span the entire business and are expected to have near term impacts on our performance.

On slide seven, you see the first action we have taken is to make numerous changes in the senior leadership team. Since mid March, we’ve changed up 14 senior management positions all with a view towards simplifying, focusing and reenergizing the organization.

In July, we created single point of management accountability for customer service by consolidating disparate organizations under Steve Orchard as our Senior Vice President of customer service. Steve is a 10 year veteran with Internap and has held a number of key customer impacting roles with increasing responsibility that uniquely qualified him to assume this vital position.

We’ve also targeted specific staff investments in the engineering and support teams, which are having a near term benefit. On the engineering side these incremental investments are enabling us to quickly develop and deploy enhanced sales tools. On the support side, we’ve hired additional facilities engineers to provide extended and more comprehensive coverage.

Finally, we’ve taken a wide range of actions under the heading of driving operational excellence. We’ve listed just a few here, which include sales process improvements, improved customer invoicing, and new NOC monitoring system.

So with that, let me turn the call over to George to provide more color on our financial results.

George Kilguss

Thank you, Eric, and good afternoon, everyone. As shown on slide eight, for the quarter ended June 30, 2009 Internap’s revenue increased both year-over-year and sequentially to $64.4 million. Our revenue mix was split fairly evenly between data center services and our IP services segment, which includes performance IP, and our former CDN services segment excluding CDN managed server, which is now included in our data center segment.

Continued increases in our data center services segment drove overall top line growth as IP services remained flat. Revenue growth in the quarter was impacted by higher overall churn. Total revenue churn this quarter was 2.3% compared with 1.7% the same quarter last year. Higher churn experienced in our data center services segment was the primary driver of the total increase, which I’ll provide some additional comments on in a moment.

Total segment gross profit was $27.8 million in the second quarter, down slightly both quarter-over-quarter and year-over-year. A combination of lower IP services revenue and an increase in data center costs associated with the addition of approximately 7,000 square feet of data center space in the Atlanta and Dallas Markets impacted margins relative to the second quarter 2008 and first quarter 2009.

Adjusted EBITDA was up both year-over-year and sequentially, as we grew revenue and drove reduced operating expenses. Specifically, G&A costs were down this quarter, as we significantly reduced our reliance on outside professional services and the expense reduction plan, we implemented in the first quarter began to benefit our cost structure.

As we outlined for you last quarter, our reduction in force initiative is expected to generate around $5 million in annual run rate savings, of which a portion will be reinvested in customer facing functions and product development. Excluding executive transition costs incurred in the first quarter, adjusted operating expense was down $1.2 million or 5% sequentially.

Adjusted EBITDA for the second quarter totaled $6.8 million, compared with $5.4 million in the same quarter a year ago. GAAP net loss in the quarter, which totaled $60.6 million compared to a $6.6 million loss in Q1 ‘09 and a loss of $3.2 million in the same quarter a year ago.

As Eric mentioned earlier and as shown on slide nine, we recognized a $55.6 million non-cash impairment charge in the quarter, which includes the write-off of approximately $52.1 million of CDN goodwill and intangibles and a $3.5 million impairment to goodwill associated with our FCP equipment product.

In addition to the impairment expense, we booked a non-cash restructuring charge in the second quarter of $2.2 million. This cost was primarily related to stranded real estate held in restructuring that we are attempting to sublease. With rising commercial real estate vacancies, longer time to sublease and increased free rent periods being offered by lessors. We have pushed out our time to sublease assumptions based on third party assessments of the current market.

These impairment charges do not have any impact on our current cash balance or result in violation of any covenants of our debt instruments. The above non-cash charges significantly contributed to our GAAP net loss of $60.6 million in the quarter. Normalized for these events and excluding 1.3 million of stock-based compensation in the quarter, 2Q ‘09 net loss would be $1.5 million.

Moving onto our balance sheet, as summarized on Slide 10; we ended the quarter with $55 million in cash and $23 million in debt and capital leases, both compared to similar levels last quarter. Total liabilities to equity ratio increased to 0.42:1 as we completed the impairment of the intangibles I mentioned a moment ago.

