Interxion Reports Second Quarter 2018 Results

AMSTERDAM 2 August 2018 – InterXion Holding NV (NYSE:INXN, news), a leading European provider of carrier and cloud-neutral colocation data centre services, announced its results today for the three months ended 30 June 2018.

Financial Highlights

• Revenue increased 15% to €138.8 million (2Q 2017: €120.8 million).
• Net income decreased 94% to €0.6 million (2Q 2017: €9.7 million) and was impacted by €11.2 million (pre-tax) of one-off charges related to the recently completed refinancing.
• Adjusted EBITDA increased by 17% to €63.4 million (2Q 2017: €54.3 million).
• Adjusted EBITDA margin increased to 45.7% (2Q 2017: 45.0%).
• Adjusted net income decreased by 6% to €8.9 million (2Q 2017: €9.4 million), which includes higher share-based payment charges.
• Earnings per diluted share decreased by 94% to €0.01 (2Q 2017: €0.13) and was impacted by one-off charges related to the recently completed refinancing.
• Adjusted earnings per diluted share decreased by 6% to €0.12 (2Q 2017: €0.13).
• Capital expenditures, including intangible assets, were €120.5 million (2Q 2017: €56.4 million).
• Refinanced €875 million of secured debt with €1 billion in unsecured Senior Notes due 2025 and a new €200 million unsecured revolving credit facility.

Operating Highlights

• Equipped space increased by 3,700 square metres in the second quarter to 132,600 square metres.
• Revenue generating space increased by 2,100 square metres in the second quarter to 106,200 square metres.
• Utilisation rate at the end of the second quarter was 80%.
• During the second quarter, Interxion completed the following capacity additions:
  • 1,200 sqm expansion in Dublin;
  • 900 sqm data centre in Copenhagen;
  • 500 sqm expansion in Paris;
  • 400 sqm expansion in Vienna;
  • 400 sqm expansion in Marseille; and
  • 300 sqm expansion in Stockholm.

“Interxion continues to experience strong demand across markets and segments, driven by the digitisation of enterprise processes and consumer services,” said David Ruberg, Interxion’s Chief Executive Officer. “We are investing to expand capacity in our highly-connected data centres to meet the substantial demand that we are seeing from the major Cloud platforms and content providers and to grow the communities that are starting to form around them. Our recent refinancing provides us with the flexibility to maintain our strategic position and attractive returns profile.”

Quarterly Review

Revenue in the second quarter of 2018 was €138.8 million, a 15% increase over the second quarter of 2017 and a 4% increase over the first quarter of 2018. Recurring revenue was €131.7 million, a 16% increase over the second quarter of 2017 and a 4% increase over the first quarter of 2018. Recurring revenue in the second quarter represented 95% of total revenue. On a constant currency basis, revenue in the second quarter of 2018 was 16% higher than in the second quarter of 2017.

Cost of sales in the second quarter of 2018 was €53.7 million, a 12% increase over the second quarter of 2017 and a 2% increase over the first quarter of 2018.

Gross profit was €85.1 million in the second quarter of 2018, a 17% increase over the second quarter of 2017 and a 5% increase over the first quarter of 2018. Gross profit margin was 61.3% in the second quarter of 2018, compared with 60.3% in the second quarter of 2017 and 60.6% in the first quarter of 2018.

Sales and marketing costs in the second quarter of 2018 were €9.6 million, a 16% increase over the second quarter of 2017 and a 10% increase from the first quarter of 2018.

Other general and administrative costs (excluding depreciation and amortisation, share-based payments and M&A transaction costs) were €12.1 million in the second quarter of 2018, a 17% increase over the second quarter of 2017 and a 5% increase from the first quarter of 2018.

Depreciation and amortisation in the second quarter of 2018 was €32.2 million, an increase of 18% from the second quarter of 2017 and a 9% increase from the first quarter of 2018.

Operating income in the second quarter of 2018 was €26.3 million, an increase of 8% from the second quarter of 2017 and a 2% decrease from the first quarter of 2018.

Net finance expense in the second quarter of 2018 was €22.9 million. On 18 June 2018, Interxion completed a refinancing transaction, issuing €1,000.0 million of 4.75% Senior Notes due 2025 and entering into a €200.0 million unsecured multi-currency revolving credit facility. The proceeds of the notes issue were used to redeem the €625.0 million 6.00% Senior Secured Notes due 2020 and repay €250 million drawn under Interxion’s revolving credit facilities. Interxion recognized €11.2 million of one-time charges related to these transactions. Excluding the finance expense associated with the refinancing transactions, net finance expense in the second quarter was €11.7 million, an increase of 7% over the second quarter of 2017 and an increase of 3% over the first quarter of 2018.

Income tax expense for the second quarter of 2018 was €2.8 million, a 25% decrease compared with the second quarter of 2017 and a 27% decrease from the first quarter of 2018.

Net income was €0.6 million in the second quarter of 2018, a 94% decrease over the second quarter of 2017 and a 95% decrease from the first quarter of 2018, reflecting the impact of the finance expense relating to the refinancing transactions discussed above.

