Internap Takes $99 Million Charge on CDN Assets

Internap Network Services (INAP) will take a $99.7 million charge to earnings to reflect the decreased value of its content delivery network (CDN), the company said Wednesday in a filing with the Securities and Exchange Commission. The charge reflects a sharp reduction in the “goodwill” value of the CDN operations Internap purchased in its $217 million acquisition of VitalStream in early 2007.

The writedown will be applied to earnings for the quarter ended Sept. 30, which Internap will announce on Nov. 6. Shares of Internap closed at $2.50 Wednesday, down 19 cents (7 percent) in trading on the NASDAQ exchange.

Internap noted that the non-cash charge “will have no impact on the company’s current cash balance or future cash expenditures, and will not result in a violation in any covenants of any of its debt instruments.”

Internap Amends Credit Agreement

Internap Network Services (INAP) has amended its credit agreement with Bank of America to “simplify its capital structure, add additional flexibility and improve its liquidity position,” the company said Monday. The agreement gives the company more time to repay the loan, while adding a requirement that the company maintain a cash balance of $10 million. Internap also said that it has expanded its presence in several European markets.

In its agreement with Bank of America, Internap (INAP) consolidated a two-tier agreement into a single revolving loan. Under the amended credit facility, Internap will convert its existing $20 million term loan balance and outstanding letters of credit with Bank of America into a $35 million revolving loan. The agreement extends repayment terms from quarterly payments that were to begin in the third quarter to a single principal repayment due in 2011. Additional details are available in the SEC filing.

“I am pleased that Bank of America has the confidence in our business plan to provide Internap with this additional financial flexibility and capacity,” said George Kilguss, chief financial officer of Internap. “We continue to be well-positioned in growing markets and are focused on providing network and hosting services to run business critical Web sites with 100% reliability.”

Internap, BitGravity Boosted by Humor Sites

Infrastructure is no laughing matter. But humor is huge online, and two growing online comedy franchises have expanded their delivery infrastructure this week:

• National Lampoon (NLN) said today that it will run its National Lampoon Humor Network and ad services on managed servers from Internap Network Services (INAP). “We are aggressively expanding our online presence and properties as the top humor destinations on the Web and Internap is helping us evolve with their combined expertise in Content Delivery Networks (CDN), IP, colocation, managed services and professional services,” said Zach Posner, vice president of corporate development for National Lampoon.
• BitGravity said it will provide high-definition object and video delivery for the CollegeHumor.com website. “CollegeHumor has a rapidly growing fan base and BitGravity’s highly scalable platform is exactly what we needed to deliver the highest quality video and user experience,” said Kunal Shah, VP of Technology at CollegeHumor.

More Views on Internap’s CDN Business

In this morning’s roundup on the content delivery network (CDN) sector, we linked a post from Contentinople speculating that Internap may eventually write off its struggling CDN business. This post has sparked some additional discussion from CDN-focused bloggers, including Rob Powell from Telecom Ramblings:

From a strategic standpoint, a CDN product has always made sense alongside Internap’s high end blended transit and colocation. That’s why they were reselling Akamai’s services before this debacle even started - their customer base really does have interest in CDN services. What Internap has failed at (so far) is execution, not strategy. They have to convince both themselves and their customers that they know how to run a CDN, else they need to sell out to someone who can.

Paolo Gorgo from Nortia Research offers a different take:

What I slightly disagree on is that it was only lack of execution. Internap put all its strategic focus on CDN. If you just read their latest annual report, you’ll still notice CDN is mentioned twice as much as the other business segments… That to me was choosing the WRONG strategy for the Company - which worries me even more than suffering an integration problem or having inherited a bad customer base.

Paolo says the company’s colocation business was “kind of put on hold” as a result. Dan Rayburn also adds his thoughts. See our Internap Channel for more background on the company.

Internap Shares Slide 35 Percent

Shares of Internap (INAP) are being hammered this morning on Wall Street after the company reported disappointing earnings and lowered its revenue guidance for the remainder of the year. Internap was trading down 35 percent at $2.82 early Wednesday, down $1.57 from Tuesday’s close.

