INAP Reports Second Quarter 2018 Financial Results
- Reported Revenue of $82.0 Million up 10.5% Sequentially and 17.7% Year-over-Year
- INAP US, comprising 78% of Revenue, up 12.2% Sequentially and 18.4% Year-over-Year
- INAP INTL, comprising 22% of Revenue, up 4.5% Sequentially and 15.2% Year-over-Year
- GAAP Net Loss of $(13.9) Million, or GAAP Net Loss Margin of (17.0)%, with Adjusted EBITDA of $28.5 Million up 10.9% Sequentially and 23.4% Year-over-Year; Adjusted EBITDA Margin of 34.7% Up 10 Basis Points Quarter-over-Quarter and up 160 Basis Points Year-over-Year
- Cash Flow from Operations was $15.3 Million, with Capital Expenditures of $11.1 Million
- Raising Adjusted EBITDA Guidance Range to $110-$120 Million, Reaffirming Revenue of $320-330 Million and Capital Expenditures of $40-$45 Million
- INAP Adds New Flagship Data Center in Phoenix, a Key Strategic Market
RESTON, VA – (August 2, 2018) Internap Corporation (NASDAQ: INAP), a leading provider of high-performance data center services, including colocation, cloud and network, announced today financial results for the second quarter of 2018.
“INAP has entered the next phase of our development, with 2018 turnaround projects winding down and our prospects for revenue growth and increased scale already in progress,” stated Peter D. Aquino, President and CEO. “We are now closing larger high-density deals, offering innovative cloud solutions, and overlaying a more robust network to serve our customers. Revenue growth and increased scale are being fueled by a combination of new organic Cloud sales, less overall churn, and new business development. Net of non-core planned closures that we called out in past quarters, we have stabilized the top line and are generating pockets of growth that we expect will continue to expand. Given our repeated success in high absorption markets such as the greater Phoenix market, we are expanding once again. We recently announced a second facility in the market with Bank of America as an anchor tenant in our new flagship. Our enhanced profile is also making us an attractive partner, and we are pleased to announce our global cross-selling arrangement with COLT Data Centre Services. We are very excited about our progress to date and declare that INAP 2.0 is now on offense.”
2018 results include SingleHop operations as of March 1, 2018, and are therefore not comparable to prior periods. For the second quarter:
- Revenue totaled $82.0 million in the second quarter of 2018, an increase of 10.5% sequentially and 17.7% year- over-year. The sequential increase was primarily due to a full quarter’s impact of SingleHop and an increase in Cloud revenues. Our backlog remains strong, replenishing completed installs in the second quarter.
Beginning with the first quarter of 2018, INAP redefined its segment reporting by geography into INAP US and INAP International.
- INAP US revenue totaled $64.1 million in the second quarter of 2018, an increase of 12.2% sequentially and 18.4% year-over-year. The sequential increase was primarily due to a full quarter’s impact of SingleHop and an increase in Cloud revenues.
- INAP International revenue totaled $17.9 million in the second quarter of 2018, an increase of 4.5% sequentially and 15.2% year-over-year. The sequential increase was primarily due to an increase in Cloud revenues of $1.0 million, which includes organic growth and the full quarter’s impact from SingleHop.
Second Quarter 2018 Financial Summary
|($ in thousands)||QoQ||YoY|
|2Q 2018||1Q 2018||2Q 2017||Growth||Growth|
|Operating Costs and Expenses||$||79,835||$||73,322||$||71,695||8.9||%||11.4||%|
|Depreciation and Amortization||$||22,590||$||21,077||$||18,934||7.2||%||19.3||%|
|All Other Operating Costs and Expenses||$||56,939||$||49,687||$||52,761||14.6||%||7.9||%|
|GAAP Net Loss Attributable to INAP Shareholders||$||(13,923||)||$||(14,060||)||$||(19,283||)||1.0||%||27.8||%|
|GAAP Net Loss Margin||(17.0||)%||(18.9||)%||(27.7||)%|
|Minus Stock-Based Compensation and Other Items||$||3,830||$||3,690||$||13,378||3.8||%||(71.4)||%|
|Normalized Net Loss2||$||(10,093||)||$||(10,370||)||$||(5,905||)||2.7||%||(70.9)||%|
|Adjusted EBITDA Margin1||34.7||%||34.6||%||33.1||%|
|Capital Expenditures (CapEx)||$||11,083||$||6,359||$||6,748||74.3||%||64.2||%|
|Adjusted EBITDA less CapEx1||$||17,371||$||19,306||$||16,303||(10.0||)%||6.6||%|
Net Loss, Normalized Net Loss, Adjusted EBITDA and Business Unit Contribution
- GAAP net loss attributable to INAP shareholders was $(13.9) million, or $(0.69) per share in the second quarter of 2018 compared with $(14.1) million, or $(0.70) per share in the first quarter of 2018, including $2.6 million of costs associated with acquisition costs. GAAP net loss in second quarter of 2017 was $(19.3) million
- Normalized net loss was $(10.1) million in the second quarter of 2018 compared with $(10.4) million in the first quarter of 2018 and $(5.9) million in the second quarter of 2017.
