INAP
$5.57
Internap
$.02
.36%
Earnings Details
3rd Quarter September 2018
Thursday, November 01, 2018 7:00:00 AM
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Summary

Internap Narrows Revenue Guidance

Internap (INAP) reported a 3rd Quarter September 2018 loss of $0.75 per share on revenue of $83.0 million. The consensus estimate was a loss of $0.51 per share on revenue of $83.0 million. Revenue grew 20.4% on a year-over-year basis.

The company said it expects 2018 revenue of $320.0 million to $324.0 million. The company's previous guidance was revenue of $320.0 million to $330.0 million and the current consensus estimate is revenue of $323.2 million for the year ending December 31, 2018.

Internap Corp is engaged in providing information technology infrastructure services. The Company provides services at data centers across North America, Europe and the Asia-Pacific region and through Internet Protocol service points.

Results
Reported Earnings
($0.75)
Earnings Whisper
-
Consensus Estimate
($0.51)
Reported Revenue
$83.0 Mil
Revenue Estimate
$83.0 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

INAP Reports Third Quarter 2018 Financial Results

  • Reported Revenue of $83.0 Million up 1.2% Sequentially and 20.4% Year-over-Year
  • GAAP Net Loss of $(15.1) Million, or GAAP Net Loss Margin of (18.2)%
  • Adjusted EBITDA of $29.4 Million up 3.5% Sequentially and 26.2% Year-over-Year; Adjusted EBITDA Margin of 35.4% up 80 Basis Points Quarter-over-Quarter and up 160 Basis Points Year-over-Year
  • Cash Flow from Operations was $10.3 Million, with Capital Expenditures of $12.0 Million
  • Subsequent to Quarter-End, INAP Closed $40 Million Common Stock Offering to Continue to Gain Flexibility and Fuel Organic Growth

RESTON, VA, Nov. 01, 2018 (GLOBE NEWSWIRE) -- Internap Corporation (NASDAQ: INAP), a global provider of high-performance data center services, including colocation, cloud and network, announced today financial results for the third quarter of 2018.

“We are committed to growing INAP, winning larger deals with more consistency than ever before,” stated Peter D. Aquino, President and Chief Executive Officer. “With our wholesale and retail marketing strategy, our backlog continues to replenish at over $20 million for the last two quarters. We recently recorded our largest colocation deal of the year, selling nearly 1 MW of capacity in our Dallas Flagship data center. Through September, our sales team has booked three large wholesale colocation deals worth over $15 million in total contract value, and are positioned to do much more with the addition of assets in Phoenix, Atlanta and London. In addition, the upselling of our new cloud platform is also providing new growth prospects for INAP, both domestically and abroad. As we continue to swap out less profitable sites for our own data center facilities to provide our customers with premier Tier 3 infrastructure products, we are building a more valuable portfolio for the future. The purpose of the recent equity raise was to continue to fuel our sales growth, accelerate customer installations, and position INAP to gain greater flexibility for potential future accretive deals.”

Revenue

2018 results include SingleHop LLC (“SingleHop”) operations beginning March 1, 2018, and are therefore not comparable to prior periods. For the third quarter:

  • Revenue totaled $83.0 million in the third quarter of 2018, an increase of 1.2% sequentially and 20.4% year-over-year. The sequential increase was primarily due to organic colocation growth, and the acquisition of INAP’s new Phoenix facility, offset by planned data center closures. The increase year-over-year was primarily due to revenue from organic colocation growth, and the addition of SingleHop.

    Beginning with the first quarter of 2018, INAP redefined its segment reporting by geography into INAP US and INAP INTL.

    •  INAP US revenue totaled $65.7 million in the third quarter of 2018, an increase of 2.5% sequentially and 24.0% year-over-year. The sequential increase was primarily due to colocation and cloud growth. The increase year-over-year was primarily due to revenue from organic growth, and the addition of SingleHop.

    •  INAP INTL revenue totaled $17.3 million in the third quarter of 2018, a decrease of 3.4% sequentially and an increase of 8.5% year-over-year. The modest decrease sequentially in top line revenue was primarily driven by declines in legacy managed services and iWeb. The increase year-over-year was primarily due to revenue from the INAP Japan consolidation, the addition of SingleHop and lower churn.

