EX-99.1 2 ex99-1.htm EXHIBIT 99.1 ex99-1.htm
Exhibit 99.1
 
GRAPHIC

Internap Network Services Reports Fourth Quarter and Full-year 2008 Results

 
●
Record revenue of $254.0 million for 2008, an increase of 8.5 percent over 2007;
     
 
●
2008 Adjusted EBITDA(1) of $34.2 million;
     
 
●
2008 Adjusted EBITDA margin (1) of 13.5 percent;
     
 
●
Deployed 17,000 square feet of company-controlled data center space in 2008.
 
ATLANTA, GA – (March 12, 2009) Internap Network Services Corporation (NASDAQ: INAP), a global provider of fast, reliable, end-to-end Internet business solutions, today reported fourth quarter and full year 2008 results. Highlights for the year included record revenue, solid adjusted EBITDA, and a successful build-out of an additional 17,000 square feet of enterprise-grade data center space.  The company ended the year with 121,000 square feet of company-controlled square footage.
 
“Despite a tough economic environment, Internap grew revenue, generated significant cash, and substantially completed the largest organic data center expansion in the company’s history in 2008,” said Jim DeBlasio, Internap’s President and Chief Executive Officer.  “With very little debt and ample cash, the company has a strong balance sheet and continues to be on a solid financial foundation as we enter 2009.”
 
Revenue in 2008 was $254.0 million, up $19.9 million, or 8.5 percent compared with revenue in 2007.  Fourth quarter 2008 revenue was $64.2 million, an increase of 4.2 percent over the same quarter last year.  Year-over-year revenue growth for the full year and the fourth quarter was driven by increases in data center services revenue which benefitted from the expansion of company-controlled and partner-controlled colocation footprint.  Fourth quarter revenue declined 1.8 percent sequentially due to lower IP services revenue.
 
For the full-year 2008, GAAP net loss was $(104.8) million or $(2.13) per fully diluted share, compared with a net loss of $(5.6) million or $(0.12) per diluted share in 2007.  The net loss in 2008 includes a non-cash $102.3 million impairment to goodwill and other intangibles taken in the third quarter.  Fourth quarter 2008 GAAP net loss was $(0.9) million or $(0.02) per share.
 
Normalized net income (1), which excludes the impact of stock-based compensation expense and items that management considers non-recurring, totaled $6.0 million in 2008, compared with $16.1 million in 2007. On a fully-diluted share basis, 2008 normalized net income was $0.12 per share versus $0.34 per share in the prior year.  In the fourth quarter, 2008 normalized net income was $1.2 million or $0.03 per fully-diluted share.
 
1
 
Internap’s adjusted gross profit (1) in 2008 was $118.1 million, an increase of 2.1 percent over the prior year.  Increased data center services revenue was the driver of the year-over-year improvement.  Fourth quarter 2008 adjusted gross profit declined $2.2 million compared with the prior year’s quarter and $1.4 million sequentially.  The year-over-year decline in the fourth quarter was primarily due to lower adjusted gross margin in data center services and IP services.  A decline in IP services adjusted gross margin was the principal contributor to the sequential decrease in the fourth quarter 2008.
 
Adjusted EBITDA (1) for the full-year 2008 totaled $34.2 million compared with $37.4 million in 2007.  In the fourth quarter 2008, adjusted EBITDA (1) was $9.2 million, a decrease of 8.8 percent compared with the fourth quarter of 2007 and 8.1 percent versus the third quarter 2008.  Full-year 2008 adjusted EBITDA margin (1) was 13.5 percent – down 250 basis points versus last year.  Fourth quarter adjusted EBITDA margin (1) was 14.3 percent, down 200 basis points year-over-year and 90 basis points sequentially.  The year-over-year decreases reflect anticipated lower data center gross margins which were impacted by the planned build-out of company-controlled data center space and a larger proportion of occupied partner square footage.  The sequential decrease in the fourth quarter was driven by lower gross margin in the company’s IP Services segment.
 
Cash, cash equivalents, and short-term marketable securities totaled $54.1 million at December, 31 2008.  Total interest-bearing debt was $20.0 million at year-end 2008.
 
