Internap Corporation (NASDAQ: INAP), a leading-edge provider
of high-performance data center and cloud solutions with global
network connectivity, announced today financial results for the
third quarter of 2019.
“INAP's third quarter results reflect our
continued execution on all fronts, with revenue demonstrating
stability in churn and Adjusted EBITDA remaining relatively flat
compared to Q2 on a normalized basis. We won a number of new sales
and expansions of current client footprints, with growth in private
cloud and colo in high absorption flagship markets, including
Phoenix, Atlanta, Los Angeles and Seattle. With respect to our
strategic initiatives, we are actively engaged with interested
parties and are working with our advisors to explore possible
non-core asset sales and transformational transactions. The
amendment to our credit facility gives us additional flexibility
and time while we strive to maximize shareholder value. For the
remainder of the year, we are focused on driving profitable revenue
through consistency in our sales teams and channel partners, and on
bringing about strategic actions that can take INAP to the next
level," said Peter D. Aquino, Chief Executive Officer.
Third Quarter 2019 Financial Summary
|
|
|
|
|
|
|
QoQ |
|
YoY |
|
($ in
thousands) |
3Q 2019 |
|
2Q 2019 |
|
3Q 2018 |
|
Growth |
|
Growth |
|
|
|
|
|
|
|
|
|
|
|
|
Net Revenues |
$ |
72,878 |
|
|
$ |
73,134 |
|
|
$ |
82,972 |
|
|
(0.4 |
)% |
|
(12.2 |
)% |
|
Operating Costs and Expenses |
$ |
76,814 |
|
|
$ |
72,544 |
|
|
$ |
80,275 |
|
|
5.9 |
% |
|
(4.3 |
)% |
|
Depreciation and Amortization |
$ |
21,582 |
|
|
$ |
21,955 |
|
|
$ |
23,553 |
|
|
(1.7 |
)% |
|
(8.4 |
)% |
|
Exit Activities, Restructuring and Impairments |
$ |
3,792 |
|
|
$ |
231 |
|
|
$ |
2,347 |
|
|
1541.6 |
% |
|
61.6 |
% |
|
All Other Operating Costs and Expenses |
$ |
51,440 |
|
|
$ |
50,358 |
|
|
$ |
54,375 |
|
|
2.1 |
% |
|
(5.4 |
)% |
|
Net Loss
Attributable to Shareholders |
$ |
(23,870 |
) |
|
$ |
(18,555 |
) |
|
$ |
(15,479 |
) |
|
28.6 |
% |
|
54.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted
EBITDA |
$ |
22,990 |
|
|
$ |
24,420 |
|
|
$ |
30,031 |
|
|
(5.9 |
)% |
|
(23.4 |
)% |
|
Adjusted
EBITDA Margin |
|
31.5 |
% |
|
|
33.4 |
% |
|
|
36.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital
Expenditures (CapEx) |
$ |
8,644 |
|
|
$ |
7,448 |
|
|
$ |
11,386 |
|
|
16.1 |
% |
|
(24.1 |
)% |
|
Revenue
- Total company revenue was $72.9 million in the third quarter of
2019, a decrease sequentially of $0.3 million or 0.4%, and a
decrease of $10.1 million or 12.2% year-over-year.
- INAP US revenue was $56.9 million in the third quarter of 2019,
a decrease of 0.9% sequentially and a decrease of 13.3%
year-over-year. The sequential decrease is primarily due to lower
non-recurring revenue in Q3 in Colocation. The decrease
year-over-year is primarily due to planned data center exits and
churn from several large customers in 2018.
- INAP INTL revenue was $15.9 million in the third quarter of
2019, an increase of 1.6% sequentially and a decrease of 7.9%
year-over-year. The sequential increase is due to higher
non-recurring revenue in Q3 in Cloud and INAP Japan. The decrease
year-over-year is primarily due to churn from large customers in
2018.
Net Loss, Adjusted EBITDA and Business
Unit Contribution
- Net loss attributable to shareholders was $(23.9) million, or
$(1.01) per share in the third quarter of 2019 compared with
$(18.6) million, or $(0.78) per share in the second quarter of
2019, and compared with $(15.5) million, or $(0.77) per share in
third quarter of 2018.
- Adjusted EBITDA was $23.0 million in the third quarter of 2019,
a decrease of 5.9% compared with $24.4 million in the second
quarter of 2019, and 23.4% decrease compared with $30.0 million in
the third quarter of 2018. The sequential decline is due primarily
to the conversion of our Santa Clara facility to an operating lease
and seasonal cost increases. The year-over-year decline is
primarily due to lower revenues partially offset by cost savings
initiatives in 2019.