Third Quarter 2018 Financial Summary

       QoQ YoY
($ in thousands)3Q 2018 2Q 2018 3Q 2017 Growth Growth
          
Net Revenues$  82,972  $  81,962  $  68,907  1.2% 20.4%
Operating Costs and Expenses$  80,798  $  79,835  $  68,175  1.2% 18.5%
Depreciation and Amortization$  23,431  $  22,590  $  20,917  3.7% 12.0%
Exit Activities, Restructuring and Impairments$  2,347  $  826  $  745  184.1% 215.0%
All Other Operating Costs and Expenses$  55,020  $  56,419  $  46,513  (2.5)% 18.3%
GAAP Net Loss Attributable to INAP Shareholders$  (15,106) $  (13,923) $  (10,895) 8.5% 38.7%
GAAP Net Loss Margin (18.2)%  (17.0)%  (15.8)%    
          
Minus Stock-Based Compensation and Other Items$  3,872  $  3,760  $  757  3.0% 411.5%
Normalized Net Loss2$  (11,234) $  (10,163) $  (10,138) 10.5% 10.8%
          
Adjusted EBITDA1$  29,386  $  28,384  $  23,277  3.5% 26.2%
Adjusted EBITDA Margin1 35.4%  34.6%  33.8%    
          
Capital Expenditures (CapEx)$  12,003  $  11,083  $  10,965  8.3% 9.5%
Adjusted EBITDA less CapEx1$  17,383  $  17,301  $  12,312  0.5% 41.2%
                  

Net Loss, Normalized Net Loss, Adjusted EBITDA and Business Unit Contribution

  • GAAP net loss attributable to INAP shareholders was $(15.1) million, or $(0.75) per share in the third quarter of 2018 compared with $(13.9) million, or $(0.69) per share in the second quarter of 2018. GAAP net loss in third quarter of 2017 was $(10.9) million.
     
  • Normalized net loss was $(11.2) million in the third quarter of 2018 compared with $(10.2) million in the second quarter of 2018 and $(10.1) million in the third quarter of 2017.
     
  • Adjusted EBITDA totaled $29.4 million in the third quarter of 2018, an increase of 3.5% compared with $28.4 million in the second quarter of 2018, and a 26.2% increase compared with $23.2 million in the third quarter of 2017. Adjusted EBITDA margin was 35.4% in the third quarter, up 80 basis points compared to 34.6% in the second quarter, and up 160 basis points compared to 33.8% in third quarter of 2017. The increase in Adjusted EBITDA was primarily driven by the addition of SingleHop and INAP’s initiative to exit less profitable data center sites.

Business Unit Contribution3 - INAP US and INAP INTL business unit contribution for third quarter of 2018 is as follows:

INAP US, includes colocation, cloud, and network services. Cloud contains AgileCloud, Managed Hosting, and SingleHop.

  • INAP US business unit contribution totaled $29.8 million in the third quarter, a 2.2% increase compared to the second quarter of 2018 and a 27.7% increase from the third quarter of 2017. As a percent of revenue, INAP US business unit contribution margin was 45.4% in the third quarter of 2018, slightly down 20 basis points sequentially and up 130 basis points year-over-year. INAP US business unit contribution increased year-over-year primarily due to the Company’s data center portfolio management strategy to expand margins. 

INAP INTL, includes colocation, cloud, and network services. Cloud contains AgileCloud, Managed Hosting, Ubersmith, iWeb, and SingleHop.

  • INAP INTL business unit contribution totaled $5.8 million in the third quarter of 2018, a 3.4% decrease compared with the second quarter of 2018 and a 4.1% decrease from the third quarter of 2017. As a percent of revenue, INAP INTL business unit contribution margin was 33.6% in the third quarter of 2018, slightly down 10 basis points sequentially and 440 basis points year-over-year. INAP INTL business contribution decreased primarily due to consolidation of INAP Japan with currently lower margins.

“We expect the operations improvements will continue to expand margins into 2019,” said Jim Keeley, Chief Financial Officer. “As we narrow guidance with one quarter to go in 2018, we are confident that we can maintain momentum to strengthen INAP’s portfolio into 2019.” 

Balance Sheet and Cash Flow Statement

  • Cash and cash equivalents totaled $11.8 million at September 30, 2018. Total debt was $696.2 million, net of discount and prepaid costs, at the end of the third quarter of 2018, including $262.0 million in capital lease obligations. As previously reported, in August 2018, INAP entered into a Fifth Amendment to INAP’s Credit Agreement, to increase the aggregate revolving commitment capacity by $10.0 million to $35.0 million.
     
  • Cash generated from operations for the three months ended September 30, 2018 was $10.3 million compared to $15.3 million in second quarter of 2018, and $3.3 million in the third quarter of 2017. Capital expenditures over the same periods were $12.0 million, compared to $11.1 million and $11.0 million, respectively. Adjusted EBITDA less CapEx1 was $17.4 million, compared to $17.3 million in second quarter of 2018 and $12.3 million in third quarter of 2017. Free cash flow4 over the same periods was $(1.7) million, compared to $4.3 million and $(7.7) million, respectively. Unlevered free cash flow4 was $14.1 million for the third quarter of 2018, compared to $19.8 million in second quarter of 2018 and $3.3 million in third quarter of 2017.
     
