OPERATING SEGMENTS

9 Months Ended

Sep. 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, managed services and hosting, and network services.

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.

Managed Services and Hosting

Managed Services and 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.

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.

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 September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenues:
INAP COLO	$	51,344		$	54,998		$	156,727		$	166,707
INAP CLOUD	17,563			18,942			53,955			57,473
Total revenues	68,907			73,940			210,682			224,180
Direct costs of sales and services, customer support and sales and marketing, exclusive of depreciation and amortization:
INAP COLO	29,048			35,893			92,524			108,219
INAP CLOUD	9,094			10,329			27,969			31,673
Total direct costs of sales and services, customer support and sales and marketing	38,142			46,222			120,493			139,892
Business unit contribution:
INAP COLO	22,296			19,105			64,203			58,488
INAP CLOUD	8,469			8,613			25,986			25,800
Total business unit contribution	30,765			27,718			90,189			84,288
Exit activities, restructuring and impairments	745			1,670			6,396			2,023
Other operating expenses, including depreciation and amortization	29,288			109,446			84,622			170,338
Loss from operations	732			(83,398		)	(829		)	(88,073		)
Non-operating expenses	12,496			7,848			38,066			23,387
Loss before income taxes and equity in (earnings) of equity-method investment	$	(11,764	)	$	(91,246	)	$	(38,895	)	$	(111,460	)