INAP Reports Fourth Quarter 2017 Financial Results

Fourth Quarter 2017 Results

   –      Revenue of $70.0 Million increased Sequentially, a turnaround milestone for INAP
   –      GAAP Net Loss of $(6.9) Million, or $(0.35) Per Share; 
   –      Adjusted EBITDA of $24.4 Million was up Significantly 13% YoY. 
   –      Adjusted EBITDA Margin Achieved 35%, up from 29% in Fourth Quarter 2016
   –      Cash Flow from Operations was $13.8 Million
   –      Capital Expenditures were $12.6 Million

INAP’s Outlook for 2018 (as announced on March 5, 2018)

   –       Revenue of $320-$330 Million
   –      Adjusted EBITDA of $105-$115 Million
   –      Capital Expenditures of $40-$45 Million
   –      Outlook includes 10 months of SingleHop, baseline organic growth; offset by three planned data center closures
ATLANTA, March 08, 2018 (GLOBE NEWSWIRE) — Internap Corporation (NASDAQ:INAP), a leading provider of high-performance data center services including colocation, managed hosting, cloud and network services, today announced financial results for the fourth quarter of 2017.
“We exit the fourth quarter with momentum and confidence that our turnaround continues with great progress,” stated Peter D. Aquino, President and CEO. “We are optimistic in 2018 given our growing sales pipeline, recent wins, and SingleHop integration opportunities that will drive top line growth.  We continue to optimize our real estate portfolio, and see upside in continued cost savings throughout the year.  In addition, we recently amended our credit facility adding flexibility post our all debt deal to acquire SingleHop, alleviating any immediate need to raise additional capital.  Looking ahead, we will be opportunistic in corporate development to search out accretive deals, and consider non-core asset sales or exits, that increase value for our shareholders.”

Revenue

●    Revenue totaled $70.0 million in the fourth quarter of 2017, an increase of 1.6% sequentially, and a decrease of 5.5% year over year. The sequential increase is a milestone that reverses the previous declining trend.  Year over year, approximately $1.2 million of the decline is from the proactive closure of the 75 Broad Street, New York facility, which improves profitability. Excluding this event, the year over year revenue decline was reduced to 3.9%. In addition, year over year declines were partially offset by approximately $1.9 million in revenue from the consolidation of INAP Japan, and $1.3 million from the acquisition of a new data center in Atlanta with an anchor tenant.
●    INAP COLO revenue totaled $52.9 million in the fourth quarter of 2017, an increase of 2.9% sequentially, and a decrease of 3.9% year over year.  Approximately $1.0 million of the year over year decline was attributed to the planned closure of the 75 Broad Street, New York facility.  Excluding this event, the year over year revenue decline was reduced to approximately 2.0%.  The declines were partially offset from the consolidation of INAP Japan, and the Atlanta data center mentioned above.
●    INAP CLOUD revenue totaled $17.2 million in the fourth quarter, and a decrease of 2.2% sequentially, and a decrease of 10.3% year over year.  Approximately $0.2 million of the year over year decline was attributed to the planned closure of the 75 Broad Street, New York facility.

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

●    GAAP net loss attributable to INAP shareholders was $(6.9) million, or $(0.35) per share in the fourth quarter of 2017, including $(0.1) million of costs associated with exit activities, restructuring and impairments, compared with $7.1 million, or $(1.01) per share in the fourth quarter of 2016 and $0.7 million, or $(1.75) per share in the third quarter of 2017. GAAP net loss attributable to INAP shareholder margin was (9.9)% in the fourth quarter of 2017.
●    Normalized net loss was $(5.5) million in the fourth quarter of 2017 compared with $(5.5) million in the fourth quarter of 2016 and $(10.1) million in the third quarter of 2017.
●    Adjusted EBITDA totaled $24.4 million in the fourth quarter of 2017, an increase of 13.0% compared with the fourth quarter of 2016 and 4.7% compared to the third quarter of 2017. Adjusted EBITDA margin was 34.8% in the fourth quarter, up 570 basis points year over year and 100 basis points sequentially. The increases in Adjusted EBITDA were primarily driven by continued focus on cost savings in real estate and network facilities, and INAP’s initiative to exit less profitable data center sites.
●    Business Unit Contribution³ – INAP COLO and INAP CLOUD business unit contribution for fourth quarter 2017 is as follows:
INAP COLO, includes colocation, managed services and hosting, and global network services.
● INAP COLO business unit contribution totaled $22.5 million in the fourth quarter, a 10.8% increase compared to the fourth quarter of 2016 and a 1.1% increase from the third quarter of 2017. As a percent of revenue, INAP COLO business unit contribution margin was 42.7% in the fourth quarter of 2017, up 560 basis points year-over-year and down 80 basis points sequentially. The year over year business unit contribution increase reflects improving cost control.
INAP CLOUD, includes AgileCLOUD, iWeb, Ubersmith, and Funio.
● INAP CLOUD business unit contribution totaled $8.1 million in the fourth quarter of 2017, a 14.0% decline compared with the fourth quarter of 2016 and a 4.3% decrease from the third quarter of 2017. As a percent of revenue, INAP CLOUD business unit contribution margin was 47.2% in the fourth quarter of 2017, down 200 basis points year over year and 100 basis points sequentially.