Adjusted EBITDA less CapEx was $3.2 million in the second quarter and improvement sequentially in year-over-year, as EBITDA increased and capital expenditures were reduced. Changes in working capital were the primary uses of cash this quarter. Our management of the company’s financial process continues to improve as you see on the next slide.

Day sales outstanding this quarter was 34-days, down from 43-days the same quarter last year, representing a 21% reduction year-over-year. By conducting more rigorous presale credit checks and changing collection policies, we’ve been able to add more predictability to our receivables. We also completed an invoice redesign program, which significantly clarifies and simplifies our customer’s invoices and ultimately contributes to both customer satisfaction and improved DSOs.

Slide 12 shows our customer count at the end of the quarter, which totaled 3,118, a net decrease of 56, compared with the prior quarter. Customer losses were concentrated in our IP services segment similar to last quarter, as we continue to see the effects of the weak economy. Total average revenue per customer per month improved 12% year-over-year and 4% sequentially to $6,821 in the second quarter.

Now, I’d like to briefly cover our segment results beginning on slide 13. As Eric mentioned, we realigned our business unit reporting to better reflect the way we are running the overall operations. CDN and Managed Server essentially a dedicated hosting product has been combined within data center services. All other CDN services which are essentially applications related on top of our performance IP platform are now reported in the IP services segment.

Data center service revenue totaled $32.3 million in the quarter and was up 17% compared with the prior year. Higher overall occupancy and solid revenue per square foot drove the increases in the segment. Since the second quarter 2008, we’ve grown occupied square footage by 9%.

While new revenue in this segment remained solid, we experienced higher data center revenue churn in the quarter. Data center churn totaled 2.9% in the quarter up from 1.3% a year ago. We had several customers consolidate their data center footprint in the second quarter as the economy impacted end user demand.

In many of these cases, we lost revenue but retained the customer. Data center services segment gross margin as the second quarter, were 25.1%, down 150 basis points both compared with the first quarter and the same period last year as the initial addition of square footage increased expense during the quarter without an associated increase in data center revenue.

In addition, seasonal power increase is also contributed to the decline. As we mentioned earlier, we are clearly focused on growth in this segment and have committed $50 million in additional capital investment to build out company-controlled data center assets through 2010.

Moving to IP services on slide 14, revenue in this business unit totaled $32.1 million, down from $34.6 million a year ago and essentially flat compared with the prior quarter. IP services revenue churn totaled 1.6% this quarter, an improvement of 40 basis points compared with the same period last year. IP segment gross margin was 61.3% in the second quarter, slightly down year-over-year.

Sequentially, margins were flat with NSP cost reductions offsetting acquisition pricing declines. The macro fundamentals of our business remained sound and we believe that as the economy turns, we are well positioned in this business to benefit from an increasing reliance on the internet as the medium for business applications, media distribution, communication, and entertainment.

With that summary of our financial results complete, I’ll hand the call back to Eric to give you his final thoughts before we take your questions.

Eric Cooney

Thanks, George. I’ll just summarize here on slide 15. In summary, we’re executing our strategy to drive long term profitable growth. This strategy leverages two key assets: Our technology leadership and our reputation for best-in-class customer support. We have simplified and focused our business on two segments: IP services and data center services where we feel we have a compelling customer value proposition.

We are making the investments necessary to execute this strategy including the $50 million capital investment in data center assets, a strengthened management team, expanded engineering and support organization, and numerous operational excellence initiatives. For the second quarter, we were able to slightly grow our revenue and profitability and while there is clearly much more to be done, we’re executing the plan we believe will deliver long term profitable results.

Now, we’ll be happy to take any questions.

Question-and-Answer Session


(Operator Instructions) Your first question comes from Jonathan Atkins - RBC Capital Markets.

Jonathan Atkins - RBC Capital Markets

A couple questions, the next-generation CDM products slated for launch in the second half, if you could maybe just review kind of the main differentiators that you hope to see there. Then on the churn, you indicated there was slightly elevated level due to customer consolidation and qualitatively, what do you sort of expect for second half churn in both Colo and IP given what you’ve seen so far in the quarter?