- Business Unit Contribution
- INAP US business unit contribution was $24.0 million in the
third quarter, a 5.7% decrease compared to the second quarter of
2019 and a 21.2% decrease from the third quarter of 2018. The
sequential decrease is primarily due to the conversion of our Santa
Clara facility to an operating lease, lower non-recurring revenue,
and seasonal cost increases. The decrease year-over-year is
primarily due to lower revenues partially offset by cost saving
initiatives in 2019.
- INAP INTL business unit contribution was $5.8 million in the
third quarter of 2019, a 2.8% increase compared with the second
quarter of 2019 and a 0.6% decrease from the third quarter of 2018.
The sequential increase is primarily due to higher non-recurring
revenue. The decrease year-over-year is primarily due to lower
revenues partially offset by cost savings initiatives in 2019.
Cash Balance and Cash Flow
Statement
- Cash and cash equivalents were $10.9 million at September 30,
2019. Total debt outstanding under the credit facility was $428.6
million, net of discount and issuance costs, and the finance lease
liabilities balance was $270.1 million. The Company had $17.2
million of availability on its revolver, net of $3.7 million of
letters of credit.
- Capital expenditures were $8.6 million in the third quarter of
2019, compared to $7.4 million in the second quarter of 2019 and
$11.4 million in the third quarter of 2018.
- Cash generated from operations for the three months ended
September 30, 2019 was $5.5 million compared to $11.4 million in
the second quarter of 2019, and $9.4 million in the third quarter
of 2018. The variances between periods were primarily related to
changes in working capital.
- Adjusted Free Cash Flow was $(2.6) million in the third quarter
of 2019, compared to $6.1 million in the second quarter of 2019 and
$0.2 million in the third quarter of 2018. Adjusted Unlevered Free
Cash Flow was $14.1 million for the third quarter of 2019, compared
to $21.7 million in the second quarter of 2019 and $17.0 million in
the third quarter of 2018.
Business Outlook
INAP’s narrowed business outlook for 2019 is
shown in the table below.
|
|
Current Outlook |
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$290 million - $294
million |
Adjusted EBITDA |
|
$94 million - $96
million |
Capital Expenditures |
|
$30 million - $32
million |
|
|
|
|
|
Refer to the attachments to this press release
entitled “Non-GAAP (Adjusted) Financial Measures” for definitions
and reconciliations between GAAP information and non-GAAP
information, including Adjusted EBITDA, Adjusted Free Cash Flow,
Adjusted Unlevered Free Cash Flow and business unit
contribution.
2018 results include the SingleHop LLC
(“SingleHop”) acquisition beginning March 1, 2018.
In prior periods, certain additions to property
and equipment that were outstanding in accounts payable were not
included in the Supplemental Disclosures of Cash Flow Information,
“Additions to property and equipment included in accounts payable”.
The amounts on the supplemental disclosure have been corrected, as
well as the related adjustments to “Accounts payable” and
“Purchases of property and equipment” with no impact to the net
change in cash and cash equivalents in the condensed consolidated
statements of cash flows. The corrections have no impact to the
condensed consolidated statements of operations and comprehensive
loss or the condensed consolidated balance sheets.
Conference Call Information
INAP's third quarter 2019 conference call will
be held on Tuesday, November 12, 2019 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 be accessed by dialing
866-777-2509. International callers should dial 412-317-5413. An
online archive of the webcast will be archived in the Investor
Relations section of INAP’s website. An audio-only telephonic
replay will be accessible from Tuesday, November 12, 2019 at 10:30
a.m. ET through Friday, November 15, 2019 at 877-344-7529 using
replay code 10135998.
About INAP
Internap Corporation (NASDAQ: INAP) is a
leading-edge provider of high-performance data center and cloud
solutions with 100 network Points of Presence worldwide. INAP’s
full-spectrum portfolio of high-density colocation, managed cloud
hosting and network solutions supports evolving IT infrastructure
requirements for customers ranging from the Fortune 500 to emerging
startups. INAP operates in 21 metropolitan markets, primarily
in North America, with 14 INAP Data Center Flagships connected
by a low-latency, high-capacity fiber network. For more
information, visit www.INAP.com.
Forward-Looking Statements
Certain statements in this press release
contain “forward-looking statements” within the meaning of the
Private Securities Litigation Reform Act of 1995. 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,
availability of capital resources and liquidity 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: our ability 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 our ability to improve operations; our
ability to correctly forecast capital needs, demand and space
utilization; our ability to respond successfully to technological
change and the resulting competition; the
geographic concentration of our data centers in certain
markets and any adverse developments in local economic
conditions or the demand for data center space in these
markets; the uncertainty as to whether any strategic alternative
will be pursued or, if pursued, closed; uncertainty as to the
terms, value and timing of any such strategic alternative; the
impact of the announcement of the evaluation of strategic
alternatives on INAP’s common stock, its businesses, and its
operating results; our ability to realize anticipated revenue and
growth; 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; the 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 ability to
raise additional capital when needed, on attractive terms, or
at all, and 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 expressed or implied by forward-looking statements made
by INAP or on our behalf.
