8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 8-K

CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

Date of Report (Date of earliest event reported):

February 16, 2015

Internap Corporation

(Exact Name of Registrant as Specified in Charter)

Delaware
(State or Other Jurisdiction
of Incorporation) 001-31989
(Commission File Number) 91-2145721
(IRS Employer
Identification
Number)

One Ravinia Drive, Suite 1300, Atlanta, Georgia
(Address of Principal Executive Offices) 30346
(Zip Code)

Registrant’s telephone number, including area code: (404) 302-9700

Not applicable

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

☐ Soliciting material pursuant to Rule 14a-12 under the Securities Act (17 CFR 240.14a-12)

☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Securities Act (17 CFR 240.14d-2(b))

☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Securities Act (17 CFR 240.13e-2(c))

Item 2.02           Results of Operations and Financial Condition.

On February 19, 2015, Internap Corporation (the “Company”) issued a press release announcing its financial results for the quarter and year ended December 31, 2014. A copy of the press release is attached hereto as Exhibit 99.1 hereto and is incorporated herein by reference.

The information contained herein and in the accompanying exhibit shall not be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing, unless expressly incorporated by specific reference to this or such filing. The information in this report, including the exhibit hereto, shall be deemed to be “furnished” and therefore shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended.

Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.

On February 16, 2015, our compensation committee approved the 2015 Short Term Incentive Plan. Under the plan, certain employees (including named executive officers) may be eligible for the award of a cash bonus after our 2015 fiscal year end. The cash bonus of each participant (other than our Chief Executive Officer, Chief Financial Officer and Senior Vice Presidents, which includes our named executive officers) will be based on achievement of corporate and personal objectives, with a target award level expressed as a percentage of salary. The cash bonus of our Chief Executive Officer, Chief Financial Officer and Senior Vice Presidents will be based on achievement of corporate objectives only, with a target award level expressed as a percentage of salary. The corporate objectives are based on revenue, earnings before interest, taxes, depreciation and amortization and bookings net of churn. The personal objectives are individualized for each participant below the level of Senior Vice President.

The target incentives as a percentage of base salary for our Chief Executive Officer, Chief Financial Officer and Senior Vice Presidents (including our named executive officers) are up to 100% of base salary earned in 2015. 

For named executive officers, the maximum bonus potential is up to two times the target incentive based on achievement of stretch corporate objectives. If a participant is no longer an employee on the date awards from the plan are paid, the participant will not be deemed to have earned an award and will not receive an award under the plan. If, before the date awards from the plan are paid, a participant has provided notice of resignation or we have notified a participant that his/her employment will terminate, the participant will not be deemed to have earned an award under the plan and will not receive an award under the plan. Our compensation committee may amend, modify, terminate or suspend operation of the plan at any time. 

The above description is qualified in its entirety by reference to the full text of the 2015 Short Term Incentive Plan, which is being filed as Exhibit 10.1.

Item 9.01           Financial Statements and Exhibits.

(d)        Exhibits

The following exhibit is furnished with this Current Report on Form 8-K:

Exhibit No.	Description
10.1	2015 Short Term Incentive Plan.
99.1	Press Release dated February 19, 2015.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	INTERNAP NETWORK SERVICES CORPORATION
Date: February 19, 2015	By:	/s/ Kevin M. Dotts
		Kevin M. Dotts
		Chief Financial Officer

EXHIBIT INDEX

Exhibit No.	Description of Exhibit
10.1	2015 Short Term Incentive Plan.
99.1	Press Release of the Company dated February 19, 2015.

EX-10.1

Exhibit 10.1

Internap Corporation

2015 Short Term Incentive Plan

Establishment of Plan

Internap Corporation (the “Company”) has established the 2015 Short Term Incentive Plan (the “2015 Plan”) to provide for the award of cash bonuses to eligible participants based, in part, upon the financial performance of the Company in the fiscal year ended December 31, 2015. The 2015 Plan supersedes all prior versions of any short term incentive plan or other similar bonus plan but does not supersede the Company’s Employment Security Plan or any Employment Security Agreement or any terms thereof.  

Purpose of the 2015 Plan

The purpose of the 2015 Plan is to:

● Align participants’ actions with the accomplishment of key corporate financial and operational goals;

● Encourage and reward individuals, as applicable, for the achievement of specific personal and/or business unit objectives in support of the corporate financial and operational goals; and

● Provide a range of incentive compensation opportunities for each participant.

Effective Date

The 2015 Plan is effective as of January 1, 2015 and will expire on December 31, 2015 if not sooner terminated as provided herein.