  • On October 23, 2018, INAP completed an underwritten public offering of 4,210,527 shares of common stock at a public offering price of $9.50 per share. The net proceeds to the Company from the offering were approximately $36.6 million, after deducting underwriting discounts and commissions and other estimated offering expenses. INAP granted the underwriters a 30-day option to purchase up to 631,579 additional shares of common stock on the same terms and conditions as the shares offered in the public offering.

Business Outlook

INAP's outlook for 2018, as noted above, includes projected results of acquired SingleHop operations as of March 1, 2018. With three quarters of actuals results, the Company is narrowing its full-year 2018 revenue, Adjusted EBITDA and capital expenditures range within its previous outlook, as shown in the table below.

   Full-Year 2018 Expected Range  
      
 Original Guidance, Revised Guidance, Narrowed Guidance within 
 as of 3/9/2018 as of 8/2/2018 Previous Range, as of 11/1/2018
      
Revenue $320 million - $330 million $320 million - $330 million $320 million - $324 million
Adjusted EBITDA (non-GAAP)$105 million - $115 million $110 million - $120 million $111 million - $114 million
Capital Expenditures$40 million - $45 million $40 million - $45 million $40 million - $43 million
      

_________________________

  1. Adjusted EBITDA, Adjusted EBITDA margin and Adjusted EBITDA less CapEx 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 Adjusted EBITDA margin are contained in the table entitled “Reconciliation of GAAP Net Loss to Adjusted EBITDA and Forward Looking Adjusted EBITDA.” Adjusted EBITDA margin is Adjusted EBITDA as a percentage of revenue. A reconciliation between GAAP information and non-GAAP information related to Adjusted EBITDA less CapEx is contained in the table entitled “Reconciliation of GAAP Net Cash Flows provided by Operating Activities to Adjusted EBITDA less CapEx." 

  2. Normalized net loss is a non-GAAP financial measure 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 normalized net loss are contained in the table entitled “Reconciliation of Net Loss Attributable to INAP Shareholders to Normalized Net Loss to INAP Shareholders.”

  3. Business unit contribution and business unit contribution margin 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 business unit contribution and business unit contribution margin are contained in the table entitled “Business Unit Contribution and Business Unit Contribution Margin” in the attachment. Business unit contribution margin is business unit contribution as a percentage of revenue.

  4. Free cash flow and unlevered free cash flow are non-GAAP financial measures which we define in the attachment to the press release entitled “Non-GAAP (Adjusted) Financial Measures.” Reconciliations between GAAP and non-GAAP information related to free cash flow and unlevered free cash flow are contained in the table entitled “Free Cash Flow and Unlevered Free Cash Flow.”

Conference Call Information

INAP's third quarter 2018 conference call will be held today at 8:30 a.m. ET. Listeners may connect to a simultaneous webcast of the call, which will include accompanying presentation slides, on the Investor Relations section of INAP’s web site at http://ir.inap.com/events-and-presentations.

The call can also be accessed by dialing 877-334-0775. International callers should dial 631-291-4567. An online archive of the webcast will be archived in the Investor Relations section of the Company’s website. An audio-only telephonic replay will be accessible from Thursday, November 1, 2018 at 11:30 a.m. ET through Wednesday, November 6, 2018 at 855-859-2056 using replay code 8998493. International callers can listen to the archived event at 404-537-3406 with the same code.

About INAP

Internap Corporation (NASDAQ: INAP) is a global provider of high-performance data center services, including colocation, cloud and network. INAP partners with its customers, who range from the Fortune 500 to emerging start-ups, to create secure, scalable and reliable IT infrastructure solutions that meet the customer’s unique business requirements. INAP operates in 53, primarily Tier 3, data centers in 21 metropolitan markets and has 102 POPs around the world. INAP has over 1 million gross square feet in its portfolio, and approximately 600,000 square feet of sellable data center space. For more information, visit www.inap.com