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 our 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 ContactsRichard Ramlall Chief
Communications Officer INAP404-302-9982 ir@inap.com
|
Carolyn Capaccio/Jody BurfeningLHA212-838-3777inap@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, |
|
|
|
2019 |
|
|
|
2018 |
|
|
|
2019 |
|
|
|
2018 |
|
Net
revenues |
|
$ |
72,878 |
|
|
$ |
82,972 |
|
|
$ |
219,576 |
|
|
$ |
239,135 |
|
|
|
|
|
|
|
|
|
|
Operating
costs and expenses: |
|
|
|
|
|
|
|
|
Cost of
sales and services, exclusive of depreciation and amortization |
|
|
27,504 |
|
|
|
28,221 |
|
|
|
79,186 |
|
|
|
80,160 |
|
Costs of
customer support |
|
|
8,145 |
|
|
|
7,984 |
|
|
|
25,661 |
|
|
|
24,212 |
|
Sales,
general and administrative |
|
|
15,791 |
|
|
|
18,170 |
|
|
|
48,995 |
|
|
|
57,625 |
|
Depreciation
and amortization |
|
|
21,582 |
|
|
|
23,553 |
|
|
|
65,715 |
|
|
|
67,422 |
|
Exit
activities, restructuring and impairments |
|
|
3,792 |
|
|
|
2,347 |
|
|
|
5,439 |
|
|
|
3,140 |
|
Total operating costs and expenses |
|
|
76,814 |
|
|
|
80,275 |
|
|
|
224,996 |
|
|
|
232,559 |
|
(Loss)
income from operations |
|
|
(3,936 |
) |
|
|
2,697 |
|
|
|
(5,420 |
) |
|
|
6,576 |
|
|
|
|
|
|
|
|
|
|
Interest expense |
|
|
19,913 |
|
|
|
17,794 |
|
|
|
56,578 |
|
|
|
50,138 |
|
Loss on foreign currency, net |
|
|
6 |
|
|
|
195 |
|
|
|
328 |
|
|
|
5 |
|
Total non-operating expenses |
|
|
19,919 |
|
|
|
17,989 |
|
|
|
56,906 |
|
|
|
50,143 |
|
|
|
|
|
|
|
|
|
|
Loss before
income taxes and equity in earnings of equity-method
investment |
|
|
(23,855 |
) |
|
|
(15,292 |
) |
|
|
(62,326 |
) |
|
|
(43,567 |
) |
(Benefit)
provision for income taxes |
|
|
(6 |
) |
|
|
162 |
|
|
|
(320 |
) |
|
|
404 |
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
|
(23,849 |
) |
|
|
(15,454 |
) |
|
|
(62,006 |
) |
|
|
(43,971 |
) |
Less net income attributable to non-controlling interest |
|
|
21 |
|
|
|
25 |
|
|
|
63 |
|
|
|
75 |
|
Net loss
attributable to shareholders |
|
|
(23,870 |
) |
|
|
(15,479 |
) |
|
|
(62,069 |
) |
|
|
(44,046 |
) |
|
|
|
|
|
|
|
|
|
Other
comprehensive (loss) income: |
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
(18 |
) |
|
|
(98 |
) |
|
|
152 |
|
|
|
24 |
|
Total other comprehensive (loss) income |
|
|
(18 |
) |
|
|
(98 |
) |
|
|
152 |
|
|
|
24 |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(23,888 |
) |
|
$ |
(15,577 |
) |
|
$ |
(61,917 |
) |
|
$ |
(44,022 |
) |
|
|
|
|
|
|
|
|
|
Basic and
diluted net loss per share |
|
$ |
(1.01 |
) |
|
$ |
(0.77 |
) |
|
$ |
(2.62 |
) |
|
$ |
(2.21 |
) |
|
|
|
|
|
|
|
|
|
Weighted
average shares outstanding used in computing basic and diluted net
loss per share |
|
|
23,671 |
|
|
|
20,206 |
|
|
|
23,703 |
|
|
|
19,968 |
|
|
|
|
|
|
|
|
|
|
INTERNAP
CORPORATION AND SUBSIDIARIES |
CONDENSED
CONSOLIDATED BALANCE SHEETS |
(In
thousands, except par value amounts) |
(Unaudited) |
|
|
|
|
|
|
|
September 30, 2019 |
|
December 31, 2018 |
ASSETS |
|
|
|
|
Current
assets: |
|
|
|
|
Cash and cash equivalents |
|
$ |
10,895 |
|
|
$ |
17,823 |
|
Accounts receivable, net of allowance for doubtful accounts of
$1,077 and $1,547, respectively |
|
|
17,948 |
|
|
|
20,054 |
|
Contract assets |
|
|
9,202 |
|
|
|
8,844 |
|
Term loan, less discount and issuance costs of $4,909 |
|
|
552 |
|