Internap maintained 3,610 customers under contract in the fourth quarter of 2008, a net decrease of 61 customers compared with the third quarter 2008.  The percentage of customers purchasing more than one service from Internap increased to 41 percent in the fourth quarter of 2008.  New accounts this quarter included Carbonite and Active Video Networks.
 
Conference Call Information:
Internap's fourth quarter and full-year 2008 conference call will be held today at 5:00 p.m., EDT. Participants may access the call by dialing 888-599-4884. International callers should dial 913-312-0654.  Listeners may also connect to the simultaneous webcast available from the Investor Services section of the company’s web site at http://ir.internap.com/events.cfm.  A replay of the call will be accessible from Thursday, March 12 at 8 p.m. EDT through Wednesday, March 18 at 888-203-1112 using the replay code 4577308. International callers can access the archived event at 719-457-0820 with the same code.

(1) Reconciliations between GAAP information and non-GAAP information contained in this press release are provided in the tables below entitled "Reconciliation of Gross Margin to Adjusted Gross Margin," "Reconciliation of Net (Loss) Income to Adjusted EBITDA," and "Reconciliation of Net (Loss) Income and Basic and Diluted Net (Loss) Income Per Share to Normalized Net Income and Basic and Diluted Normalized Net Income Per Share.”  This information is also available on our Web site under the Investor Services section of the company’s website.

About Internap
Internap is a leading Internet solutions company that provides The Ultimate Online Experience™ by managing, delivering, and distributing applications and content with 100% performance and reliability. With a global platform of data centers, managed Internet services and a content delivery network (CDN), Internap frees its customers to innovate their business, improve service levels, and lower the cost of IT operations. More than 3,000 companies across the globe trust Internap to help them achieve their Internet business goals. For more information, visit www.internap.com.
 
2

Internap "Safe Harbor" Statement
This press release contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements include statements regarding our future financial position. Because these 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 statements include our ability to sustain profitability; our ability to respond successfully to technological change; the availability of services from Internet network service providers or network service providers providing network access loops and local loops on favorable terms, or at all; failure of third party suppliers to deliver their products and services on favorable terms, or at all; failures in our network operations centers, data centers, network access points or computer systems; and our ability to protect our intellectual property, as well as other factors discussed in our filings with the Securities and Exchange Commission. We undertake no obligation to revise or update any forward-looking statement for any reason.
 
###

Press Contact:
Investor Contact:
Kristen Keller
Andrew McBath
(404) 266-2060 ext. 26
(404) 865-7198
kkeller@calysto.com
amcbath@internap.com

3

INTERNAP NETWORK SERVICES CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
 
   
Year Ended December 31,
  
   
2008
    
2007
    
2006
  
                   
Revenues:
                  
Internet protocol (IP) services
  
$
123,268
    
$
122,205
    
$
112,250
  
Data center services
    
109,679
      
83,632
      
56,548
  
Content delivery network (CDN) services
    
21,042
      
17,806
      
—
  
Other
    
—
      
10,447
      
12,577
  
                         
Total revenues
    
253,989
      
234,090
      
181,375
  
Operating costs and expenses:
                        
Direct costs of network, sales and services, exclusive of depreciation and amortization, shown below:
                        
IP services
    
45,782
      
43,925
      
40,723
  
Data center services
    
82,009
      
59,439
      
46,474
  
CDN services
    
8,086
      
6,594
      
—
  
Other
    
—
      
8,436
      
10,141
  
Direct costs of amortization of acquired technologies
    
6,649
      
4,165
      
516
  
Direct costs of customer support
    
16,217
      
16,547
      
11,566
  
Product development
    
8,477
      
6,564
      
4,475
  
Sales and marketing
    
30,888
      
31,533
      
27,173
  
General and administrative
    
30,675
      
30,251
      
21,556
  
Provision for doubtful accounts
    
5,083
      
2,261
      
548
  
Depreciation and amortization
    
23,865
      
22,242
      
15,856
  
Goodwill impairment
    
99,700
      
—
      
—
  
Restructuring and other impairments
    
1,741
      
11,349
      
323
  
Acquired in-process research and development
    
—
      
450
      
—
  
Gain on disposals of property and equipment
    
(16
)
    