Forward-Looking Statements

This press release contains forward-looking statements. Forward-looking statements include statements regarding industry trends, our future financial position and performance, business strategy, revenues and expenses in future periods, projected levels of growth and other matters that do not relate strictly to historical facts. These statements are often identified by words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “projects,” “forecasts,” “plans,” “intends,” “continue,” “could” or “should,” that an “opportunity” exists, that we are “positioned” for a particular result, statements regarding our vision or similar expressions or variations. These statements are based on the beliefs and expectations of our management team based on information available at the time such statements are made. Such forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by such forward-looking statements. Therefore, actual future results and trends may differ materially from what is forecast in such forward-looking statements due to a variety of factors, including, without limitation: to drive growth while reducing costs; our ability to maintain current customers and obtain new ones, whether in a cost-effective manner or at all; 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 sell into new and existing data center space; the actual performance of our IT infrastructure services and improving operations; 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 geographic concentration of the company’s data centers in certain markets and any adverse developments in local economic conditions or the demand for data center space in these markets; ability to identify any suitable strategic transactions; INAP's ability to realize anticipated revenue, growth, synergies and cost savings from the acquisition of SingleHop; INAP's ability to successfully integrate SingleHop’s sales, operations, technology, and products generally; 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; our ability to protect our intellectual property; our substantial amount of indebtedness, our possibility to raise additional capital when needed, on attractive terms, or at all, our ability to service existing debt or maintain compliance with financial and other covenants contained in our credit agreement; our compliance with and changes in complex laws and regulations in the U.S. and internationally; our ability to attract and retain qualified management and other personnel; and volatility in the trading price of INAP common stock.

These risks and other important factors discussed under the caption “Risk Factors” in our most recent Annual Report on Form 10-K filed with the SEC, and our other reports filed with the SEC could cause actual results to differ materially from those indicated by the forward-looking statements made in this press release.

Given these risks and uncertainties, investors should not place undue reliance on forward-looking statements as a prediction of actual results. All forward-looking statements attributable to INAP or persons acting on its behalf are expressly qualified in their entirety by the foregoing forward-looking statements. All such statements speak only as of the date made, and INAP undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

Investor Contacts  
Richard Ramlall      Carolyn Capaccio/Jody Burfening
Chief Communications Officer INAP  LHA
404-302-9982  212-838-3777
ir@inap.com  inap@lhai.com 
   


 
INTERNAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
(In thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended
September 30,
 Nine  Months Ended 
September 30,
  2018   2017   2018   2017 
Net revenues   82,972     68,907     239,135     210,682 
        
Operating costs and expenses:       
Cost of sales and services, exclusive of depreciation and amortization   28,866     24,945     81,880     80,419 
Costs of customer support   7,984     6,237     24,212     19,634 
Sales, general and administrative   18,170     15,331     57,625     47,466 
Depreciation and amortization   23,431     20,917     67,097     57,596 
Exit activities, restructuring and impairments   2,347     745     3,140     6,396 
Total operating costs and expenses   80,798     68,175     233,954     211,511 
Income (loss) from operations   2,174     732     5,181     (829)
        
Interest expense   16,898     12,299     47,786     37,581 
Loss on foreign currency, net   195     197     5     485 
Total non-operating expenses   17,093     12,496     47,791     38,066 
        
Loss before income taxes and equity in earnings of equity-method investment   (14,919)    (11,764)    (42,610)    (38,895)
Provision for income taxes   162     221     404     689 
Equity in earnings of equity-method investment, net of taxes   -      (1,122)    -      (1,207)
        
Net loss   (15,081)    (10,863)    (43,014)    (38,377)
Less net income attributable to non-controlling interest   25     32     75     32 
Net loss attributable to INAP stockholders   (15,106)    (10,895)    (43,089)    (38,409)
        
Other comprehensive (loss) income:       
Foreign currency translation adjustment   (98)    (91)    24     14 
Unrealized gain on foreign currency contracts   -      -      -      145 
Total other comprehensive (loss) income    (98)    (91)    24     159 
        
Comprehensive loss$  (15,204) $  (10,986) $  (43,065) $  (38,250)
        
Basic and diluted net loss per share $  (0.75) $  (0.56) $  (2.16) $  (2.04)
        
Weighted average shares outstanding used in computing basic and diluted net loss per share   20,206     19,929     19,968     18,645 
        

 

INTERNAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATION BALANCE SHEETS
(In thousands, except par value amounts)
(Unaudited)
     
  September 30,
2018
 December 31,
2017
ASSETS    
Current assets:    
Cash and cash equivalents $  11,844  $  14,603 
Accounts receivable, net of allowance for doubtful accounts of $1,418 and $1,487, respectively   22,999    17,794 
Contract assets   8,026    — 
Prepaid expenses and other assets   9,497    8,673 
Total current assets   52,366    41,070 
     
Property and equipment, net   477,423    458,565 
Intangible assets, net   74,738    25,666 
Goodwill   116,705    50,209 
Non-current contract assets   12,756    — 
Deposits and other assets   12,050    11,015 
Total assets $  746,038  $  586,525 
     
LIABILITIES AND STOCKHOLDERS' DEFICIT    
Current liabilities:    
Accounts payable $  32,243  $  20,388 
Accrued liabilities   17,866    15,908 
Deferred revenues   4,696    4,861 
Capital lease obligations   9,399    11,711 
Revolving credit facility   18,500    5,000 
Term loan, less discount and prepaid costs of $3,912 and $2,133, respectively   444    867 
Exit activities and restructuring liability   3,255    4,152 
Other current liabilities   3,637    1,707 
Total current liabilities   90,040    64,594 
     
