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 – (November 1, 2018) 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.”
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
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.
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.
- 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 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.
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.
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 ContactsRichard Ramall
Chief Communications Officer, INAP
Carolyn Capaccio & Jody Burfening