INAP Reports Third Quarter 2017 Financial Results
- Revenue of $68.9 Million Reflects Continued Execution toward Top-Line Stabilization
- INAP COLO Demonstrates Sales Momentum, Acceleration in New Phoenix Deployment, and Launch of Dallas Expansion Efforts
- INAP CLOUD Revenue Demonstrates Consistency Sequentially, Driven by AgileCLOUD and Bare-Metal Server Growth
- GAAP Net Loss of $(10.9) Million, or $(0.14) Per Share, including $0.7 Million of Costs Associated with NY Facility Exit Activities, Restructuring and Impairments, or GAAP Net Loss Margin of (15.7)%
- Cash Flow from Operations was $3.3 Million in 3Q17
- Adjusted EBITDA Expands Significant 173 Basis Points Year-over-Year to $23.3 million, or 33.8% Adjusted EBITDA Margin
- INAP Announces 1-for-4 Reverse Stock Split, with Approximately 83.4 Million Shares Reducing to 20.9 Million
- 2017 Revenue Outlook Narrowed; Adjusted EBITDA Outlook Raised, CAPEX Outlook Reaffirmed
ATLANTA – (November 2, 2017) Internap Corporation (NASDAQ: INAP), a provider of Internet infrastructure; including Colocation, Managed Services and Hosting, Cloud, and High Performance Network services, today announced financial results for the third quarter of 2017.
“We made significant progress strengthening our operations platform and focusing on top line sales,” stated Peter D. Aquino, President and CEO. “We are approaching revenue stability, and are very excited about our new sales momentum. For example, after doubling our acquired space in Phoenix, we already sold out the entire availability at an accelerated pace, and we are looking to expand a third time. In addition, strong demand for INAP services in Dallas and Montreal also presents great opportunity for revenue growth. In this quarter, we consolidated our position in INAP Japan by exercising certain rights under the joint venture agreement, which results in INAP having both economic benefits and a majority of the board. Finally, our Board effectuated a reverse stock split at a ratio of 1-for-4, implementing the stockholder’s approval from our recent annual meeting. Looking ahead, we will leverage our strong position, now in 21 major markets primarily in North America emphasizing our emerging identity as a Colocation leader with value added services, including: Managed Services and Hosting, Cloud, and a High Performance Global Network.”
- Revenue totaled $68.9 million in the third quarter, a decrease of 6.8% year over year and declining at a slower pace at 1.1% sequentially. Approximately $1.4 million of the year over year decline, and $0.4 million quarter over quarter are from the planned closure of the 75 Broad Street, New York facility. Excluding this event, year over year revenue decline was 4.9% and was less than 1% sequentially. The declines were partially offset by growth in Agile Bare Metal server revenue and approximately $1 million in revenue from the consolidation of INAP Japan.
- INAP COLO revenue totaled $51.3 million in the third quarter, a decrease of 6.6% year over year and 1.3% sequentially. Approximately $1.1 million of the year over year decline and $0.4 million quarter over quarter of the decline was attributed to the planned closure of the 75 Broad Street, New York facility. Excluding this event, sequential revenue was down less than 1% and year over year approximately 4.7%. The declines were partially offset from the consolidation of INAP Japan financial statements.
- INAP CLOUD revenue totaled $17.6 million in the third quarter, a decrease of 7.3% year over year and comparable sequentially. Approximately $0.3 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 was $(10.9) million, or $(0.14) per share, including $0.7 million of costs associated with exit activities, restructuring and impairment, compared with $(91.3) million, or $(1.75) per share in the third quarter of 2016 and $(19.3) million, or $(0.24) per share in the second quarter of 2017, including $4.6 million of costs associated with exit activities, restructuring and impairment. GAAP net loss margin was (15.8)% in the third quarter of 2017.
- Normalized net loss was $(10.1) million compared with $(7.7) million in the third quarter of 2016 and $(5.9) million in the second quarter of 2017.
- Adjusted EBITDA totaled $23.3 million in the third quarter, an increase of 17.3% compared with the third quarter of 2016 and 1.0% compared to the second quarter of 2017. Adjusted EBITDA margin was 33.8% in the third quarter, up 700 basis points year over year and 70 basis points sequentially. The increases in Adjusted EBITDA were attributable to continued focus on cost control and our initiatives of eliminating unproductive sites and investing in long-term key markets.
Beginning with first quarter 2017 reporting, INAP redefined its segment reporting into two pure play business units:
INAP COLO, formerly Data Center and Networking Services, comprised of colocation, IP network services, and managed services and hosting. Managed services and hosting was previously included in the Cloud and Hosting Services segment; and
INAP CLOUD, formerly Cloud and Hosting Services, comprised of AgileCLOUD, iWeb, Ubersmith, and Funio.