Capital lease obligations   252,599    223,749 
Term loan, less discount and prepaid costs of $10,625 and $7,655, respectively   415,251    287,845 
Exit activities and restructuring liability   162    664 
Deferred rent   940    1,310 
Deferred tax liability   1,952    1,651 
Other long-term liabilities   4,060    7,744 
Total liabilities $  765,004  $  587,557 
 
Commitments and contingencies     
Stockholders' deficit:    
Preferred stock, $0.001 par value; 5,000 shares authorized; no shares issued or outstanding   —    — 
Common stock, $0.001 par value; 50,000 shares authorized; 21,302 and 20,804 shares issued and outstanding, respectively   21    21 
Additional paid-in capital   1,330,751    1,327,084 
Treasury stock, at cost, 329 and 293, respectively   (7,645)   (7,159)
Accumulated deficit   (1,343,609)   (1,323,723)
Accumulated items of other comprehensive loss   (1,300)   (1,324)
Total INAP stockholders’ deficit   (21,782)   (5,101)
Non-controlling interest   2,816    4,069 
Total stockholders' deficit $  (18,966) $  (1,032)
Total liabilities and stockholders’ deficit $  746,038  $  586,525 
 


INTERNAP CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
    
   Nine Months Ended
September 30,
   2018   2017 
Cash Flows from Operating Activities:   
Net loss $  (43,014) $  (38,377)
Adjustments to reconcile net loss to net cash provided by operating activities:   
Depreciation and amortization   67,097    57,596 
(Gain) loss on disposal of fixed asset   (98)   503 
Amortization of debt discount and issuance costs   2,798    1,890 
Stock-based compensation expense, net of capitalized amount   3,573    2,061 
Equity in earnings of equity-method investment   —    (1,207)
Provision for doubtful accounts   706    808 
Non-cash change in capital lease obligations   (241)   564 
Non-cash change in exit activities and restructuring liability   3,198    5,824 
Non-cash change in deferred rent   (851)   (3,335)
Deferred taxes   65    209 
Loss on extinguishment and modification of debt   —    6,785 
Other, net   (6)   (49)
Changes in operating assets and liabilities:   
Accounts receivable   (4,990)   243 
Prepaid expenses, deposits and other assets   (3,531)   1,979 
Accounts payable   9,372    (3,498)
Accrued and other liabilities   (601)   1,691 
Deferred revenues   617    (1,233)
Exit activities and restructuring liability   (4,597)   (4,727)
Asset retirement obligation   (141)   191 
Other liabilities   (199)   22 
Net cash provided by operating activities   29,157    27,940 
    
Cash Flows from Investing Activities:   
Purchases of property and equipment   (27,317)   (23,198)
Proceeds from disposal of property and equipment   570    206 
Business acquisition, net of cash acquired   (131,748)   3,838 
Acquisition of non-controlling interests   (1,130)   — 
Additions to acquired and developed technology   (2,128)   (635)
Net cash used in investing activities $  (161,753) $  (19,789)

 

Cash Flows from Financing Activities:    
Proceeds from credit agreements   148,500     295,500 
Proceeds from stock issuance   —     40,165 
Principal payments on credit agreements   (3,267)    (327,250)
Debt issuance costs   (7,696)    (8,277)
Payments on capital lease obligations   (7,202)    (6,562)
Proceeds from exercise of stock options   (210)    159 
Acquisition of common stock for income tax withholdings   (487)    (222)
Other, net   175     (302)
Net cash provided by (used in) financing activities   129,813     (6,789)
Effect of exchange rates on cash and cash equivalents   24     217 
Net (decrease) increase in cash and cash equivalents   (2,759)    1,579 
Cash and cash equivalents at beginning of period   14,603     10,389 
Cash and cash equivalents at end of period $  11,844  $  11,968 
     
Supplemental Disclosures of Cash Flow Information:    
Cash paid for interest $  44,324  $  25,898 
Non-cash acquisition of property and equipment under capital leases   33,381     169,679 
Additions to property and equipment included in accounts payable   4,004     701 
         


INTERNAP CORPORATION

NON-GAAP (ADJUSTED) FINANCIAL MEASURES

In addition to providing financial measurements based on accounting principles generally accepted in the United States of America (“GAAP”), this earnings press release includes additional financial measures that are not prepared in accordance with GAAP (“non-GAAP”), including Adjusted EBITDA, Adjusted EBITDA margin, Adjusted EBITDA less CapEx, normalized net loss, business unit contribution, business unit contribution margin, free cash flow and unlevered free cash flow. A reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures can be found below.

