>>Internap Network Services Corporation Q1 2009 Earnings Call Transcript
Eric Cooney
Our IP and CDN businesses continued to underperform showing year-over-year and sequential declines in revenue and segment gross margins. Overall, we are disappointed with our second consecutive quarter of declining revenue and adjusted EBITDA. We are implementing a number of actions, one of which was the cost reduction plan we announced on March 31st, which we believe will help to reverse these trends.
The third observation I would like to mention is that in recent history, we may have sacrificed profit margins in pursuit of revenue growth. Simply stated, not all business is good business.
The need for us to strengthen the core is probably obvious given the recent financial performance. But I think it is made even more apparent when we consider that there are competitors in each of our target markets who are outperforming Internap today.
However to give you a sense for the types of initiatives, I will mention a few specifics including simplifying the customer billing, optimizing the sales process, refining customer service performance metrics and streamlining our partnerships to focus on fewer mutually beneficial partnerships. (less third party data centers?)
George Kilguss
Cash operating expenses which exclude segment direct cost, depreciation, amortization, stock-based compensation and restructuring charges totaled $23.6 million in the quarter compared to $21.1 million of cash operating expense in the first quarter of 2008 and include approximately $1.4 million of cash CEO transition costs in the quarter.
On a combined basis, total IP and CDN traffic was up 25% from the same period a year ago, but flat sequentially as traffic from two large volume IP customers we churned last quarter was replaced in Q1. Customers had purchased more than one service offering from us in the quarter increased to 45.2% of total, up from 42.5% last quarter and 35% a year ago.
Eric Cooney
For CDN, I think you all probably know the history of at least as well as I do at this point. But on neither of those fronts, technology nor customer service have we yet successfully differentiated ourselves. So the answer to how we stabilize it is, well, we get to first to market with best-in-class technology based on some products we expect to launch here in the second half of this year.
I think in terms of guidance, specifically with regard to CapEx, our intention will be to come back and give let’s say more visibility specifically around our CapEx spend expectations. The short answer right now, we’re not providing that frankly because we are going through as we speak an evaluation of exactly that. What sort of CapEx investments we want to make particularly around datacenter footprint to simply put ensure we can continue to do to drive profitable growth in the datacenter segment? So as we refine that CapEx spend, we will definitely give some further guidance, some further color to the market in terms of 2009 spend. (already late to the party, still evaluating further colo expansion...)
And as far as I am concerned on a go-forward basis, we need to be able to deliver a profitable growth in each of those businesses, let’s say on to itself, i.e., not dependent on subsidizing our let’s say CDN business based on success in IP or fare slightly differently. If we don’t have a compelling customer value proposition for customers to buy CDN, then we shouldn’t be in the CDN business. And if that answers your question in terms of let’s say the bundle. (farewell bundle and may be CDN...)
From our perspective, the ability to sell a continuing or an expanding set of products and services to our enterprise customer base is of course one of the ways we will grow the business. So I think maybe more your question is, is the bundle “a particular perceived customer benefit”, are we selling more CDN because we are able to offer all three and that’s what I am saying, I’m at least at this stage less convinced that the bundle is in and of itself a compelling customer value proposition. I think the bundle is really just more a useful metric for yourselves and for us to judge our success in selling more products or selling an expanded set of products to our target customer base, if that makes sense.
Colby Synesael – Kaufman Brothers
George Kilguss
In regard to your question on bundling, the answer is it’s a little bit of both. We still do see our bundle percentages increasing and we see them increasing in the individual segments. But you are correct, there’s a little bit of math that does drive the number north. (colo customers, who are sticky, stay and drive this number up. Other customers, especially CDN, just leave and never take additional services...)
Posts
No comments:
Post a Comment