|
|
- |
|
Prepaid expenses and other assets |
|
|
7,572 |
|
|
|
7,377 |
|
Total current assets |
|
|
46,169 |
|
|
|
54,098 |
|
|
|
|
|
|
Property and
equipment, net |
|
|
216,548 |
|
|
|
478,061 |
|
Operating
lease right-of-use assets |
|
|
33,723 |
|
|
|
- |
|
Finance
lease right-of-use assets |
|
|
226,619 |
|
|
|
- |
|
Intangible
assets, net |
|
|
64,215 |
|
|
|
73,042 |
|
Goodwill |
|
|
116,217 |
|
|
|
116,217 |
|
Contract
assets |
|
|
15,032 |
|
|
|
16,104 |
|
Deposits and
other assets |
|
|
6,178 |
|
|
|
7,409 |
|
Total assets |
|
$ |
724,701 |
|
|
$ |
744,931 |
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' (DEFICIT)
EQUITY |
|
|
|
|
Current
liabilities: |
|
|
|
|
Accounts payable |
|
$ |
25,287 |
|
|
$ |
23,435 |
|
Accrued liabilities |
|
|
9,813 |
|
|
|
15,540 |
|
Deferred revenues |
|
|
7,493 |
|
|
|
8,022 |
|
Capital lease obligations |
|
|
- |
|
|
|
9,080 |
|
Revolving credit facility |
|
|
14,000 |
|
|
|
- |
|
Term loan, less discount and issuance costs of $4,036 |
|
|
- |
|
|
|
321 |
|
Exit activities and restructuring liability |
|
|
550 |
|
|
|
2,526 |
|
Short-term operating lease liabilities |
|
|
6,686 |
|
|
|
- |
|
Short-term finance lease liabilities |
|
|
5,867 |
|
|
|
- |
|
Other current liabilities |
|
|
70 |
|
|
|
1,063 |
|
Total current liabilities |
|
|
69,766 |
|
|
|
59,987 |
|
|
|
|
|
|
Deferred
revenues |
|
|
259 |
|
|
|
511 |
|
Operating
lease liabilities |
|
|
30,382 |
|
|
|
- |
|
Finance
lease liabilities |
|
|
264,223 |
|
|
|
- |
|
Capital
lease obligations |
|
|
- |
|
|
|
262,382 |
|
Term loan,
less discount and issuance costs of $7,587 and $9,508,
respectively |
|
|
415,126 |
|
|
|
415,278 |
|
Deferred tax
liability |
|
|
1,443 |
|
|
|
2,211 |
|
Other
long-term liabilities |
|
|
3,714 |
|
|
|
4,505 |
|
Total liabilities |
|
$ |
784,913 |
|
|
$ |
744,874 |
|
|
|
|
|
|
Commitments
and contingencies |
|
|
|
|
Stockholders' (deficit) equity: |
|
|
|
|
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; 26,486
and 25,455 shares outstanding, respectively |
|
|
26 |
|
|
|
25 |
|
Additional paid-in capital |
|
|
1,372,016 |
|
|
|
1,368,968 |
|
Treasury stock, at cost, 388 and 330 shares, respectively |
|
|
(7,958 |
) |
|
|
(7,646 |
) |
Accumulated deficit |
|
|
(1,425,140 |
) |
|
|
(1,363,019 |
) |
Accumulated items of other comprehensive loss |
|
|
(913 |
) |
|
|
(1,065 |
) |
Total INAP stockholders’ deficit |
|
|
(61,969 |
) |
|
|
(2,737 |
) |
Non-controlling interest |
|
|
1,757 |
|
|
|
2,794 |
|
Total
stockholders' (deficit) equity |
|
|
(60,212 |
) |
|
|
57 |
|
Total liabilities and stockholders’ (deficit) equity |
|
$ |
724,701 |
|
|
$ |
744,931 |
|
|
|
|
|
|
INTERNAP
CORPORATION AND SUBSIDIARIES |
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS |
(In
thousands) |
(Unaudited) |
|
|
|
|
|
|
|
Nine Months Ended September 30, |
|
|
|
2019 |
|
|
|
2018 |
|
Cash
Flows from Operating Activities: |
|
|
|
|
Net
loss |
|
$ |
(62,006 |
) |
|
$ |
(43,971 |
) |
Adjustments
to reconcile net loss to net cash provided by operating
activities: |
|
|
|
|
Depreciation and amortization |
|
|
65,715 |
|
|
|
67,422 |
|
Loss (gain) on disposal of property and equipment |
|
|
468 |
|
|
|
(98 |
) |
Amortization of debt discount and issuance costs |
|
|
4,109 |
|
|
|
2,798 |
|
Stock-based compensation expense, net of capitalized amount |