We define the following non-GAAP measures as follows:

  • Adjusted EBITDA is a non-GAAP measure and is GAAP net loss attributable to INAP shareholders plus depreciation and amortization, interest expense, provision (benefit) for income taxes, other expense (income), (gain) loss on disposal of property and equipment, exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, pre-acquisition costs and claim settlement.
     
  • Adjusted EBITDA margin is Adjusted EBITDA as a percentage of revenues.
     
  • Adjusted EBITDA less CapEx is Adjusted EBITDA less capital expenditures with Adjusted EBITDA for this non-GAAP measure defined as net cash flow provided by operating activities plus cash paid for interest, cash paid for taxes, cash paid for exit activities and restructuring, cash paid for strategic alternatives and related costs, cash paid for organizational realignment costs, payment of debt lender fees and other working capital changes less capital expenditures.
     
  • Normalized net loss is net loss attributable to INAP shareholders plus exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, pre-acquisition costs, claim settlement and debt extinguishment and modification expenses.
     
  • Business unit contribution is business unit revenues less direct costs of sales and services, customer support, and sales and marketing, exclusive of depreciation and amortization.
     
  • Business unit contribution margin is business unit contribution as a percentage of business unit revenue.
     
  • Free cash flow is net cash flows provided by operating activities minus capital expenditures.
     
  • Unlevered free cash flow is free cash flow plus cash interest expense.

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 (gain) 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 current ongoing 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 excluding interest expense, provision (benefit) for income taxes and other expense (income) 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 interest expense, provision (benefit) for income taxes and other expense (income) 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 interest expense, provision (benefit) for income taxes and other expense (income), 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.

We believe that exit activities, restructuring and impairment charges, non-income tax contingency, strategic alternatives and related costs, organizational realignment costs, pre-acquisition costs, claim settlement costs, and debt extinguishment and modification expense are unique costs, 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 current ongoing operating results and trends. Management believes that investors 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.

Stock-based compensation is an important part of total compensation, especially from the perspective of employees. We believe, however, that supplementing GAAP net loss by providing normalized net loss, excluding the effect of exit activities, restructuring and impairments, stock-based compensation, non-income tax contingency, strategic alternatives and related costs, organizational realignment cost, pre-acquisition costs, claim settlement costs, and debt extinguishment and modification expenses in all periods, is useful to investors because it enables additional and more meaningful period-to-period comparisons.

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

Adjusted EBITDA is not a measure of financial performance 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 business unit contribution and business unit contribution margin excludes depreciation and amortization in order to allow investors to see the business through the eyes of management.

We also have excluded depreciation and amortization from business unit contribution and business unit contribution 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.

Free cash flow and unlevered free cash flow are used in addition to and in conjunction with results presented in accordance with GAAP.  Free cash flow and unlevered free cash flow should not be relied upon to the exclusion of GAAP financial measures. Free cash flow and unlevered free cash flow reflect an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure.

We use free cash flow and unlevered free cash flow, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a useful measure of cash flows since capital expenditures are a necessary component of ongoing operations. In limited circumstances in which proceeds from sales of fixed assets exceed capital expenditures, free cash flow would exceed cash flow from operations. However, since we do not anticipate being a net seller of fixed assets, we expect free cash flow to be less than operating cash flows.

Free cash flow and unlevered free cash flow have limitations due to the fact that they do not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate payments made to service our debt or capital lease obligations. Therefore, we believe it is important to view free cash flow as a complement to our entire consolidated statements of cash flows.

Adjusted EBITDA less CapEx is used in addition to and in conjunction with results presented in accordance with GAAP.  Adjusted EBITDA less CapEx should not be relied upon to the exclusion of GAAP financial measures. Adjusted EBITDA less CapEx reflects an additional way of viewing our liquidity that, when viewed with our GAAP results, provides a more complete understanding of factors and trends affecting our cash flows. Management strongly encourages investors to review our financial statements and publicly-filed reports in their entirety and to not rely on any single financial measure.

We use Adjusted EBITDA less CapEx, and ratios based on it, to conduct and evaluate our business because, although it is similar to cash flow from operations, we believe it is a useful measure of cash flows since capital expenditures are a necessary component of ongoing operations.

Adjusted EBITDA less CapEx has limitations due to the fact that it does not represent the residual cash flow available for discretionary expenditures. Adjusted EBITDA less CapEx does not incorporate payments made to service our debt or capital lease obligations. Therefore, we believe it is important to view Adjusted EBITDA less CapEx as a complement to our entire consolidated statements of cash flows.

Adjusted EBITDA, as presented, may not be comparable to similarly titled measures of other companies.  Adjusted EBITDA is presented as we understand certain investors use it as one measure of our historical ability to service debt. Also Adjusted EBITDA is used in our debt covenants.

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.