Adjusted net income was €8.9 million in the second quarter of 2018, a 6% decrease over the second quarter of 2017 and a 26% decrease from the first quarter of 2018.

Adjusted EBITDA for the second quarter of 2018 was €63.4 million, a 17% increase over the second quarter of 2017 and a 4% increase over the first quarter of 2018. Adjusted EBITDA margin was 45.7% in the second quarter of 2018, compared with 45.0% in the second quarter of 2017 and 45.5% in the first quarter of 2018.

Net cash flows from operating activities were €31.6 million in the second quarter of 2018, compared with €35.7 million in the second quarter of 2017 and €34.6 million in the first quarter of 2018.

Cash generated from operations5 was €55.1 million in the second quarter of 2018, compared with €40.6 million in the second quarter of 2017 and €58.1 million in the first quarter of 2018.

Capital expenditures, including intangible assets, were €120.5 million in the second quarter of 2018, compared with €56.4 million in the second quarter of 2017 and €96.2 million in the first quarter of 2018.

Cash and cash equivalents were €133.6 million at 30 June 2018, compared with €38.5 million at year end 2017.

Total borrowings, net of deferred financing fees, were €1,079.8 million at 30 June 2018, compared with €832.6 million at year end 2017.

Equipped space at the end of the second quarter of 2018 was 132,600 square metres, compared with 117,000 square metres at the end of the second quarter of 20176 and 128,900 square metres at the end of the first quarter of 2018. Revenue generating space at the end of the second quarter of 2018 was 106,200 square metres, compared with 95,000 square metres at the end of the second quarter of 2017 and 104,100 square metres at the end of the first quarter of 2018. Utilisation rate, the ratio of revenue-generating space to equipped space, was 80% at the end of the second quarter of 2018, compared with 81% at the end of the second quarter of 2017 and 81% at the end of the first quarter of 2018.

Business Outlook

Interxion today is reaffirming guidance for Revenue and Adjusted EBITDA and updating guidance for full year 2018 for Capital expenditures (including intangibles):

Revenue	€553 million – €569 million
Adjusted EBITDA	€250 million – €260 million
Capital expenditures (including intangibles)	€365 million – €390 million

Conference Call to Discuss Results

Interxion will host a conference call today at 8:30 a.m. EDT (1:30 p.m. BST, 2:30 p.m. CEST) to discuss the results.

To participate on this call, U.S. callers may dial toll free 1-866-966-1396; callers outside the U.S. may dial direct +44 (0) 2071 928 000. The conference ID for this call is INXN. This event also will be webcast live over the Internet in listen-only mode at investors.interxion.com.

A replay of this call will be available shortly after the call concludes and will be available until 18 August 2018. To access the replay, U.S. callers may dial toll free 1-866-331-1332; callers outside the U.S. may dial direct +44 (0) 3333-009-785. The replay access number is 3174258.

Forward-looking Statements

This communication contains forward-looking statements that involve risks and uncertainties. There can be no assurance that such statements will prove to be accurate and actual results and future events could differ materially from those anticipated in such forward-looking statements. Factors that could cause actual results and future events to differ materially from Interxion’s expectations include, but are not limited to, the difficulty of reducing operating expenses in the short term, the inability to utilise the capacity of newly planned data centres and data centre expansions, significant competition, the cost and supply of electrical power, data centre industry over-capacity, performance under service level agreements, delays in remediating the material weakness in internal control over financial reporting and/or making disclosure controls and procedure effective, certain other risks detailed herein and other risks described from time to time in Interxion’s filings with the United States Securities and Exchange Commission (the “SEC”).

Interxion does not assume any obligation to update the forward-looking information contained in this report.

Non-IFRS Financial Measures

Included in these materials are certain non-IFRS financial measures, which are measures of our financial performance that are not calculated and presented in accordance with IFRS, within the meaning of applicable SEC rules. These measures are as follows: (i) Adjusted EBITDA; (ii) Recurring revenue; (iii) Revenue on a constant currency basis; (iv) Adjusted net income; (v) Adjusted basic earnings per share; (vi) Adjusted diluted earnings per share and (vii) Cash generated from operations.

Other companies may present Adjusted EBITDA, Recurring revenue, Revenue on a constant currency basis, Adjusted net income, Adjusted basic earnings per share, Adjusted diluted earnings per share and Cash generated from operations differently than we do. Each of these measures are not measures of financial performance under IFRS and should not be considered as an alternative to operating income or as a measure of liquidity or an alternative to Profit for the period attributable to shareholders (“net income”) as indicators of our operating performance or any other measure of performance implemented in accordance with IFRS.