(5
)
    
(113
)
Other
    
—
      
50
      
—
  
                         
Total operating costs and expenses
    
359,156
      
243,801
      
179,238
  
                         
(Loss) income from operations
    
(105,167
) 
    
(9,711
) 
    
2,137
  
                         
Non-operating (income) expense:
                        
Interest income
    
(1,884
)
    
(3,228
) 
    
(2,305
) 
Interest expense
    
1,251
      
1,150
      
883
  
Write-off of investment
    
—
      
1,178
      
—
  
Other, net
    
388
      
(37
)
    
(129
)
                         
Total non-operating (income) expense
    
(245
)
    
(937
)
    
(1,551
) 
                         
(Loss) income before income taxes and equity in earnings of equity-method investment
    
(104,922
) 
    
(8,774
) 
    
 3,688
  
Provision (benefit) for income taxes
    
174
      
(3,080
) 
    
145
  
Equity in earnings of equity-method investment, net of taxes
    
(283
)
    
(139
)
    
(114
)
                         
Net (loss) income
  
$
(104,813
)
  
$
(5,555
) 
  
$
3,657
  
                         
Net (loss) income per share:
                        
Basic
  
$
(2.13
)
  
$
(0.12
) 
  
$
0.11
  
Diluted
  
$
(2.13
)
  
$
(0.12
) 
  
$
0.10
  
Weighted average shares used in per share calculations:
                        
Basic
    
49,238
      
46,942
      
34,748
  
Diluted
    
49,238
      
46,942
      
35,739
  

4

CONSOLIDATED BALANCE SHEETS
(In thousands, except per share amounts)
 
   
December 31,
  
   
2008
    
2007
  
ASSETS
Current assets:
            
Cash and cash equivalents
  
$
46,870
    
$
52,030
  
Short-term investments in marketable securities
    
7,199
      
19,569
  
Accounts receivable, net of allowance for doubtful accounts of $2,777 and $2,351, respectively
    
28,634
      
36,429
  
Inventory
    
381
      
304
  
Prepaid expenses and other assets
    
10,866
      
8,464
  
Deferred tax asset, current portion
    
1
      
479
  
                 
Total current assets
    
93,951
      
117,275
  
                 
Property and equipment, net
    
97,350
      
65,491
  
Investments and other related assets
    
8,650
      
1,138
  
Intangible assets, net
    
33,942
      
43,008
  
Goodwill
    
90,977
      
190,677
  
Restricted cash
    
—
      
4,120
  
Deposits and other assets
    
2,763
      
2,287
  
Deferred tax asset, non-current
    
2,450
      
3,014
  
                 
Total assets
  
$
330,083
    
$
427,010
  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
                
Notes payable, current portion
  
$
—
    
$
2,413
  
Accounts payable
    
19,642
      
19,624
  
Accrued liabilities
    
8,756
      
10,159
  
Deferred revenues, current portion
    
3,710
      
4,807
  
Capital lease obligations, current portion
    
274
      
805
  
Restructuring liability, current portion
    
2,800
      
2,396
  
Other current liabilities
    
116
      
108
  
     
 
          
Total current liabilities
    
35,298
      
40,312
  
                 
Notes payable, less current portion
    
20,000
      
17,354
  
Deferred revenues, less current portion
    
2,248
      
2,275
  
Capital lease obligations, less current portion
    
3,244
      
452
  
Restructuring liability, less current portion
    
6,222
      
7,697
  
Deferred rent
    
14,114
      
11,011
  
Deferred tax liability
    
—
      
398
  
Other long-term liabilities
    
762
      
878
  
                 
Total liabilities
    
81,888
      
80,377
  
                 
Commitments and contingencies
                
                 
Stockholders’ equity:
                
Preferred stock, $0.001 par value, 20,000 shares authorized, no shares issued or outstanding
    
 —
      
—
  
Common stock, $0.001 par value; 60,000 shares authorized; 50,224 and 49,759 shares outstanding at December 31, 2008 and 2007, respectively
    