INTERNAP CORPORATION
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF GAAP NET LOSS TO ADJUSTED EBITDA AND FORWARD LOOKING ADJUSTED EBITDA
A reconciliation of GAAP net loss to Adjusted EBITDA for each of the periods indicated is as follows (in thousands):

 Three Months Ended
 September 30, 2018 June 30, 2018 September 30, 2017
Reconciliation of GAAP Net Loss Attributable to INAP Shareholders to Adjusted EBITDA:Amount Percent Amount Percent Amount Percent
            
Net revenues$  82,972  100.0% $  81,962  100.0% $  68,907  100.0%
            
Net loss (GAAP) attributable to INAP Shareholders$(15,106) (18.2)% $(13,923) (17.0)% $(10,895) (15.8)%
Add:           
Depreciation and amortization   23,431  28.2%    22,590  27.6%    20,917  30.4%
Interest expense   16,898  20.4%    15,860  19.4%    12,299  17.8%
Provision for income taxes   162  0.2%    141  0.2%    221  0.3%
Other expense (income)    195  0.2%    31  0.0%    (925) (1.3)%
Gain on disposal of property and equipment, net   (66) (0.1)%    (75) (0.1)%    (162) (0.2)%
Exit activities, restructuring and impairments   2,347  2.8%    826  1.0%    745  1.1%
Stock-based compensation    1,341  1.6%    1,374  1.7%    929  1.3%
Non-income tax contingency   36  0.0%    800  1.0%    -    - 
Strategic alternatives and related costs   25  0.0%    23  0.0%    32  0.0%
Organizational realignment costs   118  0.1%    431  0.5%    14  0.0%
Acquisition costs   5  0.0%    306  0.4%    102  0.1%
Adjusted EBITDA (non-GAAP)$  29,386  35.4% $  28,384  34.6% $  23,277  33.8%
            

A reconciliation of forward looking Adjusted EBITDA for full-year 2018 is as follows (in millions):

          Narrowed
          Guidance within 
 Original Guidance,  Revised Guidance, Previous Range,
 as of 3/9/2018  as of 8/2/2018 as of 11/1/2018
 Low High  Low High Low High
 Amount Amount  Amount Amount Amount Amount
             
Net revenues$  320  $  330   $  320  $  330  $  320  $  324 
             
Net loss (GAAP) attributable to INAP Shareholders$  (48) $  (38)  $  (47) $  (37) $  (54) $  (51)
Add:            
Depreciation and amortization 70   70    86   86   88   88 
Interest expense 59   59    61   61   65   65 
Provision for income taxes 1   1    0   0   0   0 
Exit activities, restructuring and impairments 11   11    2   2   4   4 
Stock-based compensation 11   11    4   4   4   4 
Non-income tax contingency and acquisition costs  1   1    4   4   4   4 
Other costs  0   0    0   0   0   0 
Adjusted EBITDA (non-GAAP)$  105  $  115   $  110  $  120  $  111  $  114 
             


INTERNAP CORPORATION 
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF GAAP NET CASH FLOWS PROVIDED BY OPERATING ACTIVITIES
TO ADJUSTED EBITDA LESS CAPEX

A reconciliation of GAAP Net Cash Flows Provided by Operating Activities to Adjusted EBITDA less CapEx for each of the periods indicated is as follows (in thousands):

 Three Months Ended
Reconciliation of GAAP Net Cash Flows Provided by Operating Activities to Adjusted EBITDA less CapEx:September 30,
2018
 June 30,
2018
 September 30,
2017
      
Net Cash Flows provided by operating activites:$  10,288 $  15,342  $  3,306 
      
Add :     
Cash paid for interest   15,815    15,509     10,999 
Cash paid for income taxes   64    126     (24)
Cash paid for exit activities and restructuring   1,921    1,287     2,887 
Cash paid for strategic alternatives and related costs   25    23     203 
Cash paid for orgainzational realignment costs   118    431     - 
Cash paid for acquisition costs   5    306     - 
Other working capital changes   1,150    (4,640)    5,906 
Adjusted EBITDA (non-GAAP)$  29,386 $  28,384  $  23,277 
      
Less:     
Capital Expenditures (CapEx)$  12,003 $  11,083  $  10,965 
Adjusted EBITDA less CapEx (non-GAAP)$  17,383 $  17,301  $  12,312 
      


INTERNAP CORPORATION 
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

RECONCILIATION OF NET LOSS ATTRIBUTABLE TO INAP SHAREHOLDERS TO
NORMALIZED NET LOSS TO INAP SHAREHOLDERS

Reconciliations of net loss attributable to INAP Shareholders, the most directly comparable GAAP measure, to normalized net loss attributable to INAP Shareholders (in thousands):