Administration

The Compensation Committee (the “Committee”) of the Board of Directors administers the 2015 Plan. The Committee may delegate any functions to designated individuals who may be employees of the Company. Except as limited herein, the Committee has full authority and discretion to interpret the 2015 Plan and to make all other determinations deemed necessary or advisable for the administration of the 2015 Plan. All disputes associated with interpretation of the 2015 Plan or awards hereunder shall be submitted to the Senior Vice President of Human Resources.

Participation

Eligibility to participate in the 2015 Plan for Section 16 officers (as defined in Rule 16a-1(f) under the Securities Exchange Act of 1934) is at the discretion of the Committee.  Eligibility to participate in the 2015 Plan for all other employees is at the discretion and invitation of the Chief Executive Officer.  Employees participating in the 2015 Sales Incentive Plan for Commissionable Sales Professionals, or any other operational sales incentive plan, are not eligible to participate in the 2015 Plan.

Employees joining the Company after January 1, 2015 may be eligible to participate in the 2015 Plan in the Committee’s discretion (in the case of Section 16 officers) or the Chief Executive Officer’s discretion (in the case of other employees). Any award made to an employee who participates for less than the full year will be prorated based on the employee’s partial year service.

1

Key Terms and Definitions

Awards are based on achievement of individual and/or corporate goals. Individual goals are specific and predefined for each participant (“Individual Targets”) below the level of Senior Vice President (SVP). Corporate goals are specific Bookings Net of Churn (BNoC), Revenue and EBITDA targets approved by the Committee (each, a “Corporate Financial Target”).

The split between Corporate Financial Targets and Individual Targets differs by position. The following table reflects the weightings of each component for each position:

	STIP Incentive Compensation Weighting % By Position
Objective	CEO/CFO/SVP's	Non-BU VP's	BU VP's & All other Staff
Corp. Financial Tgt: Bookings Net of Churn	30%	20%	15%
Corp. Financial Tgt: Revenue	30%	20%	15%
Corp. Financial Tgt: EBITDA	40%	30%	20%
Individual Tgts: (1-3)	0%	30%	50%
Total at Target	100%	100%	100%

The table below identifies the target incentives as a percentage of Base Salary based on a participant’s position and the split between Corporate Financial Targets and Individual Targets. At the CEO/CFO/SVP level, the maximum STIP payout can equal up to 2 times the target incentive based on the achievement of stretch Corporate Financial Targets.

Position Grouping	Target Incentive (Varies by Role)	Corporate Financial Targets	Individual Targets
CEO/CFO/SVP	Up to 100%	100%	n/a
Non- BU Vice Presidents	Up to 50%	70%	30%
Business Unit Vice Presidents	Up to 50%	50%	50%
Directors and other exempt employees	Up to 25%	50%	50%
Non-exempt employees	Up to 10%	Discretionary	Discretionary

Base Salary is defined as actual base salary earned during 2015, which would exclude any bonuses, incentives or other allowances which may have been earned or received during 2015.

Determination and Payment of Awards

The Committee has sole discretion to determine awards relative to Corporate Financial Targets for all participants after consideration of any recommendation by the Chief Executive Officer.  The Committee recommends to the full Board of Directors, for their approval, any award to the Chief Executive Officer.

Any awards of the Individual Target component for participants is based on management’s assessment of the level of achievement of the participant’s specific Individual Targets.

Manner and Timing of Awards

All awards granted pursuant to the 2015 Plan shall be paid in cash (local currency).  If the Committee determines to pay an award, the Company will make any such award not later than March 15, 2016.

2

Recoupment of Awards 

If the Committee determines that any 2015 Plan participant has engaged in fraud or intentional misconduct that has caused a restatement of the Company’s financial statements, the Committee will review the award received or to be received by that participant on the basis of the Company’s performance during the periods affected by the restatement.  If the award would have been lower if it had been based on the restated results, the Committee may seek recoupment of the award.

Termination of Employment

In order to earn an award, a participant must be employed by the Company on the date that the award is paid. If a participant is no longer an employee, for whatever reason, on the date awards from the 2015 Plan are paid, the participant shall not be deemed to have earned any award under the 2015 Plan and shall not receive any award under the 2015 Plan. If, before the date awards from the 2015 Plan are paid, a participant has provided notice of intent to terminate employment or the Company has notified a participant that the participant’s employment will terminate, the participant shall not be deemed to have earned any award under the 2015 Plan and shall not receive any award under the 2015 Plan.

If an employee dies or becomes disabled before the date awards from the 2015 Plan are paid, the Committee may, at its discretion, determine whether the participant has earned any award under the 2015 Plan.  If the Committee determines that such participant has earned an award and that the Company will pay an award, the Company will make any such award not later than March 15, 2016.