50
      
50
  
Additional paid-in capital
    
1,216,267
      
1,208,191
  
Accumulated deficit
    
(966,823
)
    
(862,010
)
Accumulated items of other comprehensive income
    
(929
) 
    
402
  
Treasury stock, at cost, 83 shares at December 31, 2008
    
(370
)
    
—
  
                 
Total stockholders’ equity
    
248,195
      
346,633
  
                 
Total liabilities and stockholders’ equity
  
$
330,083
    
$
427,010
  

5
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
   
Year Ended December 31,
  
   
2008
    
2007
    
2006
  
                   
Cash flows from operating activities:
                  
Net (loss) income
  
$
(104,813
)
  
$
(5,555
) 
  
$
3,657
  
Adjustments to reconcile net (loss) income to net cash provided by operating activities:
                        
Depreciation and amortization
    
28,663
      
26,407
      
16,372
  
Gain on disposal of property and equipment, net
    
(16
)
    
(5
)
    
(113
)
Goodwill and other intangible asset impairments
    
102,336
      
2,454
      
319
  
Acquired in-process research and development
    
—
      
450
      
—
  
Stock-based compensation expense
    
7,499
      
8,681
      
5,942
  
Write-off of investment
    
—
      
1,178
      
—
  
Equity in earnings from equity-method investment
    
(283
)
    
(139
)
    
(114
)
Provision for doubtful accounts
    
5,083
      
2,261
      
548
  
Non-cash changes in deferred rent
    
3,102
      
(421
) 
    
2,247
  
Deferred income taxes
    
644
      
(3,095
) 
    
—
  
Other, net
    
(477
)
    
(150
) 
    
—
  
Changes in operating assets and liabilities, excluding effects of acquisition:
                        
Accounts receivable
    
2,424
      
(15,825
)
    
(1,702
)
Inventory, prepaid expenses, deposits and other assets
    
(2,919
)
    
(2,182
)
    
(1,778
) 
Accounts payable
    
18
      
7,920
      
3,010
  
Accrued and other liabilities
    
(1,404
)
    
(2,466
) 
    
1,422
  
Deferred revenue
    
(836
)
    
2,704
      
1,070
  
Accrued restructuring liability
    
(1,070
)
    
5,309
      
(1,493
) 
                         
Net cash flows provided by operating activities
    
37,951
      
27,526
      
29,387
  
                         
Cash flows from investing activities:
                        
Purchases of investments in marketable securities
    
(21,422
)
    
(38,508
)
    
(17,427
)
Maturities and sales of investments in marketable securities
    
26,591
      
32,395
      
20,277
  
Purchases of property and equipment
    
(51,154
)
    
(30,271
)
    
(13,382
)
Proceeds from disposal of property and equipment
    
175
      
5
      
133
  
Cash received from acquisition, net of costs incurred for the transaction
    
—
      
3,203
      
—
  
Change in restricted cash, excluding effects of acquisition
    
4,120
      
(3,217
) 
    
—
  
                         
Net cash flows used in investing activities
    
(41,690
)
    
(36,393
)
    
(10,399
)
 
6
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In thousands)
 
   
Year Ended December 31,
  
   
2008
    
2007
    
2006
  
Cash flows from financing activities:
                        
Proceeds from notes payable, net of discount
    
20,000
      
19,742
      
—
  
Principal payments on notes payable
    
(20,000
)
    
(11,318
)
    
(4,375
)
Payments on capital lease obligations
    
(807
)
    
(1,617
)
    
(538
)
Debt issuance costs
    
(14
) 
    
(65
) 
    
—
  
Stock compensation plans
    
108
      
8,582
      
3,031
  
Proceeds from exercise of warrants
    
—
      
—
      
3,808
  
Other, net
    
(108
) 
    
(84
) 
    
31
  
                         
Net cash flows (used in) provided by financing activities
    
(821
) 
    
15,240
      
1,957
  
                         
Effect of exchange rates on cash and cash equivalents
    
(600
)
    
66
      
212
  
                         
 Net (decrease) increase in cash and cash equivalents
    
(5,160
) 
    