 Three Months Ended
 September 30,
2018
 June 30, 
2018
 September 30,
2017
Net loss (GAAP) attributable to INAP Shareholders$  (15,106) $  (13,923) $  (10,895)
      
Exit activities, restructuring and impairments   2,347     826     745 
Stock-based compensation   1,341     1,374     929 
Strategic alternatives, realignment, and related costs   143     454     46 
Acquisition costs   5     306     102 
Non-income tax contingency   36     800     -  
INAP Japan fair market valuation   -      -      (1,065)
Normalized net loss (non-GAAP)$  (11,234) $  (10,163) $  (10,138)
 


INTERNAP CORPORATION 
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

BUSINESS UNIT CONTRIBUTION AND BUSINESS UNIT CONTRIBUTION MARGIN

Business unit contribution and business unit contribution margin, which includes direct costs of sales and service, customer support and sales and marketing for each of the periods indicated is as follows (in thousands):

 Three Months Ended
 September 30,
2018
 June 30,
2018
 September 30,
2017
Revenues:     
INAP US$  65,678  $  64,067  $  52,970 
INAP INTL   17,294     17,895     15,937 
Total   82,972     81,962     68,907 
Direct costs of sales and services, customer support and sales and marketing:     
INAP US   35,842     34,873     29,600 
INAP INTL   11,478     11,872     9,874 
Total   47,320     46,745     39,474 
Business Unit Contribution:     
INAP US   29,836     29,194     23,370 
INAP INTL   5,816     6,023     6,063 
Total$  35,652  $  35,217  $  29,433 
Business Unit Contribution Margin:     
INAP US 45.4%  45.6%  44.1%
INAP INTL 33.6%  33.7%  38.0%
Total 43.0%  43.0%  42.7%
 


INTERNAP CORPORATION 
NON-GAAP (ADJUSTED) FINANCIAL MEASURES (Continued)

FREE CASH FLOW AND UNLEVERED FREE CASH FLOW

Free cash flow and unlevered free cash flow are non-GAAP measures. Free cash flow is net cash flows provided by operating activities minus capital expenditures. Unlevered free cash flow is free cash flow plus cash interest expense (in thousands):

 Three Months Ended
 September 30,
2018
 June 30,
2018
 September 30,
2017
Net cash flows provided by operating activities $  10,288  $  15,342  $  3,306 
Capital expenditures:     
Maintenance capital   (3,597)    (4,197)    (1,715)
Growth capital   (8,406)    (6,886)    (9,250)
Free cash flow (non-GAAP)   (1,715)    4,259     (7,659)
      
Cash paid for interest   15,815     15,509     10,999 
Unlevered free cash flow (non-GAAP)$  14,100  $  19,768  $  3,340 
      


DATA CENTER PORTFOLIO

The following table presents an overview of the portfolio of data center properties that INAP leases as of September 30, 2018:

MarketGross Square
Feet (SF)1
Supporting Infrastructure2Office & Other Data Center
Footprint SF
3
Current
Raised
Floor SF 4
Occupied
SF
Occupied
SF %
Power Adjusted
SF% Estimated)
5
         
Phoenix6  214,968  87,059  61,210  66,717  44,650  30,86169%71%
Atlanta  208,298  64,248  75,344  68,706  44,987  30,07767%68%
Montreal  126,965  34,572  46,833  45,560  25,050  23,89095%89%
New York/New Jersey  114,920  16,405  28,468  70,047  47,507  26,06355%83%
Dallas  112,085  23,763  21,023  67,299  30,432  17,42757%66%
Los Angeles  109,181  9,623  12,366  87,192  18,020  13,41874%100%
Seattle  100,497  31,326  21,552  47,619  38,619  23,39161%65%
Santa Clara/San Jose  88,659  23,852  23,667  41,140  40,840  23,45557%87%
Boston  45,637  18,785  5,199  21,653  21,653  10,40748%55%
Houston  43,913  7,925  15,599  20,389  20,389  9,29646%54%
Chicago  14,002  1,551  -   12,451  12,076  10,12984%94%
Other7  26,163  -   981  25,165  20,755  15,64875%76%
Total  1,205,288  319,109  312,242  573,938  364,978  234,06264%74%
  1. Represents total SF subject to our lease.
  2. Represents total SF for mechanical and utility rooms.
  3. Represents total SF that is currently leased or available for lease but excludes supporting infrastructure, office space, and common area.
  4. Represents data center footprint SF less unbuilt SF.
  5. Calculation of occupied SF based on SF available to sell based on power constraints.
  6. Includes new Phoenix facility acquired in July 2018.
  7. Represents Miami, Northern Virginia, Oakland/San Francisco, London, Amsterdam, Frankfurt, Hong Kong, Singapore, Sydney, Tokyo, and Osaka.


INAP_Logo_Chrome.jpg

Source: Internap Corporation