In no event will awards under this 2015 Plan be either postponed or accelerated in the event of termination of employment, except as provided herein.

Plan Termination and Amendment

The Committee may amend, modify, terminate or suspend operation of the 2015 Plan at any time.  Notice of any such changes will be communicated to participants.  In no event, however, will awards under the 2015 Plan be either postponed or accelerated in the event that the 2015 Plan is terminated.

General Provisions

Benefits Not Guaranteed. Neither the establishment of the 2015 Plan nor participation in the 2015 Plan shall provide any guarantee or other assurance that an award will be payable under the 2015 Plan. There is no obligation of uniformity of treatment of employees or participants under the 2015 Plan.

No Employment Right. Participation in the 2015 Plan does not constitute a commitment, guarantee or agreement that the Company will continue to employ any individual and this 2015 Plan shall not be construed or applied as an employment contract or obligation.

Governing Law. The validity, construction and effect of the 2015 Plan shall be determined in accordance with the laws of the State of Georgia without giving effect to conflicts of law principles.

Severability. The provisions of the 2015 Plan are severable. If any provision is determined to be unenforceable, in whole or in part, then such provision shall be modified so as to be enforceable to the maximum extent permitted by law. If such provision cannot be modified to be enforceable, the provision shall be severed from the 2015 Plan to the extent unenforceable. The remaining provisions and any partially enforceable provisions shall remain in full force and effect. 

3

EX-99.1

Exhibit 99.1

Internap Reports Fourth Quarter and Full-Year 2014 Financial Results

● Highest annual and quarterly adjusted EBITDA¹ and adjusted EBITDA margin¹ in the history of the company

● 2014 revenue of $335.0 million, fourth quarter revenue of $84.3 million

● 2014 segment margin² of 56.7%, fourth quarter segment margin of 57.9%

● 2014 adjusted EBITDA of $78.7 million, fourth quarter adjusted EBITDA of $22.7 million

● 2014 adjusted EBITDA margin of 23.5%, fourth quarter adjusted EBITDA margin of 27.0%

ATLANTA, GA – (February 19, 2015) Internap Corporation (NASDAQ: INAP), a provider of high-performance Internet infrastructure services, today announced financial results for the fourth quarter and full-year 2014.

“We are pleased to deliver a strong finish to 2014 having met our fourth quarter revenue guidance and exceeded the high-end range of our adjusted EBITDA guidance. The execution of our strategic transformation to an industry leading Internet infrastructure services provider is reflected in full year revenue and adjusted EBITDA growth of 18% and 36%, respectively,” said Eric Cooney, President and Chief Executive Officer of Internap. “With some significant churn events behind us, most notably the exit from 111 8th Avenue data center, we enter 2015 with a solid foundation for profitable growth from our integrated platform of high-performance hybrid Internet infrastructure services. Encouraged by our positive momentum and the stage of our business transformation, we are providing full-year 2015 revenue, adjusted EBITDA and capital expenditure guidance.”

Fourth Quarter and Full-Year 2014 Financial Summary

	Fourth Quarter								Full Year
	2014			2013			Growth		2014			2013			Growth
Revenues:
Data center services	$	61,305		$	49,686			23%	$	242,623		$	185,147			31%
IP services		22,958			24,401			-6%	$	92,336			98,195			-6%
Total Revenues	$	84,263		$	74,087			14%	$	334,959		$	283,342			18%
Operating Expenses	$	86,517		$	79,942			8%	$	349,298		$	290,829			20%
GAAP Net Loss	$	(8,257	)	$	(10,450	)		21%	$	(39,494	)	$	(19,830	)		-99%
Normalized Net Loss2	$	(5,232	)	$	(4,378	)		-20%	$	(27,707	)	$	(7,463	)		-271%
Segment Profit1	$	48,788		$	40,394			21%	$	190,013		$	151,330			26%
Segment Profit Margin		57.9	%		54.5	%	340 BPS			56.7	%		53.4	%	330 BPS
Adjusted EBITDA	$	22,712		$	15,651			45%	$	78,729		$	58,037			36%
Adjusted EBITDA Margin		27.0	%		21.1	%	590 BPS			23.5	%		20.5	%	300 BPS

  

1

Revenue

● Revenue for the full-year 2014 increased 18% to $335.0 million compared with $283.3 million in 2013. The increase in annual revenue was due to growth in our data center services segment, which includes $43.2 million of revenue attributable to iWeb, which we acquired in November 2013. Revenue for the fourth quarter of 2014 was $84.3 million, an increase of 14% year-over-year and flat compared with the third quarter of 2014.