Eric Cooney

I’ll comment on the CDN question and let George comment on the churn. In terms of the CDN, I guess at a high level I’ll say, we obviously haven’t launched the product yet so I’d prefer not to get too much into the details in terms of what specific features and functions we’ll offer, but the short description is we’ve specifically decided to narrow the focus of our CDN offering to video specific or video centric offering as opposed to a small file, HTTP download type of CDN offering.

In terms of video CDN, the tag line is we’re looking to deliver video at a superior quality and superior performance relative to what else is out there, and will implement things that provide for features and functions like dynamic transcoding, device detection, network awareness, bandwidth awareness, etc. and implement that in a way that we think provides at the end of the day a better consumer experience, a better video quality experience relative to what else we think will be on the market at the time.

George Kilguss

Jonathan, with regard to the churn, we’re not giving guidance for third quarter. I would say in general, we did have elevated levels of churn especially in the data center unit which was 2.9% in the quarter up from 1.3% a year ago. Another data point, our revenue churn is really a combination of down grades as well as customer losses, and in this particular quarter, roughly 60% of our churn was related to down grades in the quarter.

We did have a couple of large customers that did consolidate their data center footprint and so we saw our revenue churn spike in the data center market. We’re constantly trying to work to reduce churn and we’ll continue to try to do that, but we have not provided guidance for churn for Q3.

Jonathan Atkins - RBC Capital Markets

That’s why I asked kind of qualitatively, what you’re expecting and maybe another way to get at that is are we in the third or sixth inning or kind of how far are we on the kind of the down grade phenomenon as best as you can tell? Still ongoing or are we kind of past the hump?

George Kilguss

What I can tell you is in IP, our churn was 2% in the second quarter of 08. Sequentially, our churn was relatively flat around 1.5%. So that seems to be at least stable in the most recent quarter and data center services, my hope and desire is that that will comedown. There’s nothing on the horizon that I know of today that would keep it at that level, but again we have not given guidance.

Jonathan Atkins - RBC Capital Markets

Then of the new sales that you got, can you give us kind of a sense of what portion were new logos versus existing customers? If I could add on of the existing portion, whatever that might be, where there’s substantial take rate of dual products in other words of folks that took both Colo and IP or were there single product sales that made up a big portion of that?

George Kilguss

Of the new sales in the quarter it was relatively balanced by 50/50 between new customer sales and by bookings by out of the base. We actually had more bookings coming out of new logos coming out of our colocation market relative to our IP market or IP segment. Did that answer your question?

Jonathan Atkin - RBC Capital Markets

Right, it did and then of the new logos, kind of taken as a group, did the majority of them take two services or one?

George Kilguss

To be perfectly can did the bundled metric we talk about in the past, we still have a very high take rate with colocation where over 95% of those customers both colo customers take an additional service. It is not as strong going the other way, but we’ve not published those bundled results just yet.

Jonathan Atkin - RBC Capital Markets

In terms of the installation intervals some of your peers have talked about longer book to install cycles. Is that something you have been seeing in your business as well on either the colo or the IP side?

Eric Cooney

Yes, I was just going to say, across-the-board we see I would say 60 days is roughly the number from booking to install or turn up and from our perspective we’ve not seen any substantial change in that over recent history.

Jonathan Atkin - RBC Capital Markets

Finally, maybe more on the kind of housekeeping side, but so sales and marketing and G&A, those particular line items was there any change in how you allocated expenses among those categories if you mentioned that in the script I missed it.

George Kilguss

So, sales and marketing, no there was no change in allocation. The decline sequentially was really in the first quarter we have a sales conference that we conduct every first quarter so we have about half of the change from first Q1 to 2Q results from that sales conference so the decline just to be clear was about 850,000 Q-over-Q sequentially and we also had a reduction in headcount partially from the rif and as recorded from some new positions like the VPN marketing, which is not filled yet. We had lower headcount in the quarter as well.


Your next question comes from Andrew Conner - Kaufman Brothers.

Andrew Conner - Kaufman Brothers

This is Andrew Conner for Colby. So the first question is the data center business is very capital intensive so to generate meaningful growth. Do you guys need to meaningfully expand and if so, how do you propose paying for it?