|
|
3,074 |
|
|
|
3,573 |
|
Provision for doubtful accounts |
|
|
629 |
|
|
|
706 |
|
Non-cash change in finance lease obligations |
|
|
4,863 |
|
|
|
(241 |
) |
Non-cash change in exit activities and restructuring liability |
|
|
5,164 |
|
|
|
3,198 |
|
Non-cash change in deferred rent |
|
|
- |
|
|
|
(778 |
) |
Deferred taxes |
|
|
(787 |
) |
|
|
65 |
|
Accreted interest |
|
|
1,194 |
|
|
|
- |
|
Other, net |
|
|
(78 |
) |
|
|
(6 |
) |
Changes in
operating assets and liabilities: |
|
|
|
|
Accounts receivable |
|
|
1,593 |
|
|
|
(4,990 |
) |
Prepaid expenses, deposits and other assets |
|
|
1,355 |
|
|
|
(3,531 |
) |
Operating lease right-of-use assets |
|
|
(5,211 |
) |
|
|
- |
|
Accounts payable |
|
|
756 |
|
|
|
5,155 |
|
Accrued and other liabilities |
|
|
(5,378 |
) |
|
|
(601 |
) |
Deferred revenues |
|
|
(804 |
) |
|
|
617 |
|
Exit activities and restructuring liability |
|
|
(3,870 |
) |
|
|
(4,597 |
) |
Short and long-term operating lease liabilities |
|
|
7,614 |
|
|
|
- |
|
Asset retirement obligation |
|
|
202 |
|
|
|
(141 |
) |
Other liabilities |
|
|
57 |
|
|
|
(199 |
) |
Net cash
provided by operating activities |
|
|
18,659 |
|
|
|
24,381 |
|
|
|
|
|
|
Cash
Flows from Investing Activities: |
|
|
|
|
Purchases of property and equipment |
|
|
(23,277 |
) |
|
|
(23,100 |
) |
Proceeds from disposal of property and equipment |
|
|
272 |
|
|
|
570 |
|
Business acquisition, net of cash acquired |
|
|
- |
|
|
|
(131,748 |
) |
Additions to acquired and developed technology |
|
|
(881 |
) |
|
|
(2,128 |
) |
Net cash
used in investing activities |
|
$ |
(23,886 |
) |
|
$ |
(156,406 |
) |
|
|
|
|
|
Cash
Flows from Financing Activities: |
|
|
|
|
Proceeds from credit agreements |
|
$ |
14,000 |
|
|
$ |
148,500 |
|
Principal payments on credit agreements |
|
|
(3,268 |
) |
|
|
(3,267 |
) |
Debt issuance costs |
|
|
(2,815 |
) |
|
|
(7,696 |
) |
Payments on finance lease obligations |
|
|
(8,212 |
) |
|
|
(6,643 |
) |
Acquisition of non-controlling interests |
|
|
(973 |
) |
|
|
(1,130 |
) |
Proceeds from exercise of stock options |
|
|
- |
|
|
|
(210 |
) |
Acquisition of common stock for income tax withholdings |
|
|
(311 |
) |
|
|
(487 |
) |
Other, net |
|
|
50 |
|
|
|
175 |
|
Net cash
(used in) provided by financing activities |
|
|
(1,529 |
) |
|
|
129,242 |
|
Effect of
exchange rates on cash and cash equivalents |
|
|
(172 |
) |
|
|
24 |
|
Net decrease
in cash and cash equivalents |
|
|
(6,928 |
) |
|
|
(2,759 |
) |
Cash and
cash equivalents at beginning of period |
|
|
17,823 |
|
|
|
14,603 |
|
Cash and
cash equivalents at end of period |
|
$ |
10,895 |
|
|
$ |
11,844 |
|
|
|
|
|
|
Supplemental Disclosures of Cash Flow
Information: |
|
|
|
|
Cash paid for interest |
|
$ |
46,540 |
|
|
$ |
46,676 |
|
Additions to property and equipment included in accounts
payable |
|
|
5,153 |
|
|
|
10,235 |
|
|
|
|
|
|
|
|
|
|
INTERNAP
CORPORATIONNON-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, business unit contribution, business unit contribution
margin, Adjusted Free Cash Flow and Adjusted 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 shareholders plus depreciation and amortization,
interest expense, (benefit) provision 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,
acquisition costs and claim settlement.