● Data center services revenue for the full-year 2014 increased 31% to $242.6 million. Fourth quarter data center services revenue was $61.3 million, an increase of 23% compared with the fourth quarter of 2013 and a decrease of 1% from the third quarter of 2014. The year-over-year revenue increase was predominantly attributable to increased sales of core data center services including revenue attributable to iWeb. Sequentially, previously disclosed churn from our New York Metro migration and decreased sales in our partner data centers offset the increase in core data center services.

● IP services revenue for the full-year 2014 decreased 6% to $92.3 million. Fourth quarter IP services revenue was $23.0 million, a decrease of 6% compared with the fourth quarter of 2013 and flat from the third quarter of 2014. The year-over-year revenue decrease was driven by per unit declines in IP pricing and the loss of legacy contracts at higher effective prices, partially offset by an increase in overall traffic. Sequentially, traffic growth and non-recurring revenue offset per unit price declines in IP.

Net Loss

● GAAP net loss was $(39.5) million, or $(0.77) per share for the full-year 2014 compared with $(19.8) million, or $(0.39) per share in 2013. GAAP net loss in the fourth quarter was $(8.3) million, or $(0.16) per share.

● Normalized net loss was $(27.7) million, or $(0.54) per share for the full-year 2014. Normalized net loss for the full-year 2013 was $(7.5) million, or $(0.15) per share. Normalized net loss in the fourth quarter was $(5.2) million, or $(0.10) per share.

Segment Profit and Adjusted EBITDA

● Segment profit in 2014 was $190.0 million, an increase of 26% year-over-year. Segment profit in the fourth quarter increased 21% compared with the fourth quarter of 2013 and 3% sequentially to $48.8 million. Annual segment margin was 56.7% in 2014, an increase of 330 basis points over 2013. Fourth quarter segment margin was 57.9%, an increase of 340 basis points year-over-year and 180 basis points compared with the third quarter of 2014. We achieved the highest annual and quarterly segment profit and segment margin levels in our history in 2014 and fourth quarter 2014.

● Annual data center services segment profit increased 47% to $136.5 million. Fourth quarter data center services segment profit increased 38% year-over-year and 4% sequentially to $35.3 million. Data center services segment profit margin was 56.2% in 2014 and 57.6% in the fourth quarter of 2014, representing year-over-year increases of 620 basis points and 610 basis points, respectively. An increasing proportion of higher-margin services, specifically colocation sold in company-controlled data centers, hosting and cloud services and the contribution from iWeb, drove data center services segment profit and margin higher.

● IP services segment profit for the full-year 2014 decreased 9% to $53.5 million. Fourth quarter IP services segment profit was $13.5 million, a 9% decrease compared with the fourth quarter of 2013 and a 1% decrease from the third quarter of 2014. IP services segment profit margin was 58.0% in 2014 and 58.7% in the fourth quarter of 2014, representing year-over-year declines of 180 basis points and 200 basis points, respectively. Decreased IP services revenue more than offset lower costs, driving declines in IP services segment profit and segment margin.

● Full-year 2014 adjusted EBITDA increased 36% year-over-year to $78.7 million. Fourth quarter 2014 adjusted EBITDA increased 45% year-over-year and 15% sequentially to $22.7 million. Adjusted EBITDA margin was 23.5% in 2014 and 27.0% in the fourth quarter of 2014, representing year-over-year increases of 300 basis points and 590 basis points, respectively. Sequentially, fourth quarter adjusted EBITDA margin increased 370 basis points. The year-over-year and sequential increases in adjusted EBITDA were attributable to increased segment profit in our data center services segment. The sequential adjusted EBITDA margin improvement was also driven by lower cash operating expenses.

2

Balance Sheet and Cash Flow Statement

● Cash and cash equivalents totaled $20.1 million at December 31, 2014. Total debt was $359.0 million, net of discount, at the end of the quarter, including $60.1 million in capital lease obligations.

● Cash generated from operations for the 12 and three months ended December 31, 2014 were $53.2 million and $17.0 million, respectively. Capital expenditures over the same periods were $77.4 million and $25.1 million, respectively.

Business Outlook

We are providing the following guidance for full-year 2015:

● Revenue                              $339 million - $353 million

● Adjusted EBITDA              $89 million - $95 million

● Capital Expenditures           $70 million - $80 million

Recent Operational Highlights

Historical trends of key financial and operational metrics can be found in a supplementary data schedule on Internap’s website at http://ir.internap.com/results.cfm.

● We had 12,286 customers at December 31, 2014.

● Internap expanded our OpenStack-powered AgileCLOUD footprint to Amsterdam and the New York metro market. We currently have four OpenStack public cloud locations, providing developers and enterprise customers with one of the most robust, feature-rich OpenStack public cloud platforms.