6,439
      
21,157
  
 Cash and cash equivalents at beginning of period
    
52,030
      
45,591
      
24,434
  
                         
 Cash and cash equivalents at end of period
  
$
46,870
    
$
52,030
    
$
45,591
  

7
 
INTERNAP NETWORK SERVICES CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES
 
    In addition to providing financial measurements based on generally accepted accounting principles in the United States of America (GAAP), Internap has historically provided additional financial measures that are not prepared in accordance with GAAP (non-GAAP), including adjusted EBITDA, normalized net income, normalized diluted shares and adjusted gross margin. The most directly comparable GAAP equivalent to adjusted EBITDA and normalized net income is net (loss) income. The most directly comparable GAAP equivalent to normalized diluted shares is diluted common shares outstanding. The most directly comparable GAAP equivalent to adjusted gross margin is gross margin.
     
    We define non-GAAP measures as follows:
     
 
●
Adjusted EBITDA is net (loss) income plus impairments and restructuring, stock-based compensation expense, depreciation and amortization, income taxes and interest expense less interest income
     
 
●
Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenues
     
 
●
Normalized net income is net (loss) income plus impairments and restructuring and stock-based compensation expense
     
 
●
Normalized diluted shares are diluted shares of common stock outstanding used in GAAP net (loss) income per share calculation, excluding the effect of SFAS No. 123R under the treasury stock method
     
 
●
Normalized net income  per share is normalized net income divided by basic and normalized diluted shares
     
 
●
Adjusted gross profit is gross profit (GAAP) plus direct costs of customer support and depreciation and amortization included in and associated with costs of sales
     
 
●
Adjusted gross margin is adjusted gross profit as a percentage of revenues
     
    Reconciliations of each of our non-GAAP financial measures to the most directly comparable financial measure are detailed in the reconciliations of GAAP to non-GAAP measures below. We believe that presentation of these non-GAAP financial measures provides useful information to investors regarding our results of operations.
     
    We believe that excluding depreciation and amortization as well as asset impairments and restructuring to calculate adjusted EBITDA provides supplemental information and an alternative presentation that is useful to investors’ understanding of the Company’s core operating results and trends. Not only are depreciation and amortization expenses based on historical costs of assets that may have little bearing on present or future replacement costs, but also they are based on management estimates of remaining useful lives. Asset impairments relate to the Company’s write-down of goodwill and other intangible assets recorded in the acquisition of VitalStream Holdings, Inc. in February 2007. Restructuring reflects the recent and significant deterioration in the real estate market which caused us to increase our restructuring liability and a nominal adjustment for severance costs that were ultimately not paid. Management believes that such asset impairment and restructuring charges were unique costs that are not expected to recur on a regular basis, and consequently, does not consider these charges as a normal component of expenses related to current and ongoing operations.
     
    Similarly, we believe that excluding the effects of share-based compensation from non-GAAP financial measures provides supplemental information and an alternative presentation useful to investors’ understanding of the Company’s core operating results and trends. Investors have indicated that they consider financial measures of our results of operations excluding share-based compensation expense as important supplemental information useful to their understanding of our historical results and estimating our future results.
 
8
 
   
We also believe that, in excluding the effects of stock-based compensation, our non-GAAP financial measures provide investors with transparency into what management uses to measure and forecast our results of operations, to compare on a consistent basis our results of operations for the current period to that of prior periods, to compare our results of operations on a more consistent basis against that of other companies, in making financial and operating decisions and to establish certain management compensation.  Stock-based compensation is an important part of total compensation, especially from the perspective of employees. We believe, however, that supplementing GAAP net (loss) income and net (loss) income per share information by providing normalized net income and normalized net income  per share, excluding the effect of impairments and restructuring and stock-based compensation expense in all periods, is useful to investors because it enables additional and more meaningful period-to-period comparisons. We consider normalized diluted shares to be another important indicator of overall performance of the Company because it eliminates the effect of non-cash items.
     