Eric Cooney

I think the short term plan is we’ll expand under our own steam as we indicated in the comments; we’re not looking to take down incremental debt to support the $50 million CapEx investment we highlighted in the comments. I think at least based on all of our modeling. We can make a very healthy return on that $50 million investment by building out data center space.

I guess you all can do the math as well as we can in terms of how many approximately how many square feet of sellable space we’ll be able to build out based on that $50 million investment and you can extrapolate that and determine whether you think that’s meaningful growth, but at the end of the day we’re obviously looking for a healthy return on that investment and we’re confident we’ll be able to deliver that.

Andrew Conner - Kaufman Brothers

Can you remind us what types of services you are currently offering in the facilities and is there any interest in moving further up the managed stack?

Eric Cooney

I think it’s fair to say at this point, we are in terms of services we’re offering a basic data center services provider. We obviously provide the power, the connectivity, space, etc. We do have as we indicated in describing our CDN segmentation. We do have a managed server business, which is obviously very small in revenue terms.

We are looking at that as a possible area for us to expand or to move up the stack, but I think it’s fair to say that for the near term focused on making our existing data center business a profitable successful cash flow generating machine before we look to expand or get aggressive outside our core competency.

Andrew Conner - Kaufman Brothers

Then do you think that there’s a risk that your current data center partners would begin to view you as a competitor because we know that happened with Akamai when they acquired VitalStream?

Eric Cooney

I think, I’ll follow on from some comments I made in the last call and that was we have today a large number of data center partners and we indicated in the last call and I’ll reiterate now that our intention is to streamline those partnerships i.e., reduce the number of data center folks that we partner with.

So I think to the extent one of the partners that we decide to reduce clearly to the extent we’re competing with them in any local market, it’s likely that competition will intensify or increase. I think for those other “data center partners” i.e., the folks that we really want to retain as partners.

Our selection of those partners and their let’s say interest in working with us will probably be driven by let’s say a win-win scenario i.e., we’ll be looking to partner in markets where we don’t have data center square footage and we’ll look to do that with a very small number of partners that generate for them a meaningful amount of revenue.

So I think for those partners we choose to work with. I think it will be a compelling win-win relationship and for those we choose not to, there’s probably good reason for that frankly on both sides.


Your next question comes from Sri Anantha - Oppenheimer.

Sri Anantha - Oppenheimer

Eric, given the change in strategy could you maybe just shed some light on how the sales force is structured today, when they are going out and talking to potential clients are they like offering CDN solutions? How many people are taking IP or data center or even CDN is being offered as a standalone solution?

Eric Cooney

Maybe there is a couple of questions in there one, in terms of how our sales organization is structured we have as you may know, a single individual who runs our global sales organization and we’re broken down de need him in geographic sales territories.

For the most part a sales rep working for Internap is tasked with and expected to sell, but say the whole bag of tricks that Internap has to offer so Colo IP, CDN, Managed Server, FCP product, etc. There is or I will draw a distinction, we do have a number of sales reps who are let’s say PDN specialists and you can probably imagine how we secured those individuals.

Frankly, I think that’s fair enough as CDN is a very different sales proposition and sales cycle from what we see typically in IP and data center. So we do have some let’s say specialists so to speak that specifically focus on selling the CDN, but in general, our sales force represents the entire Internap portfolio.

Sri Anantha - Oppenheimer

The secondarily, when you look at the cost structure of the company today with some of the initiatives that been undertaken, now do you guys have the appropriate cost structure to at least grow profitability in our longer term?

Eric Cooney

What do you mean by cost structure? Do you mean is our OpEx at a level?

Sri Anantha - Oppenheimer

That’s correct, yes.

Eric Cooney

So I think it’s fair to say that our OpEx, we obviously took those cost reduction initiatives earlier this year, because we felt that there was an imbalance between cost and revenue. Obviously, I believe we can drive incremental profitable growth given our current cost structure.

I think in the long term the question is, is our current EDAR ratio that the target long term ratio. I think, if you choose a peer group company a across Coloc IP, CDN, and I think for the most part you’ll see that best-in-class company is probably operating at a slightly better EDAR ratio even than we are today.