● Internap announced the addition of powerful OpenStack management capabilities in AgileCLOUD via an integrated OpenStack Horizon dashboard. We now provide a full range of cloud and infrastructure management options that give customers the flexibility to meet their specific control requirements. 

1 Adjusted EBITDA, adjusted EBITDA margin and normalized net loss are non-GAAP financial measures which we define in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP information and non-GAAP information related to adjusted EBITDA and normalized net loss are contained in the tables entitled “Reconciliation of Loss from Operations to Adjusted EBITDA,” and “Reconciliation of Net Loss and Basic and Diluted Net Loss Per Share to Normalized Net Loss and Basic and Diluted Normalized Net Loss Per Share” in the attachment.

2 Segment margin and segment profit are non-GAAP financial measures which we define in an attachment to this press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP and non-GAAP information related to segment profit and segment margin are contained in the table entitled “Segment Profit and Segment Margin” in the attachment.

Conference Call Information:

Internap’s fourth quarter and full-year 2014 conference call will be held today at 4:30 p.m. ET. Listeners may connect to a webcast of the call, which will include accompanying presentation slides, on the investor relations section of Internap’s web site at http://ir.internap.com/events.cfm. The call can be also accessed by dialing 866-515-9839. International callers should dial 631-813-4875. An online archive of the webcast presentation will be available for one month following the call. An audio-only replay will be accessible from Thursday, February 19, 2015 at 7:30 p.m. ET through Wednesday, February 25, 2015 at 855-859-2056 using replay code 76817780.  International callers can listen to the archived event at 404-537-3406 with the same code.

About Internap

Internap is the high-performance Internet infrastructure provider that powers the applications shaping the way we live, work and play. Our hybrid infrastructure delivers performance without compromise – blending virtual and bare-metal cloud, hosting and colocation services across a global network of data centers, optimized from the application to the end user and backed by rock-solid customer support and a 100% uptime guarantee. Since 1996, the most innovative companies have relied on Internap to make their applications faster and more scalable. For more information, visit www.internap.com.

3

Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements include statements related to our ability to drive profitable growth and our expectations for full-year 2015 revenue, adjusted EBITDA and capital expenditures. Our expectations for full-year 2015 revenue, adjusted EBITDA and capital expenditures are based on certain assumptions, including anticipated new product launches, leveraging of multiple routes to market and expanded brand awareness for high-performance Internet infrastructure services. These assumptions may prove to be inaccurate in the future. Because such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, there are important factors that could cause Internap’s actual results to differ materially from those in the forward-looking statements. These factors include our ability to execute on our business strategy; the robustness of the IT infrastructure services market; our ability to achieve or sustain profitability; our ability to expand margins and drive higher returns on investment; our ability to complete expansion of company-controlled data centers within the expected timeframe; our ability to sell into new data center space; the actual performance of our IT infrastructure services; our ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; our ability to correctly forecast capital needs, demand planning and space utilization; our ability to respond successfully to technological change and the resulting competition; 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; our ability to provide or improve Internet infrastructure services to our customers; and our ability to protect our intellectual property, as well as other factors discussed in our filings with the Securities and Exchange Commission. Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. We undertake no obligation to update, amend or clarify any forward-looking statement for any reason.

###

Press Contact:	Investor Contact:
Mariah Torpey	Michael Nelson
(781) 418-2404	(404) 302-9700
internap@daviesmurphy.com	ir@internap.com

4

INTERNAP CORPORATION

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except per share amounts)

	Three Months Ended December 31,						Year Ended December 31,
	2014			2013			2014			2013
Revenues:
Data center services	$	61,305		$	49,686		$	242,623		$	185,147
Internet protocol (IP) services		22,958			24,401			92,336			98,195
Total revenues		84,263			74,087			334,959			283,342
Operating costs and expenses:
Direct costs of network, sales and services, exclusive of depreciation and amortization, shown below:
Data center services		25,989			24,103			106,159			92,564
IP services		9,486			9,590			38,787			39,448
Direct costs of customer support		9,211			7,635			36,804			29,687
Direct costs of amortization of acquired and developed technologies		1,383			1,324			5,918			4,967
Sales and marketing		8,907			8,191			37,845			31,800
General and administrative		9,465			14,780			43,902			42,759
Depreciation and amortization		20,478			14,105			75,251			48,181
Loss on disposal of property and equipment, net		80			5			112			9
Exit activities, restructuring and impairments		1,518			209			4,520			1,414
Total operating costs and expenses		86,517			79,942			349,298			290,829
Loss from operations		(2,254	)		(5,855	)		(14,339	)		(7,487	)
Non-operating expenses:
Interest expense		6,747			4,022			26,742			11,346
Loss on extinguishment of debt		-			881			-			881
Other, net		(303	)		(65	)		33			614
Total non-operating expenses		6,444			4,838			26,775			12,841
Loss before income taxes and equity in (earnings) of equity-method investment		(8,698	)		(10,693	)		(41,114	)		(20,328	)
Benefit for income taxes		(379	)		(187	)		(1,361	)		(285	)
Equity in (earnings) of equity-method investment, net of taxes		(62	)		(56	)		(259	)		(213	)
Net loss	$	(8,257	)	$	(10,450	)	$	(39,494	)	$	(19,830	)
Basic and diluted net loss per share	$	(0.16	)	$	(0.21	)	$	(0.77	)	$	(0.39	)
Weighted average shares outstanding used in computing net loss per share:
Basic and diluted		51,159			50,898			51,237			51,135