Balance Sheet and Cash Flow Statement

●    Cash and cash equivalents totaled $14.6 million at December 31, 2017. Total debt was $524.2 million, net of discount and prepaid costs, at the end of the quarter, including $235.5 million in capital lease obligations. As previously reported, on April 6, 2017 INAP entered into a new Senior Secured Credit Facility, including a $300 million First Lien Term Loan and a $25 million Revolver, thereby completing the refinancing of its senior secured debt.
●    Cash generated from operations for the three months ended December 31, 2017 was $13.8 million compared to $10.2 million in fourth quarter 2016, and $3.3 million in third quarter of 2017. Capital expenditures over the same periods were $12.6 million, compared to $6.3 million and $11.0 million, respectively. Adjusted EBITDA less CapEx¹ was $11.7 million, compared to $15.3 million in fourth quarter 2016 and $12.3 million in third quarter 2017. Free cash flow⁴ over the same periods was $1.2 million, compared to $4.0 million and $(7.7) million, respectively.  Unlevered free cash flow⁴ was $13.0 million for the fourth quarter 2017, compared to $11.5 million in fourth quarter 2016 and $3.3 million in third quarter 2017.
“INAP delivered solid fourth quarter results, with revenue growing sequentially and Adjusted EBITDA margin expanding substantially from prior periods.   We continue to focus on incremental cost reductions and success based investments in growth,” said Robert M. Dennerlein, Chief Financial Officer. “We enter 2018 with a commitment to sell into excess data center capacity to optimize prior period investments, and drive profitable growth in high-ROI projects.”

INAP Outlook for 2018

As noted above, management’s outlook for 2018 includes projected results of acquired SingleHop operations as of February 28, 2018.  Additionally, the Company’s sales momentum is expected to contribute to organic growth, offset by select planned closures of certain data center facilities.

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”. 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 to Normalized Net Loss.”
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.”

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About INAP

Internap Corporation (NASDAQ:INAP) is a leading provider of high-performance data center services including colocation, managed hosting, cloud and network services. 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 56 Tier 3-type data centers in 21 metropolitan markets and has 97 POPs around the world. INAP has over 1 million gross square feet under lease, with over 500,000 square feet of data center space. For more information, visit www.INAP.com.

Forward-Looking Statements

This press release contains forward-looking statements. These forward-looking statements include statements related to sales, improved profitability, margin expansion, operations improvement, cost reductions, participation in strategic transactions, our strategy to align into pure-play businesses and our expectations for full-year 2017 and 2018 revenue, Adjusted EBITDA and capital expenditures. Our ability to achieve these forward-looking statements is based on certain assumptions, including our ability to execute on our business strategy, leveraging of multiple routes to market, expanded brand awareness for high-performance Internet infrastructure services and customer churn levels. These assumptions may prove inaccurate in the future. Because such forward-looking statements are not guarantees of future performance or results and involve risks and uncertainties, there are important factors that could cause INAP’s actual results to differ materially from those expressed or implied in the forward-looking statements, due to a variety of important factors. Such important factors include, without limitation: our ability to execute on our business strategy into a pure-play business and 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; 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 Securities and Exchange Commission (“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
404-302-9982
ir@inap.com

Carolyn Capaccio/Jody Burfening
LHA
212-838-3777
inap@lhai.com