- Adjusted EBITDA totaled $28.5 million in the second quarter of 2018, an increase of 10.9% compared with $25.7 million in the first quarter of 2018, and a 23.4% increase compared with $23.1 million in the second quarter of 2017. Adjusted EBITDA margin was 34.7% in the second quarter, up 10 basis points compared to 34.6% in the first quarter, and up 160 basis points compared to 33.1% in second quarter 2017. The increase in Adjusted EBITDA were primarily driven by continued focus on cost savings in real estate and network facilities, INAP’s initiative to exit less profitable data center sites, and the addition of SingleHop.
Business Unit Contribution3 – INAP US and INAP International business unit contribution for second quarter 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 $29.2 million in the second quarter, a 10.0% increase compared to the first quarter of 2018 and a 36.8% increase from the second quarter of 2017. As a percent of revenue, INAP US business unit contribution margin was 45.6% in the second quarter of 2018 down 90 basis points sequentially and up 620 basis points year-over-year. The year-over-year business unit contribution increase reflects continued focus on cost savings in real estate and network facilities, INAP’s initiative to exit non-core data center sites, and the addition of SingleHop.
INAP INTL, includes colocation, cloud, and network services. Cloud contains AgileCloud, Managed Hosting, Ubersmith, iWeb, and SingleHop.
- INAP INTL business unit contribution totaled $6.0 million in the second quarter of 2018, a 0.5% increase compared with the first quarter of 2018 and a 14.8% decrease from the second quarter of 2017. As a percent of revenue, INAP INTL business unit contribution margin was 33.7% in the second quarter of 2018, down 130 basis points sequentially and 1180 basis points year-over-year. The year-over-year decrease is primarily due to costs from INAP Japan, and higher space and power costs.
“We are now at an exciting inflection point that gives us confidence to increase our Adjusted EBITDA guidance as additional scale and deal synergies are all beginning to pass through to the bottom line,” said Jim Keeley, Chief Financial Officer. “Investments made in rebuilding our sales force, increasing marketing resources, and developing partnerships are beginning to have an impact. We remain focused on execution and delivering returns across all our markets.”
Balance Sheet and Cash Flow Statement
- Cash and cash equivalents totaled $14.7 million at June 30, 2018. Total debt was $662.7 million, net of discount and prepaid costs, at the end of the second quarter 2018, including $231.0 million in capital lease obligations. As previously reported, on April 9, 2018, INAP entered into a Fourth Amendment to Company’s Credit Agreement, which amended the Credit Agreement, dated as of April 6, 2017 to lower the interest rate margin applicable to outstanding term loans under the Credit Agreement by 1.25%.
- Cash generated from operations for the three months ended June 30, 2018 was $15.3 million compared to $3.5 million in first quarter of 2018, and $14.8 million in the second quarter 2017. Capital expenditures over the same periods were $11.1 million, compared to $6.4 million and $6.7 million, respectively. Adjusted EBITDA less CapEx1 was $17.4 million, compared to $19.3 million in first quarter of 2018 and $16.3 million in second quarter of 2017. Free cash flow4 over the same periods was $4.3 million, compared to $(2.8) million and $8.0 million, respectively. Unlevered free cash flow4 was $19.8 million for the second quarter 2018, compared to $10.2 million in first quarter 2018 and $15.6 million in second quarter 2017.
INAP’s outlook for 2018, as noted above, includes projected results of acquired SingleHop operations as of March 1, 2018. The Company is reiterating its full-year 2018 revenue and capital expenditures, and raising its Adjusted EBITDA guidance range, as shown in the table below. Additionally, the Company’s sales momentum is expected to contribute to organic growth, offset by select planned closures of certain data center facilities.
|Full-Year 2018 Expected Range|
|Previous Guidance||Current Guidance|
|Revenue||$320 million – $330 million||$320 million – $330 million|
|Adjusted EBITDA (non-GAAP)||$105 million – $115 million||$110 million – $120 million|
|Capital Expenditures||$40 million – $45 million||$40 million – $45 million|
- 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.”
- 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.”
- 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.
- 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 second 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, August 2, 2018 at 11:30 AM ET through Wednesday, August 8, 2018 at 855-859-2056 using replay code 6275639. International callers can listen to the archived event at 404-537-3406 with the same code.
Internap Corporation (NASDAQ: INAP) is a leading 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 56, primarily Tier 3, data centers in 21 metropolitan markets and has 99 POPs around the world. INAP has over 1 million gross square feet in its portfolio, and nearly 600,000 square feet of sellable data center space. For more information, visit www.inap.com.
This press release contains forward-looking statements. These forward-looking statements include statements related to sales, backlog, profitability, margins, operations improvement, cost reductions, participation in strategic transactions, and our expectations for 2018 revenue, Adjusted EBITDA, capital expenditures and Adjusted EBITDA less Capex. 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 IT infrastructure services and customer 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: 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 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
VP, IR & PR INAP
Carolyn Capaccio/Jody Burfening