Adjusted EBITDA, Recurring revenue and Revenue on a constant currency basis

We define Adjusted EBITDA as Operating income adjusted for the following items, which may occur in any period, and which management believes are not representative of our operating performance:

• Depreciation and amortisation – property, plant and equipment and intangible assets (except goodwill) are depreciated on a straight-line basis over the estimated useful life. We believe that these costs do not represent our operating performance.
• Share-based payments – represents primarily the fair value at the date of grant of employee equity awards, which is recognised as an expense over the vesting period. In certain cases, the fair value is redetermined for market conditions at each reporting date, until the final date of grant is achieved. We believe that this expense does not represent our operating performance.
• Income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”) – under IFRS, gains and losses associated with M&A activity are recognised in the period in which such gains or losses are incurred. We exclude these effects because we believe they are not reflective of our ongoing operating performance.
• Adjustments related to terminated and unused data centre sites – these gains and losses relate to historical leases entered into for certain brownfield sites, with the intention of developing data centres, which were never developed and for which management has no intention of developing into data centres. We believe the impact of gains and losses related to unused data centres are not reflective of our business activities and our ongoing operating performance.

In certain circumstances, we may also adjust for other items that management believes are not representative of our current ongoing performance. Examples include: adjustments for the cumulative effect of a change in accounting principle or estimate, impairment losses, litigation gains and losses or windfall gains and losses.

We define Recurring revenue as revenue incurred from colocation and associated power charges, office space, amortised set-up fees, cross-connects and certain recurring managed services (but excluding any ad hoc managed services) provided by us directly or through third parties, excluding rents received for the sublease of unused sites.

We believe Adjusted EBITDA and Recurring revenue provide useful supplemental information to investors regarding our ongoing operational performance. These measures help us and our investors evaluate the ongoing operating performance of the business after removing the impact of our capital structure (primarily interest expense) and our asset base (primarily depreciation and amortisation). Management believes that the presentation of Adjusted EBITDA, when combined with the primary IFRS presentation of net income, provides a more complete analysis of our operating performance. Management also believes the use of Adjusted EBITDA facilitates comparisons between us and other data centre operators (including other data centre operators that are REITs) and other infrastructure-based businesses. Adjusted EBITDA is also a relevant measure used in the financial covenants of our revolving credit facility and our 4.75% Senior Notes due 2025.

A reconciliation from net income to Adjusted EBITDA is provided in the tables attached to this press release. Adjusted EBITDA and other key performance indicators may not be indicative of our historical results of operations, nor are they meant to be predictive of future results.

We present constant currency information for revenue to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than Euro are converted into Euro using the average exchange rates from the prior period rather than the actual exchange rates in effect during the current period.

We believe that revenue growth is a key indicator of how a company is progressing from period to period and presenting constant currency information for revenue provides useful supplemental information to investors regarding our ongoing operational performance because it helps us and our investors evaluate the ongoing operating performance of the business after removing the impact of acquisitions and currency exchange rates.

Adjusted net income, Adjusted basic earnings per share and Adjusted diluted earnings per share

We define Adjusted net income as net income adjusted for the following items and the related income tax effect, which may occur in any period, and which management believes are not reflective of our operating performance:

• • Income or expense related to the evaluation and execution of potential mergers or acquisitions (“M&A”) – under IFRS, gains and losses associated with M&A activity are recognised in the period in which such gains or losses are incurred. We exclude these effects because we believe they are not reflective of our ongoing operating performance.
  • Adjustments related to provisions – these adjustments are made for adjustments in provisions that are not reflective of the ongoing operating performance of Interxion. These adjustments may include changes in provisions for onerous lease contracts.
  • Adjustments related to capitalised interest – under IFRS, we are required to calculate and capitalise interest allocated to the investment in data centres and exclude it from net income. We believe that reversing the impact of capitalised interest provides information about the impact of the total interest costs and facilitates comparisons with other data centre operators.

In certain circumstances, we may also adjust for items that management believes are not representative of our current ongoing performance. Examples include: adjustments for the cumulative effect of a change in accounting principle or estimate, impairment losses, costs related to refinancing, litigation gains and losses or windfall gains and losses.

Management believe that the exclusion of certain items listed above provides useful supplemental information to net income to aid investors in evaluating the operating performance of our business and comparing our operating performance with other data centre operators and infrastructure companies. We believe the presentation of Adjusted net income, when combined with net income prepared in accordance with IFRS, is beneficial to a complete understanding of our performance. A reconciliation from reported net income to Adjusted net income is provided in the tables attached to this press release.

Adjusted basic earnings per share and Adjusted diluted earnings per share amounts are determined on Adjusted net income.

Cash generated from operations

Cash generated from operations is defined as net cash flows from operating activities, excluding interest and corporate income tax payments and receipts. Management believe that the exclusion of these items provides useful supplemental information to net cash flows from operating activities to aid investors in evaluating the cash generating performance of our business.

Management’s outlook for 2018 included in this press release includes a range for expected Adjusted EBITDA, a non-IFRS financial measure, which excludes items that management believes are not representative of our operating performance. These items include, but are not limited to, depreciation and amortisation, share-based payments, income or expense related to the evaluation and execution of potential mergers or acquisitions, adjustments related to terminated and unused data centre sites, and other significant items that currently cannot be predicted. The exact amount of these items is not currently determinable but may be significant. Accordingly, the company is unable to provide equivalent reconciliations from the corresponding forward-looking IFRS measures to expected Adjusted EBITDA.