    Adjusted EBITDA is not a measure of liquidity calculated in accordance with GAAP, and should be viewed as a supplement to — not a substitute for — our results of operations presented on the basis of GAAP. Adjusted EBITDA does not purport to represent cash flow provided by, or used in, operating activities as defined by GAAP. Our statement of cash flows presents our cash flow activity in accordance with GAAP. Furthermore, adjusted EBITDA is not necessarily comparable to similarly-titled measures reported by other companies.
     
    We believe adjusted EBITDA is used by and is useful to investors and other users of our financial statements in evaluating our operating performance because it provides them with an additional tool to compare business performance across companies and across periods. We believe that:
 
 
●
EBITDA is widely used by investors to measure a company’s operating performance without regard to items such as interest expense, taxes, depreciation and amortization, which can vary substantially from company to company depending upon accounting methods and book value of assets, capital structure and the method by which assets were acquired; and
     
 
●
investors commonly adjust EBITDA information to eliminate the effect of impairments, restructuring and stock-based compensation expense, which vary widely from company to company and impair comparability.
     
Our management uses adjusted EBITDA:
   
 
●
as a measure of operating performance to assist in comparing performance from period to period on a consistent basis;
     
 
●
as a measure for planning and forecasting overall expectations and for evaluating actual results against such expectations; and
     
 
●
in communications with the board of directors, stockholders, analysts and investors concerning our financial performance.
     
    Our presentation of adjusted gross margin excludes depreciation, amortization and direct costs of customer support in order to allow investors to see the business through the eyes of management. Direct costs of network, sales and services is viewed by management as generally non-controllable, external costs and the margin of revenues in excess of these direct costs is regularly monitored by management. Similarly, we view the costs of customer support to also be an important component of costs of revenues but believe that the costs of customer support to be within our control and to some degree discretionary as we can adjust those costs by hiring and terminating employees.
     
    Adjusted gross margin is an important metric to our investors and analysts, as we have regularly discussed and disclosed the effects of third party vendors’ pricing declines and the corresponding effect on our revenues. The presentation of adjusted gross margin highlights the impact of the pricing declines and allows investors and analysts to evaluate our revenue generation performance relative to direct costs of network, sales and services. Conversely, we have much greater latitude in controlling the compensation component of costs of revenues, represented by customer support, and we analyze this component separately from the direct external costs.
 
9
 
    Depreciation and amortization have also been excluded from adjusted gross margin because, as noted above, they are based on estimated useful lives of tangible and intangible assets. Further, depreciation and amortization are based on historical costs incurred to build out the Company’s deployed network and the historical costs of these assets may not be indicative of current or future capital expenditures.
     
    Although we believe, for the foregoing reasons, that our presentation of non-GAAP financial measures provides useful supplemental information to investors regarding our results of operations, our non-GAAP financial measures should only be considered in addition to, and not as a substitute for, or superior to, any measure of financial performance prepared in accordance with GAAP.
     
    Use of non-GAAP financial measures is subject to inherent limitations because they do not include all the expenses that must be included under GAAP and because they involve the exercise of judgment of which charges should properly be excluded from the non-GAAP financial measure. Management accounts for these limitations by not relying exclusively on non-GAAP financial measures, but only using such information to supplement GAAP financial measures. Our non-GAAP financial measures may not be the same non-GAAP measures, and may not be calculated in the same manner, as those used by other companies.
 
INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF NET (LOSS) INCOME TO ADJUSTED EBITDA
 
 
   
Three Months Ended
  
   
December 31,
2008
    
September 30,
2008
    
December 31,
2007
  
Net (loss) income (GAAP)
  
$
(910
)
  
$
(101,405
)
  
$
5,440
  
Impairments and restructuring*
    
1,026
      
102,265
      
—
  
Stock-based compensation expense
    
1,128
      
1,922
      
2,043
  
Depreciation and amortization, including depreciation and amortization
included in direct costs of network, sales and services**
    
7,781
      
7,345
      
6,744
  
(Benefit) provision for income taxes
    
(58
)
    
(65
 )
    
(3,357
) 
Interest expense (income), net
    
188
      
(103
)
    
(833
)
Adjusted EBITDA (non-GAAP)
  
$
9,155
    
$
9,959
    
$
10,037
  
 
 