- Adjusted EBITDA margin is Adjusted EBITDA as a percentage of
revenues.
- 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.
- Adjusted Free Cash Flow is net cash flows provided by operating
activities, plus cash paid for non-recurring items such as exit
activities, restructuring and impairments, strategic alternatives
and related costs, organizational realignment costs, acquisition
costs and claim settlements, minus capital expenditures.
- Adjusted Unlevered Free Cash Flow is Adjusted Free Cash Flow
plus cash paid for interest.
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 (gain) loss on disposals of property and
equipment, as well as restructuring and impairments, 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,
(benefit) provision 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, (benefit) provision for income taxes
and other expense (income) as important supplemental information
useful to their understanding of our historical results and
estimating our future results.
INTERNAP
CORPORATIONNON-GAAP (ADJUSTED) FINANCIAL MEASURES
(Continued)
We also believe that, in excluding the effects
of interest expense, (benefit) provision 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,
acquisition costs and claim settlement costs 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 costs, acquisition costs and claim
settlement costs, in all periods, is useful to investors because it
enables additional and more meaningful period-to-period
comparisons.
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;
- 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; and
- certain investors use EBITDA as a measure of our ability to
service debt.
INTERNAP
CORPORATIONNON-GAAP (ADJUSTED) FINANCIAL MEASURES
(Continued)
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;
- as a key measure to calculate our debt covenants;
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.
Adjusted Free Cash Flow and Adjusted Unlevered
Free Cash Flow are used in addition to and in conjunction with
results presented in accordance with GAAP. Adjusted Free Cash Flow
and Adjusted Unlevered Free Cash Flow may not be comparable to
similarly-titled measures reported by other companies and should
not be relied upon to the exclusion of GAAP financial measures.
Adjusted Free Cash Flow and Adjusted 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 Adjusted Free Cash Flow as a measure to
evaluate cash generated through normal operating activities. We
believe that the presentation of Adjusted Free Cash Flow is
relevant and useful to investors because it provides measures of
cash available to pay the principal on our debt and pursue
acquisitions of businesses or other strategic investments or uses
of capital. We use Adjusted Unlevered Free Cash Flow as a measure
to evaluate cash generated through normal operating activities
prior to debt service as our debt capital structure will change
over time. We believe that the presentation of Adjusted Unlevered
Free Cash Flow is relevant and useful for investors because it
allows investors to view results in a manner similar to the method
used by management and makes it easier to compare our results with
the results of other companies that have different financing and
capital structures.
Adjusted Free Cash Flow and Adjusted Unlevered
Free Cash Flow have inherent limitations and therefore, we believe
it is important to view these measures as a complement to our
entire consolidated statements of cash flows. Adjusted Free Cash
Flow and Adjusted Unlevered Free Cash Flow are not measurements of
our financial performance under GAAP and should not be considered
in isolation, or as alternatives to net cash flows provided by
operating activities, total net cash flows, or any other
performance measure derived in accordance with GAAP.
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 NET LOSS ATTRIBUTABLE
TO SHAREHOLDERS TO ADJUSTED EBITDA