I think I’m looking to walk before we run. Let’s see if we can’t drive incremental profitable growth from our current position and overtime, we’ll evaluate or continue to evaluate the cost structure.

Sri Anantha - Oppenheimer

You mentioned about this potential charges for the real estate. Could you give a little more color on what exactly and what exactly did you guys do there and you also mentioned that some companies have given you guys longer time to pay the rent or something like that. Could you guys could clarify that what exactly happened there?

George Kilguss

So basically, we have a few properties that have been stranded and they are abandoned properties and we have them in restructuring reserve. Per the accounting Regs, we have to assume some type of sublease income or rental income in the future. We just can’t have this property on that we pay a rent on in and not have any sublease assumptions.

So, in our charge we had a certain amount of sublease assumptions. We looked at those sub lease assumptions. We evaluate the market. We look at, what’s the time to rent. What are lessors doing in the marketplace? How long it taking to fill the vacancy? If lessors are offering free rent periods, what are all the factors to determining, when we could as a company see some sublease income.

So, we looked at our assumptions based on the current market. We saw the market vacancies being increased and the time to rent increasing and so, we put more conservative assumptions in our model. When we did that, you present value that back although, the life of the lease and it imputes a non-cash charge.

So, we took a charge of roughly 2.2 million associated with properties that we have in restructuring, primarily in the New York marketplace.

Sri Anantha - Oppenheimer

One last one, and is the churn in the data center market concentrated in any specific vertical? Is that pretty broad based? Thanks.

Eric Cooney

Nothing specific in terms of vertical, its broad based.


Your next question comes from And Donna Jaegers - D. A. Davidson.

Donna Jaegers - D. A. Davidson

Eric, you’ve certainly walked into sort of a challenge there. Do you feel like you have your management team resettled now, that that you’re going forward?

Eric Cooney

We today are recruiting for still a number of open positions, and I’ll say making from my standpoint good progress in terms of qualified candidates, lots of interest. We’re narrowing the process, as we speak. For positions like marketing, I think many of you are aware our, let’s say, senior manager overseeing the IP, CDN business is currently vacant as is our head of engineering.

So, for those three positions, in particular we have been recruiting for sometime and let’s say closing in on final candidates, which we hope to announce filling those positions over the coming weeks.

I think once we do that, we’ll have, let’s say a pretty stable senior management team in combination with all of the other changes we’ve made over the past several months. I think we’ll feel pretty good about the team we have on the bench.

Donna Jaegers - D. A. Davidson

Then could you give a little more color on, you mentioned customer consolidation in some of your data centers that accounted for about 60% of the churn. Where those large Internet content companies that were consolidating the footprint since, they built their own space or could you give a little more color around that?

George Kilguss

Two customers in particular were in the advertising and online media segment of business and they looked at their business plans. Their contracts were coming to maturity and they decided to contract and reduce their size of their footprint, but it was primarily in the online advertising market, where we saw this contraction. It was mainly in the Northeast.

Donna Jaegers - D. A. Davidson

Does it look like, I mean of the tenants that you have now, is there a risk of further consolidation of their footprints?

George Kilguss

Not of those tenants, but I think as you go through the economy, we do have customers that are venture funded. We see an increase in customers that have had struggles in their business plans and so we’ve kept tight reigns on those people, as you can tell by our DSOs.

As this economy wears on, I think there’s still a risk for venture companies, who don’t get funding to fully fund their business plans. As I said in my earlier comments, I don’t see anything in Q3, but these things can come out at you from time-to-time.


Your final question comes from Jonathan Schildkraut - Jefferies & Co.

Dave Raut- Jefferies & Co.

This is Dave Raut for Jonathan, a few housekeeping questions. First can you guys breakout and built-out an occupied square footage in both partner in Internap sites and secondly, can you give us the amount of equipment revenue that was captured in your IP services line for the quarter? Thanks.

George Kilguss

So, in our partner data centers, in the second quarter, we had approximately 106,000 built out square feet, of which 90,000 square feet was occupied and our company controlled data centers we had approximately 144,000 square feet of built out and about 86,000 occupied. In our FCP, we had about 300,000 of equipment revenue in the quarter.


That will conclude our conference for today. We thank you for joining us.

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