10
 
RECONCILIATION OF NET (LOSS) INCOME AND BASIC AND DILUTED
NET (LOSS) INCOME PER SHARE TO NORMALIZED NET INCOME AND
BASIC AND DILUTED NORMALIZED NET INCOME PER SHARE
 
 
    Reconciliations of (1) net (loss) income, the most directly comparable GAAP measure, to normalized net income, (2) diluted shares used in per share calculations, the most directly comparable GAAP measure, to normalized diluted shares used in normalized per share calculations and (3) net (loss) income per share, the most directly comparable GAAP measure, to normalized net income per share for each of the periods indicated is as follows (in thousands, except per share data):
 
   
Three Months Ended
  
   
December 31,
2008
    
September 30,
2008
    
December 31,
2007
  
Net (loss) income (GAAP)
  
$
(910
)
  
$
(101,405
)
  
$
5,440
  
Impairments and restructuring*
    
1,026
      
102,265
      
—
  
Stock-based compensation expense
    
1,128
      
1,922
      
2,043
  
Normalized net income (non-GAAP)
  
$
1,244
    
$
2,782
    
$
7,483
  
                         
Shares used in per share calculation:
                        
Basic (GAAP)
    
49,338
      
49,294
      
49,007
  
                         
Diluted (GAAP)
    
49,338
      
49,294
      
49,696
  
Add potentially dilutive securities
    
65
      
70
      
—
  
Less dilutive effect of SFAS No. 123R under the treasury stock method
    
(14
)
    
(70
 )
    
(292
)
Normalized diluted shares (non-GAAP)
    
49,389
      
49,294
      
49,404
  
                         
GAAP net (loss) income per share:
                        
Basic
  
$
(0.02
)
  
$
(2.06
)
  
$
0.11
  
Diluted
  
$
(0.02
)
  
$
(2.06
)
  
$
0.11
  
                         
Normalized net income per share (non-GAAP):
                        
Basic
  
$
0.03
    
$
0.06
    
$
0.15
  
Diluted
  
$
0.03
    
$
0.06
    
$
0.15
  
 
 
11
INTERNAP NETWORK SERVICES CORPORATION
RECONCILIATION OF GROSS MARGIN TO ADJUSTED GROSS MARGIN
 
   
Three Months Ended
  
   
December 31,
2008
    
September 30,
2008
    
December 31,
2007
  
Revenues:
                  
Internet protocol (IP) services
  
$
30,089
    
$
31,660
    
$
32,932
  
Data center services
    
29,245
      
28,738
      
23,790
  
Content delivery network (CDN) services
    
4,878
      
5,001
      
4,914
  
Other
    
—
      
—
      
—
  
Total revenues
    
64,212
      
65,399
      
61,636
  
                         
Direct costs of network, sales and services, exclusive of depreciation and amortization shown below:
                        
IP services
    
11,744
      
11,347
      
12,260
  
Data center services
    
21,796
      
22,061
      
16,517
  
CDN services
    
2,086
      
1,996
      
2,113
  
Other
    
—
      
—
      
(13
) 
Direct costs of amortization of acquired technologies
    
1,142
      
3,049
      
1,229
  
Direct costs of customer support
    
3,699
      
3,950
      
4,335
  
Depreciation and amortization associated with costs of sales
    
5,746
      
5,327
      
4,637
  
Total costs of sales
    
46,213
      
47,730
      
41,078
  
                         
Gross profit (GAAP)
  
$
17,999
    
$
17,669
    
$
20,558
  
Gross margin (GAAP)
    
28.0
%
    
27.0
%
    
33.4
%
                         
Direct costs of customer support
  
$
3,699
    
$
3,950
    
$
4,335
  
Depreciation and amortization:
                        
Direct costs of amortization of acquired technologies
    
1,142
      
3,049
      
1,229
  
Associated with costs of network, sales and services
    
5,746
      
5,327
      
4,637
  
                         
Adjusted gross profit (non-GAAP)
  
$
28,586
    
$
29,995
    
$
30,759
  
Adjusted gross margin (non-GAAP)
    
44.5
%
    
45.9
%
    
49.9
%
 
12