A reconciliation of net loss attributable to
shareholders to Adjusted EBITDA (non-GAAP) for each of the periods
indicated is as follows (in thousands, unaudited):
|
Three Months Ended |
|
September 30, 2019 |
|
June 30, 2019 |
|
September 30, 2018 |
Reconciliation of Net Loss Attributable to Shareholders to
Adjusted EBITDA: |
Amount |
|
Percent |
|
Amount |
|
Percent |
|
Amount |
|
Percent |
|
|
|
|
|
|
|
|
|
|
|
|
Net revenues |
$ |
72,878 |
|
|
100.0 |
% |
|
$ |
73,134 |
|
|
100.0 |
% |
|
$ |
82,972 |
|
|
100.0 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
attributable to shareholders |
$ |
(23,870 |
) |
|
(32.8 |
)% |
|
$ |
(18,555 |
) |
|
(25.4 |
)% |
|
$ |
(15,479 |
) |
|
|
(18.7 |
)% |
Add: |
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
21,582 |
|
|
29.6 |
% |
|
|
21,955 |
|
|
30.0 |
% |
|
|
23,553 |
|
|
28.4 |
% |
Interest expense |
|
19,913 |
|
|
27.3 |
% |
|
|
19,218 |
|
|
26.3 |
% |
|
|
17,794 |
|
|
21.4 |
% |
(Benefit) provision for income taxes |
|
(6 |
) |
|
(0.0 |
)% |
|
|
(211 |
) |
|
(0.3 |
)% |
|
|
162 |
|
|
0.2 |
% |
Other expense |
|
6 |
|
|
0.0 |
% |
|
|
118 |
|
|
0.2 |
% |
|
|
195 |
|
|
0.2 |
% |
(Gain) loss on disposal of property and equipment, net |
|
(13 |
) |
|
(0.0 |
)% |
|
|
- |
|
|
0.0 |
% |
|
|
(66 |
) |
|
(0.1 |
)% |
Exit activities, restructuring and impairments |
|
3,792 |
|
|
5.2 |
% |
|
|
231 |
|
|
0.3 |
% |
|
|
2,347 |
|
|
2.8 |
% |
Stock-based compensation |
|
1,173 |
|
|
1.6 |
% |
|
|
1,011 |
|
|
1.4 |
% |
|
|
1,341 |
|
|
1.6 |
% |
Acquisition costs |
|
273 |
|
|
0.4 |
% |
|
|
163 |
|
|
0.2 |
% |
|
|
5 |
|
|
0.0 |
% |
Strategic alternatives and related costs |
|
21 |
|
|
0.0 |
% |
|
|
20 |
|
|
0.0 |
% |
|
|
25 |
|
|
0.0 |
% |
Organizational realignment costs |
|
119 |
|
|
0.2 |
% |
|
|
470 |
|
|
0.6 |
% |
|
|
118 |
|
|
0.1 |
% |
Non-income tax contingency |
|
- |
|
|
0.0 |
% |
|
|
- |
|
|
0.0 |
% |
|
|
36 |
|
|
0.0 |
% |
Adjusted
EBITDA (non-GAAP) |
$ |
22,990 |
|
|
31.5 |
% |
|
$ |
24,420 |
|
|
33.4 |
% |
|
$ |
30,031 |
|
|
36.2 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
INTERNAP CORPORATION NON-GAAP
(ADJUSTED) FINANCIAL MEASURES (Continued)
A reconciliation of forward looking net loss attributable to
shareholders to Adjusted EBITDA (non-GAAP) for full-year 2019 is as
follows (in millions, unaudited):
|
Current Outlook |
|
Low |
|
High |
|
|
|
|
Net revenues |
$ |
290 |
|
|
$ |
294 |
|
|
|
|
|
Net loss
attributable to shareholders |
$ |
(83 |
) |
|
$ |
(81 |
) |
Add: |
|
|
|
Depreciation and amortization |
|
88 |
|
|
|
88 |
|
Interest expense |
|
77 |
|
|
|
77 |
|
Exit activities, restructuring and impairments |
|
5 |
|
|
|
5 |
|
Stock-based compensation |
|
4 |
|
|
|
4 |
|
Non-income tax contingency and acquisition costs |
|
3 |
|
|
|
3 |
|
Adjusted EBITDA (non-GAAP) |
$ |
94 |
|
|
$ |
96 |
|
Capital expenditures (CapEx) |
$ |
30 |
|
|
$ |
32 |
|
|
|
|
|
|
|
|
|
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, unaudited):
|
Three Months Ended |
|
September 30, 2019 |
|
June 30, 2019 |
|
September 30, 2018 |
Revenues: |
|
|
|
|
|
INAP US |
$ |
56,947 |
|
|
$ |
57,461 |
|
|
$ |
65,678 |
|
INAP INTL |
|
15,931 |
|
|
|
15,673 |
|
|
|
17,294 |
|
Total |
|
72,878 |
|
|
|
73,134 |
|
|
|
82,972 |
|
Direct costs
of sales and services, customer support and sales and
marketing: |
|
|
|
|
|
INAP US |
|
32,920 |
|
|
|
31,976 |
|
|
|
35,197 |
|
INAP INTL |
|
10,148 |
|
|
|
10,049 |
|
|
|
11,478 |
|
Total |
|
43,068 |
|
|
|
42,025 |
|
|
|
46,675 |
|
Business
Unit Contribution: |
|
|
|
|
|
INAP US |
|
24,027 |
|
|
|
25,485 |
|
|
|
30,481 |
|
INAP INTL |
|
5,783 |
|
|
|
5,624 |
|
|
|
5,816 |
|
Total |
$ |
29,810 |
|
|
$ |
31,109 |
|
|
$ |
36,297 |
|
Business
Unit Contribution Margin: |
|
|
|
|
|
INAP US |
|
42.2 |
% |
|
|
44.4 |
% |
|
|
46.4 |
% |
INAP INTL |
|
36.3 |
% |
|
|
35.9 |
% |
|
|
33.6 |
% |
Total |
|
40.9 |
% |
|
|
42.5 |
% |
|
|
43.7 |
% |
|
|
|
|
|
|
Note: INAP INTL includes Ubersmith and iWeb.