- Business Unit Contribution3 – As part of the realignment of its segments into two pure play business units, INAP COLO and INAP CLOUD, INAP is providing a measure of unit-level profitability called business unit contribution.3
- INAP COLO business unit contribution totaled $22.3 million in the third quarter, a 16.7% increase compared with the third quarter of 2016 and a 1.4% increase from the second quarter of 2017. As a percent of revenue, INAP COLO business unit contribution margin was 43.4% in the third quarter, up 870 basis points year-over-year and 120 basis points sequentially. The year over year business unit contribution increase reflects improving cost control. The sequential business unit contribution increase was primarily driven by cost control and our initiatives of eliminating unproductive sites and investing in long-term key markets.
- INAP CLOUD business unit contribution totaled $8.5 million in the third quarter, a 1.7% decline compared with the third quarter of 2016 and a 4.5% increase from the second quarter of 2017. As a percent of revenue, INAP CLOUD business unit contribution margin was 48.2% in the third quarter, up 270 basis points year over year and up 220 basis points sequentially. The year over year increase reflects improving cost control.
Balance Sheet and Cash Flow Statement
- Cash and cash equivalents totaled $12.0 million at September 30, 2017. Total debt was $507.6 million, net of discount and prepaid costs, at the end of the quarter, including $218.7 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 (which remains undrawn), thereby completing the refinancing of its senior secured debt.
- Cash generated from operations for the three months ended September 30, 2017 was $3.3 million compared to $11.5 million in third quarter 2016, and $14.8 million in second quarter of 2017. Capital expenditures over the same periods were $11.0 million, compared to $12.9 million and $6.7 million, respectively. Adjusted EBITDA less CapEx1 was $12.3 million, compared to $7.0 million in third quarter 2016 and $16.3 million in second quarter 2017. Free cash flow4 over the same periods was $(7.7) million, compared to $(1.4) million and $8.0 million, respectively. Unlevered free cash flow4 million in third quarter 2016 and $15.6 million in second quarter 2017.
“INAP delivered another quarter of sequential EBITDA margin expansion, while making significant progress on continual cost reduction and while investing in growth. Our momentum through the third quarter led us to increase our Adjusted EBITDA guidance for 2017,” said Robert M. Dennerlein, Chief Financial Officer. “To date, we have taken decisive actions in our New York, Phoenix, Dallas, Atlanta, and Japan operations to improve the profitability of our portfolio.”
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.”
INAP Announces 1-for-4 Reverse Stock Split
INAP announces today that its Board of Directors has determined to effect a reverse stock split of its shares of common stock at a ratio of 1-for-4, effective as of 5:00 p.m. Monday, November 20, 2017. INAP’s common stock will continue to trade under the symbol “INAP,” but will trade on a split-adjusted basis under a new CUSIP number 45885A 409. A reverse stock split was required to be first approved by the Company’s stockholders, which occurred at INAP’s 2017 Annual Meeting held on June 21, 2017 and granted the Board of Directors the authority to determine the exact split ratio.
In the reverse stock split, every four shares of INAP’s common stock outstanding will automatically be combined into one issued and outstanding share of common stock without any action by stockholders. No fractional shares will be issued in connection with the reverse stock split. Any fractional share of common stock that would otherwise have resulted from the reverse stock split will be paid in cash in a proportionate amount based on the closing price of the common stock as reported by The NASDAQ Global Market on the effective date of the reverse stock split. As a result of the reverse stock split, the number of shares of INAP’s common stock outstanding will decrease from approximately 83.4 million shares pre-split to approximately 20.9 million shares post-split. Additionally, all INAP shares of restricted common stock, stock options and other equity awards outstanding immediately prior to the reverse stock split will be proportionately adjusted.
INAP’s transfer agent, American Stock Transfer and Trust, which is also acting as the exchange agent for the reverse stock split, will provide instructions to stockholders regarding the process for exchanging share certificates. Stockholders who hold their shares electronically in book-entry form at a brokerage firm need not take any action, as their shares will automatically be adjusted by their brokerage firm to reflect the reverse stock split. Beneficial holders may contact their bank, broker or nominee with any questions regarding the procedure for implementing the reverse stock split.
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Internap Corporation (NASDAQ: INAP) is a leading provider of Internet infrastructure through both Colocation Business and Enterprise Services (including colocation, network connectivity, IP, bandwidth, and managed services and hosting), and Cloud Services (including enterprise-grade AgileCLOUD, bare-metal servers, and SMB iWeb platforms). INAP operates in Tier 3-type data centers in 21 metropolitan markets, primarily in North America, with 50 datacenters and 89 POPs around the world. INAP has approximately 1 million gross square feet under lease, with 500,000 square feet of data center space. INAP operates a premium business model that provides high-power density colocation, low-latency bandwidth, and public and private cloud platforms in an expanding Internet infrastructure industry. For more information, visit www.inap.com.
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 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; 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 ContactsRichard Ramlall
Carolyn Capaccio/Jody Burfening