OPERATING SEGMENTS

6 Months Ended

Jun. 30, 2017

Segment Reporting [Abstract]

OPERATING SEGMENTS

OPERATING SEGMENTS

The Company has two reportable segments: INAP COLO and INAP CLOUD. These segments are comprised of strategic businesses that are defined by the service offerings they provide. Each segment is managed as an operation with well-established strategic directions and performance requirements. Each segment is led by a separate General Manager who reports directly to the Company’s CODM.

The CODM evaluates segment performance using business unit contribution which is defined as business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.

We report our financial performance based on our two reportable segments, INAP COLO and INAP CLOUD, as follows:

INAP COLO

Our Colocation segment consists of colocation, network services and managed hosting.

Colocation

Colocation involves providing physical space within data centers and associated services such as power, interconnection, environmental controls, monitoring and security while allowing our customers to deploy and manage their servers, storage and other equipment in our secure data centers.

Network Services

Network services includes our patented Performance IP™ service, content delivery network services, IP routing hardware and software platform and Managed Internet Route Optimizer™ Controller. By intelligently routing traffic with redundant, high-speed connections over multiple, major Internet backbones, our network services provides high-performance and highly-reliable delivery of content, applications and communications to end users globally.

Managed Hosting

Managed Hosting consists of leasing dedicated servers as well as, storage and network equipment along with other associated hardware to our customers.  We configure and administer the hardware and operating system, provide technical support, patch management, monitoring and updates.  We offer managed hosting around the globe, including North America, Europe and the Asia-Pacific region.

INAP CLOUD

Cloud services involve providing compute and storage services via an integrated platform that includes servers, storage and network. We built our next generation cloud platform with our high-density colocation, Performance IP service and OpenStack, a leading open source technology for cloud services.

In conjunction with our change in segments we changed the measure for determining the results of our segments to business unit contribution which includes the direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization. In addition, during the three months ended June 30, 2017, management changed its measure of profitability to exclude corporate facilities allocation cost which are now reflected in "Sales, general and administrative," in the accompanying consolidated income statements.

The following table provides segment results, with prior period amounts reclassified to conform to the current presentation (in thousands):

	Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016
Revenues:
INAP COLO	$	52,044		$	55,827		$	105,383		$	111,708
INAP CLOUD	17,598			18,488			36,392			38,531
Total revenues	69,642			74,315			141,775			150,239
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
INAP COLO	30,060			35,837			63,476			72,326
INAP CLOUD	9,497			10,529			18,875			21,344
Total direct costs of sales and services, customer support and sales and marketing	39,557			46,366			82,351			93,670
Business unit contribution:
INAP COLO	21,984			19,990			41,907			39,382
INAP CLOUD	8,101			7,959			17,517			17,187
Total business unit contribution	30,085			27,949			59,424			56,569
Exit activities, restructuring and impairments	4,628			152			5,651			353
Other operating expenses, including depreciation and amortization	27,510			30,271			55,334			60,891
Loss from operations	(2,053		)	(2,474		)	(1,561		)	(4,675		)
Non-operating expenses	17,336			8,198			25,570			15,538
Loss before income taxes and equity in (earnings) of equity-method investment	$	(19,389	)	$	(10,672	)	$	(27,131	)	$	(20,213	)