Internap continued to feel the effects of performance problems connected with former VitalStream customers. The company said it “determined that approximately $3 million of our accounts receivable balances in the quarter were doubtful of collection” and took a charge to earnings for that amount. Internap also projected weaker CDN growth and said that trend, along with the increased loss allowance, prompted it to lower its revenue guidance for the full year 2008.

“In CDN, order flow and sales conversions is weaker than we expected for the second quarter and the full year,” said Internap CFO George Kilguss. “We believe some of this weakness is attributable to a difficult economy as we have seen increased competition and delayed purchase decisions for certain types of advertising dependent content delivery applications.”

Internap Expands Houston Data Center

Internap Network Services (INAP) has added 7,000 square feet of new enterprise data center space at its Fannin Street facility in Houston, Tex. The expansion nearly doubles the existing site, creating 15,000 square feet of usable space designed for high-density installations.

Internap, which has offered colocation and networking services in Houston since 2000, said the additional capacity was driven by demand from both local businesses and prospects looking to add infrastructure in the Houston market. The company said the new space has the power, cooling, security and operations to support approximately 60 customers in addition to the 60 companies currently installed in the facility, including ContentActive, Goodman Manufacturing and Prudential Real Estate Services Co.

Internap Will Expand Boston Data Center

Internap Network Services (INAP) will add approximately 15,000 square feet of colocation to meet strong customer demand for space, the company said today. Internap’s new space is located in a stand-alone 45,000 square foot facility adjacent to its existing Boston data center, and will come online in the fourth quarter ?of this year.

“This initiative is part of our strategic plan to enhance data center offerings in key markets,” said James DeBlasio, chief executive officer of Internap. “With this expansion in Boston, Internap now has its ninth owned facility and a total of 43 colocation service points, demonstrating our commitment to serving our customer’s growth requirements now and in the future.”

Internap Shares Slip on Lower Guidance

Shares of Internap Network Services (INAP) lost ground today after the company lowered its revenue projections, citing slower growth due to fallout from outages and customer credits in its CDN network. Shares of Internap fell 33 cents, or 6.6 percent, in early trading after the stock was downgraded by Roth Capital, Cowen & Co and Stanford Research.

Internap said it now expects full-year revenue growth of 13 percent to 18 percent over 2007. The company had previously forecast revenue growth of about 25 percent for the year.

“The last several months have been challenging,” said Internap CEO James DeBlasio. “In hindsight, the complexity of the VitalStream integration stressed our processes.” Internap shares lost a third of their value in mid-March after the company reported that it would delay filing its annual report with the SEC as it sorted out up to $2 million in customer credits from outages on the VitalStream CDN network, which Internap acquired last year.

Internap Restates Revenue, Adds PoPs

Internap Network Services (INAP) has restated its 2007 revenue at $234.09 million, trimming $1.8 million from its initial report of $235.9 million to reflect customer credits that came to light last month, after its annual report had been filed. The company’s net loss swelled from $4.5 million to $5.55 million. The revision was made in an amended 10K filing with the SEC, and was in line with the company’s prediction that it would need to refund customers between $1 million to $2 million.

Internap also announced that it has brought 12 new points of presence (PoPs) online in its content delivery network (CDN) expanding coverage in North America, Singapore and Australia. The company also upgraded its existing nine PoPs in North America, Hong Kong, Japan, London and Amsterdam to provide for more efficient transfer of content and automated updating of content based on business rules.

Internap COO Departs

Internap Network Services (INAP) said Monday that chief operating officer Vincent Molinaro is leaving the company “to pursue other interests.” Molinaro will remain as an Internap employee during a transition period to last through June 30. His departure was announced in a brief statment in an SEC filing.

The move is the latest in a series of executive changes since Internap shares lost a third of their value in mid-March after the company reported that it would delay filing its annual report with the SEC as it sorted out up to $2 million in customer credits related to service outages on the Vitalstream CDN network. On March 27 Internap named George E. Kilguss III as its new Chief Financial Officer.