INTERNAP CORPORATION NON-GAAP
(ADJUSTED) FINANCIAL MEASURES (Continued)
ADJUSTED FREE CASH FLOW AND ADJUSTED
UNLEVERED FREE CASH FLOW
Adjusted Free Cash Flow and Adjusted Unlevered
Free Cash Flow are non-GAAP measures. Adjusted Free Cash Flow is
net cash flows provided by operating activities, plus cash paid for
non-recurring items such as exit activities, restructuring and
impairments, strategic alternatives and related costs,
organizational realignment costs, acquisition costs and claim
settlements, minus capital expenditures. Adjusted Unlevered Free
Cash Flow is Adjusted Free Cash Flow plus cash paid for interest
(in thousands, unaudited):
|
Three Months Ended |
|
September 30, 2019 |
|
June 30, 2019 |
|
September 30, 2018 |
Net cash flows provided by operating activities |
$ |
5,523 |
|
|
$ |
11,431 |
|
|
$ |
9,446 |
|
Plus cash
paid for: |
|
|
|
|
|
Exit activities, restructuring and impairments |
|
330 |
|
|
|
1,637 |
|
|
|
1,920 |
|
Acquisition costs |
|
- |
|
|
|
- |
|
|
|
- |
|
Strategic alternatives costs |
|
55 |
|
|
|
- |
|
|
|
- |
|
Organizational realignment costs |
|
151 |
|
|
|
452 |
|
|
|
262 |
|
Less cash
paid for: |
|
|
|
|
|
Maintenance capex |
|
(2,793 |
) |
|
|
(1,279 |
) |
|
|
(3,597 |
) |
Growth capex |
|
(5,851 |
) |
|
|
(6,169 |
) |
|
|
(7,789 |
) |
Adjusted
Free Cash Flow (non-GAAP) |
|
(2,585 |
) |
|
|
6,072 |
|
|
|
242 |
|
|
|
|
|
|
|
Cash paid
for interest |
|
16,681 |
|
|
|
15,599 |
|
|
|
16,711 |
|
Adjusted
Unlevered Free Cash Flow (non-GAAP) |
$ |
14,096 |
|
|
$ |
21,671 |
|
|
$ |
16,953 |
|
|
|
|
|
|
|
Note: Maintenance capex is necessary capital expenditures
required for the business to continue operating in its current form
and keep existing operations running smoothly. Growth capex is
discretionary investments used to attract new customers or create
the capacity for a bigger business.
DATA CENTER PORTFOLIO
The following table presents an overview of the portfolio of
data center properties that INAP leases as of September 30, 2019
(unaudited):
|
Gross Square |
Supporting |
Office & |
Data Center |
Current Raised |
Occupied |
Occupied |
Market |
Feet (SF)1 |
Infrastructure2 |
Other |
Footprint SF3 |
Floor SF4 |
SF |
SF % |
|
|
|
|
|
|
|
|
Phoenix |
214,968 |
87,059 |
61,210 |
66,717 |
44,650 |
30,741 |
69 |
% |
Atlanta5 |
208,298 |
64,248 |
75,344 |
68,706 |
44,987 |
14,202 |
32 |
% |
Montreal |
126,965 |
34,572 |
46,833 |
45,560 |
28,050 |
25,390 |
91 |
% |
New York/New Jersey |
104,865 |
16,405 |
28,468 |
59,992 |
37,652 |
22,519 |
60 |
% |
Dallas6 |
112,145 |
23,763 |
21,023 |
67,359 |
30,382 |
16,936 |
56 |
% |
Los Angeles |
109,106 |
9,623 |
12,366 |
87,117 |
18,020 |
14,066 |
78 |
% |
Seattle |
100,497 |
31,326 |
21,552 |
47,619 |
38,619 |
25,121 |
65 |
% |
Santa Clara/San Jose |
88,114 |
23,852 |
23,667 |
40,595 |
40,595 |
23,785 |
59 |
% |
Boston |
45,637 |
18,785 |
5,199 |
21,653 |
21,653 |
10,743 |
50 |
% |
Houston |
43,913 |
7,925 |
15,599 |
20,389 |
20,389 |
9,456 |
46 |
% |
Chicago |
12,661 |
1,551 |
- |
11,110 |
11,110 |
9,273 |
83 |
% |
Other |
36,455 |
- |
981 |
36,438 |
32,285 |
17,846 |
55 |
% |
Total |
1,203,624 |
319,109 |
312,242 |
573,255 |
368,392 |
220,078 |
60 |
% |
(1) Represents total SF subject to our lease.(2) Represents 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) Perimeter Data Center was
recently converted into a multi-tenant site adding new capacity in
the Atlanta market.(6) Occupied SF % has been updated to reflect
new capacity due to expansion of Dallas Flagship site.
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