5

INTERNAP CORPORATIONUNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS(In thousands, except par value amounts)

	December 31,			December 31,
	2014			2013
ASSETS
Current assets:
Cash and cash equivalents	$	20,084		$	35,018
Accounts receivable, net of allowance for doubtful accounts of $2,121 and $1,995, respectively		19,606			23,927
Deferred tax asset		633			371
Prepaid expenses and other assets		12,276			22,533
Total current assets		52,599			81,849
Property and equipment, net		342,145			331,963
Investment in joint venture		2,622			2,602
Intangible assets, net		52,545			57,699
Goodwill		130,313			130,387
Deposits and other assets		9,923			7,999
Deferred tax asset		1,637			1,742
Total assets	$	591,784		$	614,241
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	30,589		$	29,774
Accrued liabilities		13,120			13,549
Deferred revenues		7,345			6,729
Capital lease obligations		7,366			5,489
Term loan, less discount of $1,463 and $1,387, respectively		1,537			1,613
Exit activities and restructuring liability		1,809			2,286
Other current liabilities		1,590			2,493
Total current liabilities		63,356			61,933
Deferred revenues		3,544			3,804
Capital lease obligations		52,686			49,800
Revolving credit facility		10,000			-
Term loan, less discount of $6,543 and $8,006 respectively		287,457			288,994
Exit activities and restructuring liability		2,701			1,877
Deferred rent		10,583			14,617
Deferred tax liability		7,292			8,591
Other long-term liabilities		3,829			2,415
Total liabilities		441,448			432,031
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; 120,000 shares authorized; 54,410 and 54,023 shares outstanding, respectively		54			54
Additional paid-in capital		1,262,402			1,253,106
Treasury stock, at cost; 621 and 461 shares, respectively		(4,683	)		(3,474	)
Accumulated deficit		(1,105,514	)		(1,066,020	)
Accumulated items of other comprehensive loss		(1,923	)		(1,456	)
Total stockholders’ equity		150,336			182,210
Total liabilities and stockholders’ equity	$	591,784		$	614,241

6

INTERNAP CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
	Three Months Ended December 31,						Year Ended December 31,
	2014			2013			2014			2013
Cash Flows from Operating Activities:
Net loss	$	(8,257	)	$	(10,450	)	$	(39,494	)	$	(19,830	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		21,861			15,430			81,169			53,148
Impairment of property and equipment		-			-			537			520
Amortization of debt discount and issuance costs		494			449			1,934			631
Stock-based compensation expense, net of capitalized amount		1,507			1,653			7,182			6,743
Equity in (earnings) of equity-method investment		(62	)		(56	)		(259	)		(213	)
Provision for doubtful accounts		495			784			1,306			1,861
Non-cash portion of loss on extinguishment of debt		-			841			-			841
Non-cash change in capital lease obligations		(325	)		(22	)		(412	)		99
Non-cash change in exit activities and restructuring liability		1,595			264			4,591			1,185
Non-cash change in deferred rent		(549	)		(536	)		(2,577	)		(1,907	)
Deferred taxes		(329	)		(292	)		(1,555	)		(67	)
Other, net		(5	)		(248	)		193			84
Changes in operating assets and liabilities:
Accounts receivable		(275	)		(2,734	)		2,923			(5,777	)
Prepaid expenses, deposits and other assets		4,919			(220	)		1,839			(218	)
Accounts payable		3,114			6,107			529			3,992
Accrued and other liabilities		(4,381	)		(4,039	)		413			(5,062	)
Deferred revenues		399			837			498			1,149
Exit activities and restructuring liability		(1,949	)		(715	)		(4,245	)		(2,895	)
Asset retirement obligation		(1,229	)		-			(1,319	)		-
Other liabilities		(5	)		12			(5	)		(601	)
Net cash flows provided by operating activities		17,018			7,065			53,248			33,683
Cash Flows from Investing Activities:
Purchases of property and equipment		(26,051	)		(28,208	)		(77,363	)		(62,798	)
Additions to acquired technology		(1,096	)		(325	)		(3,100	)		(801	)
Proceeds from sale-leaseback transactions		2,059			-			4,662			-
Acquisition, net of cash received		-			(144,487	)		74			(144,487	)
Net cash flows used in investing activities		(25,088	)		(173,020	)		(75,727	)		(208,086	)
Cash Flows from Financing Activities:
Proceeds from credit agreements		5,000			300,000			10,000			320,000
Principal payments on credit agreements		(750	)		(113,375	)		(3,000	)		(116,000	)
Payment of debt issuance costs		-			(12,415	)		-			(12,415	)
(Payment) return of deposit collateral on credit agreement		-			(6,461	)		6,461			(6,461	)
Payments on capital lease obligations		(1,709	)		(1,180	)		(5,921	)		(4,655	)
Proceeds from exercise of stock options		801			162			1,774			2,138
Tax withholdings related to net share settlements of restricted stock awards		(465	)		(187	)		(1,209	)		(1,630	)
Other, net		(46	)		(43	)		(181	)		(167	)
Net cash flows provided by by financing activities		2,831			166,501			7,924			180,810
Effect of exchange rates on cash and cash equivalents		(170	)		31			(379	)		58
Net (decrease) increase in cash and cash equivalents		(5,409	)		577			(14,934	)		6,465
Cash and cash equivalents at beginning of period		25,493			34,441			35,018			28,553
Cash and cash equivalents at end of period	$	20,084		$	35,018		$	20,084		$	35,018

7

INTERNAP CORPORATIONNON-GAAP (ADJUSTED) FINANCIAL MEASURES

In addition to providing financial measurements based on accounting principles generally accepted 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 loss, normalized diluted shares outstanding, segment profit and segment margin. The most directly comparable GAAP equivalent to adjusted EBITDA and normalized net loss is loss from operations and net loss, respectively. The most directly comparable GAAP equivalent to normalized diluted shares outstanding is diluted common shares outstanding.

We define non-GAAP measures as follows:

● Adjusted EBITDA is loss from operations plus depreciation and amortization, loss (gain) on disposals of property and equipment, exit activities, restructuring and impairments, stock-based compensation and acquisition costs.

● Adjusted EBITDA margin is adjusted EBITDA as a percentage of revenues.

● Normalized net loss is net loss plus exit activities, restructuring and impairments, stock-based compensation and acquisition costs.

● Normalized diluted shares outstanding are diluted shares of common stock outstanding used in GAAP net loss per share calculations, excluding the dilutive effect of stock-based compensation using the treasury stock method.

● Normalized net loss per share is normalized net loss divided by basic and normalized diluted shares outstanding.

● Segment profit is segment revenues less direct costs of network, sales and services, exclusive of depreciation and amortization for the segment, as presented in the notes to our consolidated financial statements. Segment profit does not include direct costs of customer support, direct costs of amortization of acquired technologies or any other depreciation or amortization associated with direct costs.

● Segment margin is segment profit as a percentage of segment revenues.

We detail reconciliations of our non-GAAP financial measures to the most directly comparable financial measure 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 and loss on disposals of property and equipment, as well as impairments and restructuring, to calculate adjusted EBITDA provides supplemental information and an alternative presentation that is useful to investors’ understanding of our 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. Loss on disposals of property and equipment is also based on historical costs of assets that may have little bearing on replacement costs. Impairments and restructuring expenses primarily reflect goodwill impairments and subsequent plan adjustments in sublease income assumptions for certain properties included in our previously disclosed restructuring plans.

We believe that impairment and restructuring charges are unique costs that we do not expect to recur on a regular basis, and consequently, we do not consider these charges as a normal component of expenses related to current and ongoing operations.

Similarly, we believe that excluding the effects of stock-based compensation from non-GAAP financial measures provides supplemental information and an alternative presentation useful to investors’ understanding of our core operating results and trends. Investors have indicated that they consider financial measures of our results of operations excluding stock-based compensation as important supplemental information useful to their understanding of our historical results and estimating our future results.

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 and 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.

8

INTERNAP CORPORATIONNON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

Stock-based compensation is an important part of total compensation, especially from the perspective of employees. We believe, however, that supplementing GAAP net loss and net loss per share information by providing normalized net loss and normalized net loss per share, excluding the effect of exit activities, restructuring and impairments, stock-based compensation and acquisition costs 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 our overall performance 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 operating activities as defined by GAAP. Our statements of cash flows present 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, income 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 disposals of property and equipment, impairments, restructuring and stock-based compensation 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, analysts and investors concerning our financial performance.

Our presentation of segment profit and segment margin excludes direct costs of customer support and depreciation and amortization in order to allow investors to see the business through the eyes of management. Management views direct costs of network, sales and services as generally less controllable, external costs and management regularly monitors the margin of revenues in excess of these direct costs. 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 more within our control and to some degree discretionary as we can adjust those costs by hiring and terminating employees.

Segment 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 segment 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.

We also have excluded depreciation and amortization from segment profit and segment 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 our deployed network and the historical costs of these assets may not be indicative of current or future capital expenditures.

9

INTERNAP CORPORATIONNON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

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.

10

INTERNAP CORPORATIONRECONCILIATION OF LOSS FROM OPERATIONS TO ADJUSTED EBITDA

A reconciliation of loss from operations, the most directly comparable GAAP measure, to adjusted EBITDA for each of the periods indicated is as follows (in thousands):

	Three Months Ended
	December 31, 2014			September 30, 2014			December 31, 2013
Loss from operations (GAAP)	$	(2,254	)	$	(3,035	)	$	(5,855	)
Depreciation and amortization, including amortization of acquired and developed technologies		21,861			20,915			15,429
Loss on disposal of property and equipment, net		80			-			5
Exit activities, restructuring and impairments		1,518			56			209
Stock-based compensation		1,507			1,778			1,653
Acquisition costs		-			-			4,210
Adjusted EBITDA (non-GAAP)	$	22,712		$	19,714		$	15,651

11

INTERNAP CORPORATIONRECONCILIATION OF NET LOSS AND BASIC AND DILUTEDNET LOSS PER SHARE TO NORMALIZED NET LOSS ANDBASIC AND DILUTED NORMALIZED NET LOSS PER SHARE

Reconciliations of (1) net loss, the most directly comparable GAAP measure, to normalized net loss, (2) diluted shares outstanding used in per share calculations, the most directly comparable GAAP measure, to normalized diluted shares used in normalized per share outstanding calculations and (3) net loss per share, the most directly comparable GAAP measure, to normalized net loss per share for each of the periods indicated is as follows (in thousands, except per share data):

	Three Months Ended
	December 31, 2014			September 30, 2014			December 31, 2013
Net loss (GAAP)	$	(8,257	)	$	(9,377	)	$	(10,450	)
Exit activities, restructuring and impairments		1,518			56			209
Stock-based compensation		1,507			1,778			1,653
Acquisition costs		-			-			4,210
Normalized net loss (non-GAAP)		(5,232	)		(7,543	)		(4,378	)
Normalized net income allocable to participating securities (non-GAAP)		-			-			-
Normalized net loss available to common stockholders (non-GAAP)	$	(5,232	)	$	(7,543	)	$	(4,378	)
Participating securities (GAAP)		1,066			1,083			1,049
Weighted average shares outstanding used in per share calculation:
Basic and diluted (GAAP)		51,159			51,063			50,898
Add potentially dilutive securities		-			-			-
Less dilutive effect of stock-based compensation under the treasury stock method		-			-			-
Normalized diluted shares (non-GAAP)		51,159			51,063			50,898
Loss per share (GAAP):
Basic and diluted	$	(0.16	)	$	(0.18	)	$	0.21
Normalized net loss per share (non-GAAP):
Basic and diluted	$	(0.10	)	$	(0.15	)	$	(0.09	)

12

INTERNAP CORPORATIONSEGMENT PROFIT AND SEGMENT MARGIN

Segment profit and segment margin, which does not include direct costs of customer support, direct costs of amortization of acquired technologies or any other depreciation or amortization, for each of the periods indicated is as follows (dollars in thousands):

	Three Months Ended
	December 31, 2014			September 30, 2014			December 31, 2013
Revenues:
Data center services	$	61,305		$	61,640		$	49,686
IP services		22,958			23,027			24,401
Total		84,263			84,667			74,087
Direct cost of network, sales and services, exclusive of depreciation and amortization:
Data center services		25,989			27,716			24,103
IP services		9,486			9,432			9,590
Total		35,475			37,148			33,693
Segment Profit:
Data center services		35,316			33,924			25,583
IP services		13,472			13,595			14,811
Total	$	48,788		$	47,519		$	40,394
Segment Margin:
Data center services		57.6	%		55.0	%		51.5	%
IP services		58.7	%		59.0	%		60.7	%
Total		57.9	%		56.1	%		54.5	%

13